BlackRock Advantage Global Fund, Inc. BlackRock Allocation Target Shares BATS: Series C Portfolio BATS: Series S Portfolio BlackRock Asian Dragon Fund, Inc. BlackRock Balanced Capital Fund, Inc. BlackRock Basic Value Fund, Inc. BlackRock Bond Fund, Inc. BlackRock Total Return Fund BlackRock Emerging Markets Fund, Inc. BlackRock Equity Dividend Fund BlackRock EuroFund BlackRock Funds SM BlackRock Advantage Emerging Markets Fund BlackRock Advantage International Fund BlackRock Commodity Strategies Fund BlackRock Energy Opportunities Fund BlackRock Global Impact Fund BlackRock Global Long/Short Equity Fund BlackRock Health Sciences Opportunities Portfolio BlackRock High Equity Income Fund BlackRock International Dividend Fund BlackRock International Impact Fund BlackRock Tactical Opportunities Fund BlackRock Technology Opportunities Fund BlackRock Total Emerging Markets Fund BlackRock Total Factor Fund BlackRock U.S. Impact Fund iShares Developed Real Estate Index Fund iShares Edge MSCI Min Vol EAFE Index Fund iShares Edge MSCI Multifactor Intl Index Fund BlackRock Funds II BlackRock 20/80 Target Allocation Fund BlackRock 40/60 Target Allocation Fund BlackRock 60/40 Target Allocation Fund BlackRock 80/20 Target Allocation Fund BlackRock Dynamic High Income Portfolio BlackRock Global Dividend Portfolio BlackRock LifePath ® Smart Beta Retirement Fund BlackRock LifePath ® Smart Beta 2025 Fund BlackRock LifePath ® Smart Beta 2030 Fund BlackRock LifePath ® Smart Beta 2035 Fund BlackRock LifePath ® Smart Beta 2040 Fund BlackRock LifePath ® Smart Beta 2045 Fund BlackRock LifePath ® Smart Beta 2050 Fund BlackRock LifePath ® Smart Beta 2055 Fund BlackRock LifePath ® Smart Beta 2060 Fund BlackRock LifePath ® Smart Beta 2065 Fund BlackRock Managed Income Fund BlackRock Multi-Asset Income Portfolio BlackRock Funds III BlackRock LifePath ® Dynamic Retirement Fund BlackRock LifePath ® Dynamic 2025 Fund BlackRock LifePath ® Dynamic 2030 Fund BlackRock LifePath ® Dynamic 2035 Fund BlackRock LifePath ® Dynamic 2040 Fund BlackRock LifePath ® Dynamic 2045 Fund BlackRock LifePath ® Dynamic 2050 Fund BlackRock LifePath ® Dynamic 2055 Fund BlackRock LifePath ® Dynamic 2060 Fund BlackRock LifePath ® Dynamic 2065 Fund BlackRock LifePath ® Index Retirement Fund BlackRock LifePath ® Index 2025 Fund BlackRock LifePath ® Index 2030 Fund BlackRock LifePath ® Index 2035 Fund BlackRock LifePath ® Index 2040 Fund BlackRock LifePath ® Index 2045 Fund BlackRock LifePath ® Index 2050 Fund BlackRock LifePath ® Index 2055 Fund BlackRock LifePath ® Index 2060 Fund BlackRock LifePath ® Index 2065 Fund iShares MSCI Total International Index Fund BlackRock Funds IV BlackRock Global Long/Short Credit Fund BlackRock Systematic ESG Bond Fund BlackRock Systematic Multi-Strategy Fund BlackRock Funds V BlackRock Core Bond Portfolio BlackRock Emerging Markets Bond Fund BlackRock Emerging Markets Flexible Dynamic Bond Portfolio BlackRock Floating Rate Income Portfolio BlackRock High Yield Bond Portfolio BlackRock Income Fund BlackRock Inflation Protected Bond Portfolio BlackRock Low Duration Bond Portfolio BlackRock Strategic Income Opportunities Portfolio BlackRock U.S. Government Bond Portfolio BlackRock Funds VI BlackRock CoreAlpha Bond Fund
Transcript
BlackRock Advantage Global Fund, Inc.
BlackRock Allocation Target SharesBATS: Series C PortfolioBATS: Series S Portfolio
BlackRock Asian Dragon Fund, Inc.
BlackRock Balanced Capital Fund, Inc.
BlackRock Basic Value Fund, Inc.
BlackRock Bond Fund, Inc.BlackRock Total Return Fund
BlackRock Emerging Markets Fund, Inc.
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock FundsSM
BlackRock Advantage Emerging Markets FundBlackRock Advantage International FundBlackRock Commodity Strategies FundBlackRock Energy Opportunities FundBlackRock Global Impact FundBlackRock Global Long/Short Equity FundBlackRock Health Sciences OpportunitiesPortfolioBlackRock High Equity Income FundBlackRock International Dividend FundBlackRock International Impact FundBlackRock Tactical Opportunities FundBlackRock Technology Opportunities FundBlackRock Total Emerging Markets FundBlackRock Total Factor FundBlackRock U.S. Impact FundiShares Developed Real Estate Index FundiShares Edge MSCI Min Vol EAFE Index FundiShares Edge MSCI Multifactor Intl Index Fund
BlackRock Funds IIIBlackRock LifePath® Dynamic RetirementFundBlackRock LifePath® Dynamic 2025 FundBlackRock LifePath® Dynamic 2030 FundBlackRock LifePath® Dynamic 2035 FundBlackRock LifePath® Dynamic 2040 FundBlackRock LifePath® Dynamic 2045 FundBlackRock LifePath® Dynamic 2050 FundBlackRock LifePath® Dynamic 2055 FundBlackRock LifePath® Dynamic 2060 FundBlackRock LifePath® Dynamic 2065 FundBlackRock LifePath® Index Retirement FundBlackRock LifePath® Index 2025 FundBlackRock LifePath® Index 2030 FundBlackRock LifePath® Index 2035 FundBlackRock LifePath® Index 2040 FundBlackRock LifePath® Index 2045 FundBlackRock LifePath® Index 2050 FundBlackRock LifePath® Index 2055 FundBlackRock LifePath® Index 2060 FundBlackRock LifePath® Index 2065 FundiShares MSCI Total International Index Fund
BlackRock Funds IVBlackRock Global Long/Short Credit FundBlackRock Systematic ESG Bond FundBlackRock Systematic Multi-Strategy Fund
BlackRock Funds VBlackRock Core Bond PortfolioBlackRock Emerging Markets Bond FundBlackRock Emerging Markets FlexibleDynamic Bond PortfolioBlackRock Floating Rate Income PortfolioBlackRock High Yield Bond PortfolioBlackRock Income FundBlackRock Inflation Protected Bond PortfolioBlackRock Low Duration Bond PortfolioBlackRock Strategic Income OpportunitiesPortfolioBlackRock U.S. Government Bond Portfolio
BlackRock Funds VIBlackRock CoreAlpha Bond Fund
BlackRock Global Allocation Fund, Inc.
BlackRock Index Funds, Inc.iShares MSCI EAFE International Index Fund
BlackRock Large Cap Focus Growth Fund, Inc.
BlackRock Large Cap Series Funds, Inc.BlackRock Event Driven Equity Fund
BlackRock Latin America Fund, Inc.
BlackRock Long-Horizon Equity Fund
BlackRock Mid Cap Dividend Series, Inc.BlackRock Mid Cap Dividend Fund
BlackRock Natural Resources Trust
BlackRock Series Fund, Inc.BlackRock Balanced Capital PortfolioBlackRock Global Allocation Portfolio
BlackRock Series Fund II, Inc.BlackRock High Yield PortfolioBlackRock U.S. Government Bond Portfolio
BlackRock Series, Inc.BlackRock International Fund
BlackRock Strategic Global Bond Fund, Inc.
BlackRock Variable Series Funds, Inc.BlackRock 60/40 Target Allocation ETF V.I.FundBlackRock Basic Value V.I. FundBlackRock Equity Dividend V.I. FundBlackRock Global Allocation V.I. FundBlackRock International Index V.I. FundBlackRock International V.I. FundBlackRock Large Cap Focus Growth V.I. FundBlackRock Managed Volatility V.I. Fund
BlackRock Variable Series Funds II, Inc.BlackRock High Yield V.I. FundBlackRock Total Return V.I. FundBlackRock U.S. Government Bond V.I. Fund
Managed Account SeriesBlackRock GA Disciplined Volatility EquityFundBlackRock GA Dynamic Equity Fund
(each, a “Fund” and collectively, the “Funds”)
Supplement dated June 8, 2020 to the Summary Prospectus(es), as applicable, and Prospectus(es) of eachFund
Effective immediately, the Summary Prospectus(es), as applicable, and Prospectus(es) of each Fund areamended as follows:
The following is added to the risk factor entitled “Foreign Securities Risk” in the section of each Fund’sSummary Prospectus(es), as applicable, entitled “Key Facts About [the Fund] — Principal Risks ofInvesting in the Fund” or “Key Facts About [the Fund] — Principal Risks of Investing in the Fund, theUnderlying Funds and/or the ETFs” and the section of each Fund’s Prospectus(es) entitled “FundOverview — Key Facts About [the Fund] — Principal Risks of Investing in the Fund” or “Fund Overview— Key Facts About [the Fund] — Principal Risks of Investing in the Fund, the Underlying Funds and/orthe ETFs,” as applicable:
• The Fund’s claims to recover foreign withholding taxes may not be successful, and if the likelihood ofrecovery of foreign withholding taxes materially decreases, due to, for example, a change in taxregulation or approach in the foreign country, accruals in the Fund’s net asset value for such refundsmay be written down partially or in full, which will adversely affect the Fund’s net asset value.
The following is added to the risk factor entitled “Foreign Securities Risk” in the section of each Fund’sProspectus(es) entitled “Details About the Fund[s] — Investment Risks — Principal Risks of Investing inthe Fund[s],” “Details About the Fund[s] — Investment Risks — Principal Risks of Investing in theUnderlying ETFs,” “Details About the Fund[s] — Investment Risks — Principal Risks of Investing in the
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Funds and the Underlying Funds,” “Details About the Fund[s] — Investment Risks — Principal Risks ofInvesting in the Fund, the Underlying Funds and/or the ETFs,” or “Details About the Fund[s] — AFurther Discussion of Risk Factors — Principal Risks of the Underlying Funds,” as applicable:
Withholding Tax Reclaims Risk. The Fund may file claims to recover foreign withholding taxes on dividend andinterest income (if any) received from issuers in certain countries and capital gains on the disposition of stocks orsecurities where such withholding tax reclaim is possible. Whether or when the Fund will receive a withholdingtax refund is within the control of the tax authorities in such countries. Where the Fund expects to recoverwithholding taxes, the net asset value of the Fund generally includes accruals for such tax refunds. The Fundregularly evaluates the probability of recovery. If the likelihood of recovery materially decreases, due to, forexample, a change in tax regulation or approach in the foreign country, accruals in the Fund’s net asset value forsuch refunds may be written down partially or in full, which will adversely affect the Fund’s net asset value.Shareholders in the Fund at the time an accrual is written down will bear the impact of the resulting reduction innet asset value regardless of whether they were shareholders during the accrual period. Conversely, if the Fundreceives a tax refund that has not been previously accrued, shareholders in the Fund at the time of the successfulrecovery will benefit from the resulting increase in the Fund’s net asset value. Shareholders who sold their sharesprior to such time will not benefit from such increase in the Fund’s net asset value.
Shareholders should retain this Supplement for future reference.
ALLPRO-TAX-0620SUP
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BLACKROCK FUNDS IIBlackRock LifePath® Smart Beta Retirement Fund
Supplement dated June 2, 2020 to the Summary Prospectuses,Prospectuses and Statement of Additional Information of the Funds,
each dated February 28, 2020
On May 13, 2020, the Board of Trustees of BlackRock Funds II (the “Trust”), on behalf of its series, BlackRockLifePath® Smart Beta Retirement Fund, BlackRock LifePath® Smart Beta 2025 Fund, BlackRock LifePath®
Smart Beta 2030 Fund, BlackRock LifePath® Smart Beta 2035 Fund, BlackRock LifePath® Smart Beta 2040Fund, BlackRock LifePath® Smart Beta 2045 Fund, BlackRock LifePath® Smart Beta 2050 Fund, BlackRockLifePath® Smart Beta 2055 Fund, BlackRock LifePath® Smart Beta 2060 Fund and BlackRock LifePath® SmartBeta 2065 Fund (each, a “Fund”), approved a proposal to close each Fund to new and subsequent investmentsand thereafter to liquidate each Fund. Accordingly, effective 4:00 p.m. (Eastern time) on August 31, 2020, theFunds will no longer accept orders from new investors or existing shareholders to purchase Fund shares. On orabout September 2, 2020 (the “Liquidation Date”), all of the assets of each Fund will have been liquidatedcompletely, the shares of any shareholders holding shares on the Liquidation Date will be redeemed at the netasset value per share and each Fund will then be terminated as a series of the Trust. Shareholders may redeemtheir Fund shares or exchange their shares into shares of another mutual fund advised by BlackRock Advisors,LLC or its affiliates at any time prior to the Liquidation Date. In preparation for the liquidation, a Fund maydeviate from its investment objective and principal investment strategies.
Shareholders should consult their personal tax advisers concerning their tax situation and the impact of theliquidation and/or exchanging to a different fund on their tax situation.
Shareholders should retain this Supplement for future reference.
PR2SAI-LPSB-0620SUP
BlackRock Advantage U.S. Total Market Fund,Inc.
BlackRock Allocation Target SharesBATS: Series A PortfolioBATS: Series C PortfolioBATS: Series E PortfolioBATS: Series M PortfolioBATS: Series P PortfolioBATS: Series S Portfolio
BlackRock Asian Dragon Fund, Inc.
BlackRock Balanced Capital Fund, Inc.
BlackRock Basic Value Fund, Inc.
BlackRock Bond Fund, Inc.BlackRock Total Return Fund
BlackRock California Municipal Series TrustBlackRock California Municipal OpportunitiesFund
BlackRock Capital Appreciation Fund, Inc.
BlackRock Emerging Markets Fund, Inc.
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Financial Institutions Series TrustBlackRock Summit Cash Reserves Fund
BlackRock FundsSM
BlackRock Commodity Strategies FundBlackRock Emerging Markets Equity StrategiesFundBlackRock Energy Opportunities FundBlackRock Exchange PortfolioBlackRock Health Sciences OpportunitiesPortfolioBlackRock High Equity Income FundBlackRock International Dividend FundBlackRock Liquid Environmentally Aware FundBlackRock Mid-Cap Growth Equity PortfolioBlackRock Money Market PortfolioBlackRock Real Estate Securities FundBlackRock Short Obligations FundBlackRock Tactical Opportunities FundBlackRock Technology Opportunities FundBlackRock Total Factor FundiShares Developed Real Estate Index Fund
iShares Edge MSCI Min Vol EAFE Index FundiShares Edge MSCI Min Vol USA Index FundiShares Edge MSCI Multifactor Intl Index FundiShares Edge MSCI Multifactor USA IndexFundiShares Municipal Bond Index FundiShares Russell Mid-Cap Index FundiShares Russell Small/Mid-Cap Index FundiShares Short-Term TIPS Bond Index FundiShares Total U.S. Stock Market Index Fund
BlackRock Funds IIIBlackRock Cash Funds: InstitutionalBlackRock Cash Funds: TreasuryBlackRock LifePath® Dynamic RetirementFundBlackRock LifePath® Dynamic 2025 FundBlackRock LifePath® Dynamic 2030 FundBlackRock LifePath® Dynamic 2035 FundBlackRock LifePath® Dynamic 2040 FundBlackRock LifePath® Dynamic 2045 FundBlackRock LifePath® Dynamic 2050 FundBlackRock LifePath® Dynamic 2055 FundBlackRock LifePath® Dynamic 2060 FundBlackRock LifePath® Dynamic 2065 FundBlackRock LifePath® Index Retirement FundBlackRock LifePath® Index 2025 FundBlackRock LifePath® Index 2030 FundBlackRock LifePath® Index 2035 FundBlackRock LifePath® Index 2040 FundBlackRock LifePath® Index 2045 FundBlackRock LifePath® Index 2050 FundBlackRock LifePath® Index 2055 Fund
BlackRock LifePath® Index 2060 FundBlackRock LifePath® Index 2065 FundiShares MSCI Total International Index FundiShares Russell 1000 Large-Cap Index FundiShares S&P 500 Index FundiShares U.S. Aggregate Bond Index Fund
BlackRock Funds IVBlackRock Global Long/Short Credit Fund
BlackRock Funds VBlackRock Core Bond PortfolioBlackRock Credit Strategies Income FundBlackRock Emerging Markets Bond FundBlackRock Emerging Markets FlexibleDynamic Bond PortfolioBlackRock Floating Rate Income PortfolioBlackRock GNMA PortfolioBlackRock High Yield Bond PortfolioBlackRock Inflation Protected Bond PortfolioBlackRock Low Duration Bond PortfolioBlackRock Strategic Income OpportunitiesPortfolioBlackRock U.S. Government Bond Portfolio
BlackRock Global Allocation Fund, Inc.
BlackRock Index Funds, Inc.iShares MSCI EAFE International Index FundiShares Russell 2000 Small-Cap Index Fund
BlackRock Large Cap Focus Growth Fund, Inc.
BlackRock Large Cap Series Funds, Inc.BlackRock Event Driven Equity Fund
BlackRock Latin America Fund, Inc.
BlackRock Liquidity FundsCalifornia Money FundFederal Trust FundFedFundMuniCashMuniFundNew York Money FundTempCashTempFundT-FundTreasury Trust Fund
BlackRock Long-Horizon Equity Fund
BlackRock Mid Cap Dividend Series, Inc.BlackRock Mid Cap Dividend Fund
BlackRock Multi-State Municipal Series TrustBlackRock New Jersey Municipal Bond FundBlackRock New York Municipal OpportunitiesFundBlackRock Pennsylvania Municipal Bond Fund
BlackRock Municipal Bond Fund, Inc.BlackRock High Yield Municipal FundBlackRock National Municipal FundBlackRock Short-Term Municipal Fund
BlackRock Municipal Series TrustBlackRock Strategic Municipal OpportunitiesFund
BlackRock Natural Resources Trust
BlackRock Series Fund, Inc.BlackRock Advantage Large Cap Core PortfolioBlackRock Balanced Capital PortfolioBlackRock Capital Appreciation PortfolioBlackRock Global Allocation PortfolioBlackRock Government Money MarketPortfolio
BlackRock Series Fund II, Inc.BlackRock High Yield PortfolioBlackRock U.S. Government Bond Portfolio
BlackRock Series, Inc.BlackRock International Fund
BlackRock Strategic Global Bond Fund, Inc.
BlackRock Variable Series Funds, Inc.BlackRock 60/40 Target Allocation ETF V.I.FundBlackRock Advantage Large Cap Core V.I.FundBlackRock Advantage Large Cap Value V.I.FundBlackRock Advantage U.S. Total Market V.I.FundBlackRock Basic Value V.I. FundBlackRock Capital Appreciation V.I. FundBlackRock Equity Dividend V.I. Fund
BlackRock Global Allocation V.I. FundBlackRock Government Money Market V.I. FundBlackRock International Index V.I. FundBlackRock International V.I. FundBlackRock Large Cap Focus Growth V.I. FundBlackRock Managed Volatility V.I. FundBlackRock S&P 500 Index V.I. FundBlackRock Small Cap Index V.I. Fund
BlackRock Variable Series Funds II, Inc.BlackRock High Yield V.I. FundBlackRock Total Return V.I. FundBlackRock U.S. Government Bond V.I. Fund
Funds For Institutions SeriesBlackRock Premier Government InstitutionalFundBlackRock Select Treasury StrategiesInstitutional Fund
BlackRock Treasury Strategies InstitutionalFundFFI Government FundFFI Treasury Fund
Managed Account SeriesBlackRock GA Disciplined Volatility EquityFundBlackRock GA Dynamic Equity Fund
Managed Account Series IIBlackRock U.S. Mortgage Portfolio
Ready Assets Government Liquidity Fund
Retirement Series TrustRetirement Reserves Money Fund
(each, a “Fund” and collectively, the “Funds”)
Supplement dated March 10, 2020 to the Summary Prospectus(es) and Prospectus(es) of each Fund
The section of each Fund’s Summary Prospectus(es) entitled “Key Facts About [the Fund] — PrincipalRisks of Investing in the Fund,” the section of each Fund’s Prospectus(es) entitled “Fund Overview — KeyFacts About [the Fund] — Principal Risks of Investing in the Fund” and the section of each Fund’sProspectus(es) entitled “Details About the Fund[s] — Investment Risks — Principal Risks of Investing inthe Fund” or “Details About the Fund — Investment Risks — Other Principal Risks of Investing in theFund and/or an Underlying ETF” are amended to delete “Market Risk and Selection Risk” or “MarketRisk”, as applicable, in its entirety and to replace it with the following:
• Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fundinvests will go down in value, including the possibility that the markets will go down sharply andunpredictably. The value of a security or other asset may decline due to changes in general marketconditions, economic trends or events that are not specifically related to the issuer of the security orother asset, or factors that affect a particular issuer or issuers, exchange, country, group of countries,region, market, industry, group of industries, sector or asset class. Local, regional or global events suchas war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, orother events could have a significant impact on the Fund and its investments. Selection risk is the riskthat the securities selected by Fund management will underperform the markets, the relevant indices orthe securities selected by other funds with similar investment objectives and investment strategies. Thismeans you may lose money.
Shareholders should retain this Supplement for future reference.
PR2-CORONA2-0320SUP
FEBRUARY 28, 2020
Prospectus
BlackRock LifePath® Smart Beta Funds of BlackRock Funds II | Class K Shares
For More Information Fund and Service Providers . . . . . . . . . . . . . . . . . . . . . .Inside Back CoverAdditional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Back Cover
Fund Overview
Key Facts About BlackRock LifePath®Smart Beta Retirement Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta Retirement Fund (the “LifePath Smart Beta RetirementFund” or the “Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes basedon quantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.22%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $23 $288 $574 $1,389
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 82% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
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The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternativelyweighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors who are currently withdrawing, or plan in the near future to begin withdrawing, asubstantial portion of their investment. The Fund seeks to provide for retirement outcomes based on quantitativelymeasured risk. BlackRock employs a multidimensional approach to assess risk for the Fund and to determine theFund’s allocation across asset classes. As part of this multidimensional approach, BlackRock aims to quantify riskusing proprietary risk measurement tools that, among other things, analyze historical and forward-looking securitiesmarket data, including risk, asset class correlations, and expected returns. In pursuit of its investment objective, theFund will be broadly diversified across global asset classes, and will generally seek to maintain an asset allocation ofapproximately 40% in underlying funds that invest in equity and 60% in underlying funds that invest in fixed income,although the allocation may shift over time depending on market conditions. Certain underlying funds may invest in realestate investment trusts (“REITs”), foreign securities, emerging market securities, below investment-grade bonds andderivative securities or instruments, such as options and futures, the value of which is derived from another security, acommodity, a currency or an index.
Although the Fund will generally seek to maintain an asset allocation of approximately 40% in underlying funds thatinvest in equity and 60% in underlying funds that invest in fixed income, BlackRock may periodically adjust theproportion of equity funds and fixed income funds in the Fund based on an assessment of the current marketconditions, the potential contribution of each asset class to the expected risk and return characteristics of the Fundand other factors. In addition, BlackRock may determine that, in connection with the Fund’s investment in certain ofthe factor-based underlying funds, adjustments to the equity or fixed income allocations in excess of such assetallocation target percentages may be appropriate to better align the risk characteristics of the Fund with the glide path.In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRock maydetermine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
Factors such as fund classifications, historical risk and performance, and the relationship to other underlying funds inthe Fund are considered when selecting underlying funds. The specific underlying funds selected for the Fund aredetermined at BlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investmentobjective. See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity orfixed income funds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages based on the multi-asset fund’s underlying investments in equity and fixed income instruments.
Because the Fund is in its most conservative phase, its allocation generally does not become more conservative overtime, although its allocation may change to maintain the Fund’s risk profile.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
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Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a largescale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavyredemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and couldhurt the Fund’s performance.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and direct
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investments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Underthe Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collectmargin from the Fund with respect to such derivatives. Specifically, regulations are now in effect that require swapdealers to post and collect variation margin (comprised of specified liquid instruments and subject to a requiredhaircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares of investment companies(other than certain money market funds) may not be posted as collateral under these regulations. Requirements forposting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulationsadopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certainof their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay orrestrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exerciseother default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates aresubject to certain types of resolution or insolvency proceedings. The implementation of these requirements withrespect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading andmargining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as aresult, may affect returns to investors in the Fund.
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■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in othersecurities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholders ofhigher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperform
in comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securities thatthey evidence or into which they may be converted. In addition to investment risks associated with the underlyingissuer, depositary receipts expose the Fund to additional risks associated with the non-uniform terms that apply todepositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whomthe depository bank establishes the programs, currency risk and the risk of an illiquid market for depositaryreceipts. The issuers of unsponsored depositary receipts are not obligated to disclose information that is, in theUnited States, considered material. Therefore, there may be less information available regarding these issuers andthere may not be a correlation between such information and the market value of the depositary receipts.
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■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Income Risk — Income risk is the risk that the Fund’s yield will vary as short-term securities in its portfolio matureand the proceeds are reinvested in securities with different interest rates.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it is subjectto the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
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■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement defaults on its obligation under theagreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. Ifthe seller fails to repurchase the security and the market value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlike
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shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued bycertain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S.Government or supported by the full faith and credit of the United States.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between December 31, 2014 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active Retirement Fund.” The Fund’s total returns between November 27, 2012
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and December 30, 2014 as reflected in the bar chart and the table are the returns of the Fund when it followed adifferent investment objective and different investment strategies under the name “LifePath Active 2015 Portfolio.” TheFund’s total returns prior to November 27, 2012 as reflected in the bar chart and the table are the returns of the Fundwhen it followed a different glide path under the name “BlackRock Prepared Portfolio 2015.” The returns for Class KShares prior to November 27, 2012 are the returns of the predecessor class.
The table compares the Fund’s performance to that of the Bloomberg Barclays U.S. Aggregate Bond Index and theLifePath®Smart Beta Retirement Fund Custom Benchmark. The LifePath®Smart Beta Retirement Fund CustomBenchmark is a customized weighted index comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWIex USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and BloombergBarclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L). Fund management modified thecomposition of the LifePath® Smart Beta Retirement Fund Custom Benchmark to reflect the Fund’s current investmentstrategies. The LifePath®Smart Beta Retirement Fund Custom Benchmark reflects the investment advisor’s change ofthe component indices’ weightings over time, which are adjusted periodically with its evaluation and adjustment of theFund’s asset allocation strategy. The LifePath®Smart Beta Retirement Fund Custom Benchmark is not recalculated orrestated when it is adjusted to reflect the Fund’s asset allocation strategy but rather reflects the LifePath®Smart BetaRetirement Fund Custom Benchmark’s actual allocation over time, which may be different than the current allocation.To the extent that dividends and distributions have been paid by the Fund, the performance information for the Fund inthe chart and table assumes reinvestment of the dividends and distributions. As with all such investments, pastperformance (before and after taxes) is not an indication of future results. The table includes all applicable fees. If theFund’s investment manager and its affiliates had not waived or reimbursed certain Fund expenses during theseperiods, the Fund’s returns would have been lower. Updated information on the Fund’s performance, including itscurrent net asset value, can be obtained by visiting http://www.blackrock.com or can be obtained by phone at800-882-0052.
Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta Retirement FundAs of 12/31
-10%
0%
10%
20%
2018201720142013201220112010
13.40% 12.94%10.87% 11.60%
17.01%
-4.46%
20162015
0.48%
4.67%6.32%
-1.60%
2019
During the ten-year period shown in the bar chart, the highest return for a quarter was 8.27% (quarter endedSeptember 30, 2010) and the lowest return for a quarter was –9.13% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 Years
BlackRock LifePath®Smart Beta Retirement Fund — Class K SharesReturn Before Taxes 17.01% 5.47% 6.90%Return After Taxes on Distributions 15.82% 3.91% 5.23%Return After Taxes on Distributions and Sale of Shares 10.45% 3.73% 4.96%
Bloomberg Barclays U.S. Aggregate Bond Index (Reflects no deduction for fees, expensesor taxes) 8.72% 3.05% 3.75%
LifePath®Smart Beta Retirement Fund Custom Benchmark1 (Reflects no deduction forfees, expenses or taxes) 16.06% 5.43% 6.52%
1 The LifePath®Smart Beta Retirement Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta Retirement Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USAIMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2025 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2025 Fund (the “LifePath Smart Beta 2025 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.22%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $23 $253 $503 $1,218
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 77% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2025. The Fundseeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities or instruments,such as options and futures, the value of which is derived from another security, a commodity, a currency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2025 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
25 95% 5%
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund. Theequity allocation may be further diversified by style factors (including both value and growth funds), market capitalization(including large cap, mid cap, small cap and emerging growth funds), region (including domestic and international(including emerging market) funds), or other factors. The fixed income allocation may be further diversified by sector(including government, corporate, agency, and other sectors), duration (a calculation of the average life of a bond whichmeasures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographic location(including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund, certainunderlying funds may concentrate their investments in specific sectors or geographic regions or countries. The percentageallocation to the various styles of equity and fixed income are determined at the discretion of the investment team andcan be changed to reflect the current market environment. Investments in underlying funds will be allocated towards theequity and fixed income percentages based on their classification. The Fund may also seek asset allocation to equity andfixed income by investing in funds that invest in a mix of equity and fixed income instruments (“multi-asset funds”).Investments in multi-asset funds will be allocated towards the equity and fixed income percentages listed for the glidepath based on the multi-asset fund’s underlying investments in equity and fixed income instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in the
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Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a largescale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavyredemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and couldhurt the Fund’s performance.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
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■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Underthe Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collectmargin from the Fund with respect to such derivatives. Specifically, regulations are now in effect that require swapdealers to post and collect variation margin (comprised of specified liquid instruments and subject to a requiredhaircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares of investment companies(other than certain money market funds) may not be posted as collateral under these regulations. Requirements forposting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulationsadopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certainof their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay orrestrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exerciseother default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates aresubject to certain types of resolution or insolvency proceedings. The implementation of these requirements withrespect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading andmargining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as aresult, may affect returns to investors in the Fund.
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■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in othersecurities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholders ofhigher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for
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depositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Income Risk — Income risk is the risk that the Fund’s yield will vary as short-term securities in its portfolio matureand the proceeds are reinvested in securities with different interest rates.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
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■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement defaults on its obligation under theagreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. Ifthe seller fails to repurchase the security and the market value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the most
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recent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued bycertain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S.Government or supported by the full faith and credit of the United States.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
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Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2025 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2025.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath® Smart Beta 2025Fund Custom Benchmark. The LifePath®Smart Beta 2025 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2025 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath® Smart Beta 2025Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath® Smart Beta 2025 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath® Smart Beta 2025 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2025 FundAs of 12/31
-10%
0%
10%
20%
2018201720142013201220112010
13.67%
-0.40%
2016
7.17%
13.65%15.70% 15.88%
18.78%
-5.70%
5.04%
2015
-1.80%
2019
During the ten-year period shown in the bar chart, the highest return for a quarter was 9.29% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –11.05% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2025 Fund — Class K SharesReturn Before Taxes 18.78% 6.44% 7.88%Return After Taxes on DistributionsReturn After Taxes on Distributions and Sale of Shares
16.27%12.31%
4.54%4.51%
6.11%5.81%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2025 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 19.02% 6.48% 7.70%
1 The LifePath®Smart Beta 2025 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta 2025 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2030 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2030 Fund (the “LifePath Smart Beta 2030 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.22%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $23 $256 $507 $1,229
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 86% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2030. The Fundseeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs a multidimensionalapproach to assess risk for the Fund and to determine the Fund’s allocation across asset classes. As part of thismultidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement tools that, among otherthings, analyze historical and forward-looking securities market data, including risk, asset class correlations, andexpected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”), foreign securities,emerging market securities, below investment-grade bonds and derivative securities or instruments, such as options andfutures, the value of which is derived from another security, a commodity, a currency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2030 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
25
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/or
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the underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a largescale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavyredemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and couldhurt the Fund’s performance.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will have
27
assets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S.jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers arerequired to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effectthat require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subjectto a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares ofinvestment companies (other than certain money market funds) may not be posted as collateral under theseregulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through atleast 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certainbank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including manyderivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate suchcontracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the eventthat the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Theimplementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Actregarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to theFund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in
28
other securities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholdersof higher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
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■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Income Risk — Income risk is the risk that the Fund’s yield will vary as short-term securities in its portfolio matureand the proceeds are reinvested in securities with different interest rates.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
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■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement defaults on its obligation under theagreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. Ifthe seller fails to repurchase the security and the market value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have entered
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into agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued bycertain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S.Government or supported by the full faith and credit of the United States.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 as
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reflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2030 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2030.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath®Smart Beta 2030Fund Custom Benchmark. The LifePath®Smart Beta 2030 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2030 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath®Smart Beta 2030Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath®Smart Beta 2030 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath®Smart Beta 2030 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2030 FundAs of 12/31
-10%
0%
10%
20%
30%
2017 201820142013201220112010
13.90%
-1.32%
13.82%
2016
7.43%
17.73%
-6.63%
17.44%20.17%
4.32%
2015
-1.76%
2019
During the ten-year period shown in the bar chart, the highest return for a quarter was 10.15% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –12.69% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2030 Fund — Class K SharesReturn Before Taxes 20.17% 6.82% 8.13%Return After Taxes on Distributions 17.60% 4.87% 6.28%Return After Taxes on Distributions and Sale of Shares 13.23% 4.81% 6.01%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2030 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 21.16% 7.08% 8.29%
1 The LifePath®Smart Beta 2030 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell 3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index, MSCI ACWIex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Index and BloombergBarclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016, the LifePath®Smart Beta 2030 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMI Index, FTSEEPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2035 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2035 Fund (the “LifePath Smart Beta 2035 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.23%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $24 $291 $579 $1,400
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 91% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2035. TheFund seeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities orinstruments, such as options and futures, the value of which is derived from another security, a commodity, acurrency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2035 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
37
other government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
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These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a largescale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavyredemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and couldhurt the Fund’s performance.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S.jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers arerequired to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effectthat require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subjectto a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares ofinvestment companies (other than certain money market funds) may not be posted as collateral under theseregulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through atleast 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certainbank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including manyderivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate suchcontracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the eventthat the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Theimplementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Actregarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to theFund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
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■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment inother securities. The sale of Fund portfolio securities may result in the realization and/or distribution toshareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effectsof higher than normal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information that
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is, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Income Risk — Income risk is the risk that the Fund’s yield will vary as short-term securities in its portfolio matureand the proceeds are reinvested in securities with different interest rates.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
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■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement defaults on its obligation under theagreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. Ifthe seller fails to repurchase the security and the market value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the most
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recent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued bycertain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S.Government or supported by the full faith and credit of the United States.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
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Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2035 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2035.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath® Smart Beta 2035Fund Custom Benchmark. The LifePath®Smart Beta 2035 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2035 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath® Smart Beta 2035Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath® Smart Beta 2035 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath® Smart Beta 2035 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2035 FundAs of 12/31
-10%
0%
10%
20%
30%
20192010
14.36%
2011
-2.59%
2012
14.07%
2013
19.44%
2014
4.31%
2017
19.00%21.36%
2016
7.86%
2015
-2.57%
2018
-7.53%
During the ten-year period shown in the bar chart, the highest return for a quarter was 11.71% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –15.34% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2035 Fund — Class K SharesReturn Before Taxes 21.36% 7.01% 8.31%Return After Taxes on Distributions 18.25% 5.16% 6.73%Return After Taxes on Distributions and Sale of Shares 14.42% 5.07% 6.36%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2035 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 23.18% 7.65% 8.81%
1 The LifePath®Smart Beta 2035 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta 2035 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2040 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2040 Fund (the “LifePath Smart Beta 2040 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.22%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $23 $288 $574 $1,389
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 100% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternativelyweighted indices that are constructed using methodologies that rely on equal weighting of underlying component
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stocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2040. TheFund seeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities orinstruments, such as options and futures, the value of which is derived from another security, a commodity, acurrency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2040 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixedincome funds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund. Theequity allocation may be further diversified by style factors (including both value and growth funds), market capitalization(including large cap, mid cap, small cap and emerging growth funds), region (including domestic and international(including emerging market) funds), or other factors. The fixed income allocation may be further diversified by sector(including government, corporate, agency, and other sectors), duration (a calculation of the average life of a bond whichmeasures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographic location(including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund, certainunderlying funds may concentrate their investments in specific sectors or geographic regions or countries. The percentageallocation to the various styles of equity and fixed income are determined at the discretion of the investment team andcan be changed to reflect the current market environment. Investments in underlying funds will be allocated towards theequity and fixed income percentages based on their classification. The Fund may also seek asset allocation to equity andfixed income by investing in funds that invest in a mix of equity and fixed income instruments (“multi-asset funds”).Investments in multi-asset funds will be allocated towards the equity and fixed income percentages listed for the glidepath based on the multi-asset fund’s underlying investments in equity and fixed income instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/or
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the underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
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These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a largescale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavyredemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and couldhurt the Fund’s performance.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S.jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers arerequired to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effectthat require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subjectto a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares ofinvestment companies (other than certain money market funds) may not be posted as collateral under theseregulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through atleast 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certainbank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including manyderivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate suchcontracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the eventthat the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Theimplementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Actregarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to theFund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
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■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment inother securities. The sale of Fund portfolio securities may result in the realization and/or distribution toshareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effectsof higher than normal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information that
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is, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Income Risk — Income risk is the risk that the Fund’s yield will vary as short-term securities in its portfolio matureand the proceeds are reinvested in securities with different interest rates.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
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■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement defaults on its obligation under theagreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. Ifthe seller fails to repurchase the security and the market value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’s
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shares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued bycertain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S.Government or supported by the full faith and credit of the United States.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
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Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2040 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2040.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath®Smart Beta 2040Fund Custom Benchmark. The LifePath®Smart Beta 2040 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2040 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath®Smart Beta 2040Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath®Smart Beta 2040 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath®Smart Beta 2040 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2040 FundAs of 12/31
-10%
0%
20%
10%
30%
20192010
14.48%
2011
-2.65%
2012
14.18%
2013
20.89%
2017
19.40%22.19%
2014
4.31%
2016
8.28%
2015
-2.36%
2018-8.64%
During the ten-year period shown in the bar chart, the highest return for a quarter was 11.71% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –15.24% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2040 Fund — Class K SharesReturn Before Taxes 22.19% 7.10% 8.50%Return After Taxes on Distributions 18.93% 5.23% 6.80%Return After Taxes on Distributions and Sale of Shares 15.26% 5.19% 6.48%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2040 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 25.01% 8.13% 9.24%
1 The LifePath®Smart Beta 2040 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta 2040 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2045 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2045 Fund (the “LifePath Smart Beta 2045 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.23%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $24 $291 $579 $1,400
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 104% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternativelyweighted indices that are constructed using methodologies that rely on equal weighting of underlying component
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stocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2045. TheFund seeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities orinstruments, such as options and futures, the value of which is derived from another security, a commodity, acurrency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2045 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/or
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the underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
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Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Underthe Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collectmargin from the Fund with respect to such derivatives. Specifically, regulations are now in effect that require swapdealers to post and collect variation margin (comprised of specified liquid instruments and subject to a requiredhaircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares of investment companies(other than certain money market funds) may not be posted as collateral under these regulations. Requirements forposting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulationsadopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certainof their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay orrestrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exerciseother default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates aresubject to certain types of resolution or insolvency proceedings. The implementation of these requirements withrespect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading andmargining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as aresult, may affect returns to investors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in othersecurities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholders ofhigher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
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■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
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■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
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■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2045 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2045.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath® Smart Beta 2045Fund Custom Benchmark. The LifePath® Smart Beta 2045 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000® Index, Russell 2000® Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2045 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath® Smart Beta 2045Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath® Smart Beta 2045 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath® Smart Beta 2045 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
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Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2045 FundAs of 12/31
-10%
0%
10%
20%
30%
20192010
13.94%
2011
-2.39%
2012
15.11%
2013
22.43%
2017
20.48%22.77%
2014
3.76%
2016
8.47%
2015
-2.45%
2018-9.11%
During the ten-year period shown in the bar chart, the highest return for a quarter was 11.63% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –15.22% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2045 Fund — Class K SharesReturn Before Taxes 22.77% 7.30% 8.75%Return After Taxes on Distributions 19.17% 5.41% 7.21%Return After Taxes on Distributions and Sale of Shares 15.75% 5.36% 6.77%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2045 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 26.33% 8.42% 9.57%
1 The LifePath®Smart Beta 2045 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta 2045 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2050 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2050 Fund (the “LifePath Smart Beta 2050 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.23%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $24 $291 $579 $1,400
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 121% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2050. TheFund seeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities orinstruments, such as options and futures, the value of which is derived from another security, a commodity, acurrency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2050 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in the
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Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
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Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S.jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers arerequired to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effectthat require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subjectto a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares ofinvestment companies (other than certain money market funds) may not be posted as collateral under theseregulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through atleast 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certainbank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including manyderivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate suchcontracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the eventthat the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Theimplementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Actregarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to theFund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment inother securities. The sale of Fund portfolio securities may result in the realization and/or distribution toshareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effectsof higher than normal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
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■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
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■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at
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premiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns between November 27, 2012 and November 17, 2016 asreflected in the bar chart and the table are the returns of the Fund when it followed different investment strategiesunder the name “BlackRock LifePath® Active 2050 Fund.” The Fund’s total returns prior to November 27, 2012 asreflected in the bar chart and the table are the returns of the Fund when it followed a different glide path under thename “BlackRock Prepared Portfolio 2050.” The returns for Class K Shares prior to November 27, 2012 are thereturns of the predecessor class.
The table compares the Fund’s performance to that of the Russell 1000®Index and the LifePath®Smart Beta 2050Fund Custom Benchmark. The LifePath® Smart Beta 2050 Fund Custom Benchmark is a customized weighted indexcomprised of the Russell 1000® Index, Russell 2000® Index, MSCI ACWI ex USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Treasury InflationProtected Securities (TIPS) Index (Series-L). Fund management modified the composition of the LifePath® Smart Beta2050 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath®Smart Beta 2050Fund Custom Benchmark reflects the investment advisor’s change of the component indices’ weightings over time,which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. TheLifePath®Smart Beta 2050 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect theFund’s asset allocation strategy but rather reflects the LifePath®Smart Beta 2050 Fund Custom Benchmark’s actualallocation over time, which may be different than the current allocation. To the extent that dividends and distributionshave been paid by the Fund, the performance information for the Fund in the chart and table assumes reinvestment ofthe dividends and distributions. As with all such investments, past performance (before and after taxes) is not anindication of future results. The table includes all applicable fees. If the Fund’s investment manager and its affiliateshad not waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower.Updated information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at 800-882-0052.
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Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2050 FundAs of 12/31
-10%
0%
10%
20%
30%
20192010
14.44%
2011
-2.71%
2012
14.61%
2013
23.90%
2017
20.64%22.61%
2014
3.78%
2016
8.37%
2015
-2.36%
2018-9.61%
During the ten-year period shown in the bar chart, the highest return for a quarter was 11.78% (quarter endedMarch 31, 2012) and the lowest return for a quarter was –15.39% (quarter ended September 30, 2011).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years 10 YearsBlackRock LifePath®Smart Beta 2050 Fund — Class K SharesReturn Before Taxes 22.61% 7.19% 8.79%Return After Taxes on Distributions 18.98% 5.36% 7.20%Return After Taxes on Distributions and Sale of Shares 15.87% 5.30% 6.77%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.54%
LifePath®Smart Beta 2050 Fund Custom Benchmark1 (Reflects no deduction for fees,expenses or taxes) 26.88% 8.53% 9.78%
1 The LifePath®Smart Beta 2050 Fund Custom Benchmark reflects the returns of the Bloomberg Barclays U.S. Aggregate Bond Index, Russell3000®Index and MSCI EAFE Index®for periods prior to November 27, 2012, and the returns of the Russell 1000®Index, Russell 2000®Index,MSCI ACWI ex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Indexand Bloomberg Barclays U.S. TIPS Index (Series-L) for periods from November 27, 2012 through November 17, 2016. As of November 18, 2016,the LifePath®Smart Beta 2050 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2055 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2055 Fund (the “LifePath Smart Beta 2055 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.23%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. These contractual agreements may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by avote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $24 $291 $579 $1,400
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 124% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2055. TheFund seeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities orinstruments, such as options and futures, the value of which is derived from another security, a commodity, acurrency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2055 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in the
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Fund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
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Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwardsand non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and ConsumerProtection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia andother non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements andswap dealers are required to collect margin from the Fund with respect to such derivatives. Specifically, regulationsare now in effect that require swap dealers to post and collect variation margin (comprised of specified liquidinstruments and subject to a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with theFund. Shares of investment companies (other than certain money market funds) may not be posted as collateralunder these regulations. Requirements for posting of initial margin in connection with OTC swaps willbe phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now ineffect require certain bank-regulated counterparties and certain of their affiliates to include in certain financialcontracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as theFund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers ofcredit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution orinsolvency proceedings. The implementation of these requirements with respect to derivatives, as well asregulations under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, mayincrease the costs and risks to the Fund of trading in these instruments and, as a result, may affect returns toinvestors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment inother securities. The sale of Fund portfolio securities may result in the realization and/or distribution toshareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effectsof higher than normal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation orredemption transactions directly with the Fund, and none of those authorized participants is obligated to engagein creation and/or redemption transactions. The Fund has a limited number of institutions that may act asauthorized participants on an agency basis (i.e., on behalf of other market participants). To the extent thatauthorized participants exit the business or are unable to proceed with creation or redemption orders with respectto the Fund and no other authorized participant is able to step forward to create or redeem creation units, Fundshares may be more likely to trade at a premium or discount to net asset value and possibly face trading halts ordelisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
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■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
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■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlike
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shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The Fund’s total returns prior to November 18, 2016 as reflected in the bar chart andthe table are the returns of the Fund when it followed different investment strategies under the name “BlackRockLifePath® Active 2055 Fund.” The table compares the Fund’s performance to that of the Russell 1000®Index and theLifePath® Smart Beta 2055 Fund Custom Benchmark. The LifePath® Smart Beta 2055 Fund Custom Benchmark is acustomized weighted index comprised of the Russell 1000® Index, Russell 2000® Index, MSCI ACWI ex USA IMI Index,FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S.Treasury Inflation Protected Securities (TIPS) Index (Series-L). Fund management modified the composition of theLifePath® Smart Beta 2055 Fund Custom Benchmark to reflect the Fund’s current investment strategies. The LifePath®
Smart Beta 2055 Fund Custom Benchmark reflects the investment advisor’s change of the component indices’weightings over time, which are adjusted periodically with its evaluation and adjustment of the Fund’s asset allocationstrategy. The LifePath® Smart Beta 2055 Fund Custom Benchmark is not recalculated or restated when it is adjustedto reflect the Fund’s asset allocation strategy but rather reflects the LifePath® Smart Beta 2055 Fund CustomBenchmark’s actual allocation over time, which may be different than the current allocation. To the extent thatdividends and distributions have been paid by the Fund, the performance information for the Fund in the chart andtable assumes reinvestment of the dividends and distributions. As with all such investments, past performance (beforeand after taxes) is not an indication of future results. The table includes all applicable fees. If the Fund’s investmentmanager and its affiliates had not waived or reimbursed certain Fund expenses during these periods, the Fund’sreturns would have been lower. Updated information on the Fund’s performance, including its current net asset value,can be obtained by visiting http://www.blackrock.com or can be obtained by phone at 800-882-0052.
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Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2055 FundAs of 12/31
-10%
0%
30%
10%
20%
2014
3.73%
2016
8.49%
2017
20.49%22.36%
20192015
-1.99%
2018
-9.60%
During the periods shown in the bar chart, the highest return for a quarter was 11.57% (quarter ended March 31,2019) and the lowest return for a quarter was –11.90% (quarter ended December 31, 2018).
As of 12/31/19Average Annual Total Returns 1 Year 5 Years
SinceInception
(February 28, 2013)
BlackRock LifePath®Smart Beta 2055 Fund — Class K SharesReturn Before Taxes 22.36% 7.22% 8.69%Return After Taxes on Distributions 19.46% 5.54% 6.94%Return After Taxes on Distributions and Sale of Shares 14.62% 5.24% 6.46%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 11.48% 13.87%
LifePath®Smart Beta 2055 Fund Custom Benchmark1 (Reflects no deductionfor fees, expenses or taxes) 26.95% 8.54% 9.51%
1 The LifePath®Smart Beta 2055 Fund Custom Benchmark reflects the returns of the Russell 1000®Index, Russell 2000®Index, MSCI ACWIex-USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Commodity Index, Bloomberg Barclays U.S. Aggregate Bond Index andBloomberg Barclays U.S. TIPS Index (Series-L) for periods through November 17, 2016. As of November 18, 2016, the LifePath®Smart Beta2055 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMI Index, FTSE EPRA NareitDeveloped Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2016 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2016 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2016 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2060 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2060 Fund (the “LifePath Smart Beta 2060 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements2 0.24%1 The Total Annual Fund Operating Expenses do not correlate to the ratios of expenses to average net assets given in the Fund’s most recent
annual report, which include extraordinary expenses and do not include Acquired Fund Fees and Expenses.2 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. The Fund may have to repay some of these waivers and/or reimbursements to BlackRock in the two years following such waivers and/orreimbursements, and such repayment arrangement will terminate on May 31, 2024. These contractual agreements may be terminated upon 90days’ notice by a majority of the non-interested trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class K Shares $25 $294 $585 $1,411
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 126% of theaverage value of its portfolio.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2060. The Fundseeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes. Aspart of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement tools that,among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities or instruments,such as options and futures, the value of which is derived from another security, a commodity, a currency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2060 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
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Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
25 95% 5%
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receive onyour investment, may fluctuate significantly from day to day and over time. You may lose part or all of your investment in
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the Fund or your investment may not perform as well as other similar investments. An investment in the Fund is not abank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmentagency. The following is a summary description of the principal risks of investing in the Fund and/or the underlyingfunds. The Fund allocates and reallocates its assets among a combination of underlying funds. Therefore, references tothe Fund in the description of risks below may include the underlying funds in which the Fund invests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
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Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Underthe Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collectmargin from the Fund with respect to such derivatives. Specifically, regulations are now in effect that require swapdealers to post and collect variation margin (comprised of specified liquid instruments and subject to a requiredhaircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares of investment companies(other than certain money market funds) may not be posted as collateral under these regulations. Requirements forposting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulationsadopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certainof their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay orrestrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exerciseother default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates aresubject to certain types of resolution or insolvency proceedings. The implementation of these requirements withrespect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading andmargining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as aresult, may affect returns to investors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in othersecurities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholders ofhigher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadly
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diversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subject
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to more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’s
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shares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
The information shows you how the Fund’s performance has varied year by year and provides some indication of therisks of investing in the Fund. The table compares the Fund’s performance to that of the Russell 1000® Index and theLifePath® Smart Beta 2060 Custom Benchmark. The LifePath® Smart Beta 2060 Fund Custom Benchmark is acustomized weighted index comprised of the Russell 1000® Index, Russell 2000® Index, MSCI ACWI ex USA IMI Index,FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S.Treasury Inflation Protected Securities (TIPS) Index (Series-L). The LifePath® Smart Beta 2060 Fund CustomBenchmark reflects the investment advisor’s change of the component indices’ weightings over time, which areadjusted periodically with its evaluation and adjustment of the Fund’s asset allocation strategy. The LifePath® SmartBeta 2060 Fund Custom Benchmark is not recalculated or restated when it is adjusted to reflect the Fund’s assetallocation strategy but rather reflects the LifePath® Smart Beta 2060 Fund Custom Benchmark’s actual allocation overtime, which may be different than the current allocation. To the extent that dividends and distributions have been paidby the Fund, the performance information for the Fund in the chart and table assumes reinvestment of the dividendsand distributions. As with all such investments, past performance (before and after taxes) is not an indication of futureresults. The table includes all applicable fees. If the Fund’s investment manager and its affiliates had not waived orreimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower. Updatedinformation on the Fund’s performance, including its current net asset value, can be obtained by visiting http://www.blackrock.com or can be obtained by phone at 800-882-0052.
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Class K SharesANNUAL TOTAL RETURNS
LifePath Smart Beta 2060 FundAs of 12/31
-15%
-10%
-5%
25%
10%
15%
20%
0%
5%
2018 2019
-11.23%
23.31%
During the periods shown in the bar chart, the highest return for a quarter was 12.22% (quarter ended March 31,2019) and the lowest return for a quarter was –13.54% (quarter ended December 31, 2018).
As of 12/31/19Average Annual Total Returns 1 Year
SinceInception(May 31,
2017)
BlackRock LifePath®Smart Beta 2060 Fund — Class K SharesReturn Before Taxes 23.31% 7.88%Return After Taxes on Distributions 21.50% 6.49%Return After Taxes on Distributions and Sale of Shares 14.75% 5.77%
Russell 1000®Index (Reflects no deduction for fees, expenses or taxes) 31.43% 14.01%
LifePath®Smart Beta 2060 Fund Custom Benchmark1 (Reflects no deduction for fees, expenses ortaxes) 26.95% 10.55%
1 The LifePath®Smart Beta 2060 Fund Custom Benchmark is comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex-USA IMIIndex, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. TIPS Index (Series-L).
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do notreflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and maydiffer from those shown, and the after-tax returns shown are not relevant to investors who hold their shares throughtax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2017 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2017 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2017 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Fund Overview
Key Facts About BlackRock LifePath®Smart Beta 2065 Fund
Investment Objective
The investment objective of BlackRock LifePath®Smart Beta 2065 Fund (the “LifePath Smart Beta 2065 Fund” or the“Fund”), a series of BlackRock Funds II (the “Trust”), is to seek to provide for retirement outcomes based onquantitatively measured risk. In pursuit of this objective, the Fund will be broadly diversified across global assetclasses, with asset allocations becoming more conservative over time.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold Class K Shares of the Fund.
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment)
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements3 0.20%1 Other Expenses are based on estimated amounts for the Fund’s current fiscal year.2 Acquired Fund Fees and Expenses reflect the Fund’s pro rata share of the fees and expenses incurred by investing in certain other funds,
including the underlying funds, and are based on estimated amounts for the Fund’s current fiscal year.3 As described in the “Management of the Funds” section of the Fund’s prospectus beginning on page 143, BlackRock Advisors, LLC (“BlackRock”)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiversand/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fundexpenses) to (i) 1.00% of average daily net assets through February 28, 2030, and (ii) 0.00% of average daily net assets through February 28,2021. The Fund may have to repay some of these waivers and/or reimbursements to BlackRock in the two years following such waivers and/orreimbursements, and such repayment arrangement will terminate on November 4, 2026. These contractual agreements may be terminated upon90 days’ notice by a majority of the non-interested trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Fund.
Example:This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in othermutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and thenredeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5%return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higheror lower, based on these assumptions your costs would be:
1 Year 3 YearsClass K Shares $20 $282
Portfolio Turnover:The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares areheld in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example,affect the Fund’s performance.
Principal Investment Strategies of the Fund
In pursuit of its investment objective, the Fund, which is a fund of funds, allocates and reallocates its assets among acombination of equity, fixed income and money market funds (the “underlying funds”) in proportions based on its owncomprehensive investment strategy. Under normal circumstances, the Fund intends to invest primarily in affiliatedopen-end funds and affiliated exchange-traded funds (“ETFs”), some of which may be index funds.
The Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternatively
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weighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, the Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Fund is designed for investors expecting to retire or to begin withdrawing assets around the year 2065. The Fundseeks to provide for retirement outcomes based on quantitatively measured risk. BlackRock employs amultidimensional approach to assess risk for the Fund and to determine the Fund’s allocation across asset classes.As part of this multidimensional approach, BlackRock aims to quantify risk using proprietary risk measurement toolsthat, among other things, analyze historical and forward-looking securities market data, including risk, asset classcorrelations, and expected returns. Certain underlying funds may invest in real estate investment trusts (“REITs”),foreign securities, emerging market securities, below investment-grade bonds and derivative securities or instruments,such as options and futures, the value of which is derived from another security, a commodity, a currency or an index.
Under normal circumstances, the asset allocation will change over time according to a predetermined “glide path” asthe Fund approaches its target date. The glide path below represents the shifting of asset classes over time. As theglide path shows, the Fund’s asset allocation becomes more conservative — prior to retirement — as time elapses.This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of theFund, which may be a primary source of income after retirement.
The LifePath Smart Beta 2065 Fund is one of a group of funds referred to as the “LifePath®Smart Beta Funds,” eachof which seeks to provide for retirement outcomes based on quantitatively measured risk that investors on averagemay be willing to accept given a particular time horizon. The following chart illustrates the glide path — the targetallocation among asset classes as the LifePath®Smart Beta Funds approach their target dates:
BlackRockLifePath®
Smart Beta2055 Fund
BlackRockLifePath®
Smart Beta2065 Fund
BlackRockLifePath®
Smart Beta2060 Fund
BlackRock LifePath®
Smart Beta2050 Fund
BlackRock LifePath® Smart Beta2045 Fund
BlackRockLifePath®
Smart Beta RetirementFund
BlackRock LifePath® SmartBeta 2025 Fund
BlackRock LifePath® Smart Beta 2030 Fund
BlackRock LifePath® Smart Beta 2035 Fund
BlackRock LifePath® Smart Beta 2040 Fund
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
015202530354045 510
Years Until Retirement
0%
Equity Funds (includes REITs) Fixed Income Funds
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The following table lists the target allocation by years until retirement:
Years Until RetirementEquity Funds
(includes REITS)Fixed-Income
Funds
45 99% 1%
40 99% 1%
35 99% 1%
30 99% 1%
25 95% 5%
20 88% 12%
15 78% 22%
10 66% 34%
5 54% 46%
Retirement 40% 60%
The asset allocation targets are established by the portfolio managers. The investment team, including the portfoliomanagers, meets regularly to assess market conditions, review the asset allocation targets of the Fund, and determinewhether any changes are required to enable the Fund to achieve its investment objective.
Although the asset allocation targets listed for the “glide path” are general, long-term targets, BlackRock mayperiodically adjust the proportion of equity funds and fixed income funds in the Fund based on an assessment of thecurrent market conditions, the potential contribution of each asset class to the expected risk and return characteristicsof the Fund, reallocations of Fund composition to reflect intra-year movement along the glide path and other factors. Inaddition, BlackRock may determine that, in connection with the Fund’s investment in certain of the factor-basedunderlying funds, adjustments to the equity or fixed income allocations in excess of the asset allocation targetpercentages listed in the glide path may be appropriate to better align the risk characteristics of the Fund with theglide path. In general, the adjustments will be limited to +/- 10% relative to the target allocations. However, BlackRockmay determine that a greater degree of variation is warranted to protect the Fund or achieve its investment objective.
BlackRock’s second step in the structuring of the Fund is the selection of the underlying funds. Factors such as fundclassifications, historical risk and performance, and the relationship to other underlying funds in the Fund areconsidered when selecting underlying funds. The specific underlying funds selected for the Fund are determined atBlackRock’s discretion and may change as deemed appropriate to allow the Fund to meet its investment objective.See “Description of Underlying Funds” for a list of the underlying funds, their classification into equity or fixed incomefunds and a brief description of their investment objectives and primary investment strategies.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify the Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify the Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment. Investments in underlying funds willbe allocated towards the equity and fixed income percentages based on their classification. The Fund may also seekasset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
The Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swapsand foreign currency transactions (collectively, commonly known as derivatives). The Fund may seek to obtain marketexposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may usederivatives as a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposureto certain risks. The Fund may also use derivatives to seek to enhance returns, in which case their use may involveleveraging risk. Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposureto risks (other than duration or currency risk) or to seek to enhance returns will increase or decrease the Fund’s equityor fixed income allocations for purposes of the glide path by the notional amount of such derivatives. Derivatives thatare used to manage duration or hedge currency risk will not be allocated to the Fund’s equity or fixed incomeallocations for purposes of the glide path.
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Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receiveon your investment, may fluctuate significantly from day to day and over time. You may lose part or all of yourinvestment in the Fund or your investment may not perform as well as other similar investments. An investment in theFund is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or anyother government agency. The following is a summary description of the principal risks of investing in the Fund and/orthe underlying funds. The Fund allocates and reallocates its assets among a combination of underlying funds.Therefore, references to the Fund in the description of risks below may include the underlying funds in which the Fundinvests, as applicable.
Principal Risks of the Fund’s Investment Strategies
■ Equity Securities Risk — Stock markets are volatile. The price of equity securities fluctuates based on changes in acompany’s financial condition and overall market and economic conditions.
■ Investments in Underlying Funds Risk — The Fund’s investments are concentrated in underlying funds, so theFund’s investment performance is directly related to the performance of the underlying funds. The Fund’s net assetvalue will change with changes in the equity and bond markets and the value of the underlying funds and othersecurities in which it invests. An investment in the Fund will entail more direct and indirect costs and expenses thana direct investment in the underlying funds. For example, the Fund indirectly pays a portion of the expenses(including operating expenses and management fees) incurred by the underlying funds.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, the asset allocation or the combination ofunderlying funds determined by BlackRock could result in underperformance as compared to funds with similarinvestment objectives and strategies.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name; this will depend on the amount of money you have invested inthe Fund, the length of time you have held your investment, the returns of the markets over time, the amount youspend in retirement, and your other assets and income sources.
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantlyin price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values maynot correlate with the overall securities markets.
Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inabilityof the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could makederivatives more difficult for the Fund to value accurately.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them.
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Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlyingsecurity, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedgingmay result in certain adverse tax consequences.
Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements andcommodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation,regulations or other legally binding authority. Such treatment may be less favorable than that given to a directinvestment in an underlying asset and may adversely affect the timing, character and amount of income the Fundrealizes from its investments.
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverableforwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S.jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers arerequired to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effectthat require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subjectto a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Fund. Shares ofinvestment companies (other than certain money market funds) may not be posted as collateral under theseregulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through atleast 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certainbank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including manyderivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate suchcontracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the eventthat the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Theimplementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Actregarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to theFund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment in othersecurities. The sale of Fund portfolio securities may result in the realization and/or distribution to shareholders ofhigher capital gains or losses as compared to a fund with less active trading policies. These effects of higher thannormal portfolio turnover may adversely affect Fund performance.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. The use of leverage maycause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations orto meet any required asset segregation requirements. Increases and decreases in the value of the Fund’s portfoliowill be magnified when the Fund uses leverage.
Principal Risks of the Underlying Funds
■ Asset Class Risk — Securities and other assets in the underlying index or in the Fund’s portfolio may underperformin comparison to the general financial markets, a particular financial market or other asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
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■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — Emerging markets are riskier than more developed markets because they tend todevelop unevenly and may never fully develop. Investments in emerging markets may be considered speculative.Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and lessliquidity than developed markets.
■ Foreign Securities Risk — Foreign investments often involve special risks not present in U.S. investments that canincrease the chances that the Fund will lose money. These risks include:
■ The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which maybe recently organized or new to the foreign custody business and may be subject to only limited or no regulatoryoversight.
■ Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
■ The economies of certain foreign markets may not compare favorably with the economy of the United States withrespect to such issues as growth of gross national product, reinvestment of capital, resources and balance ofpayments position.
■ The governments of certain countries may prohibit or impose substantial restrictions on foreign investments intheir capital markets or in certain industries.
■ Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities tothe same extent as does the United States and may not have laws to protect investors that are comparable toU.S. securities laws.
■ Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery ofsecurities not typically associated with settlement and clearance of U.S. investments.
■ The European financial markets have recently experienced volatility and adverse trends due to concerns abouteconomic downturns in, or rising government debt levels of, several European countries. These events mayspread to other countries in Europe. These events may affect the value and liquidity of certain of the Fund’sinvestments.
■ Geographic Risk — A natural disaster could occur in a geographic region in which the Fund invests, which couldadversely affect the economy or the business operations of companies in the specific geographic region, causing anadverse impact on the Fund’s investments in the affected region.
■ Index-Related Risk — There is no guarantee that the Fund’s investment results will have a high degree ofcorrelation to those of the underlying index or that the Fund will achieve its investment objective. Market disruptionsand regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the requiredlevels in order to track the underlying index. Errors in index data, index computations or the construction of theunderlying index in accordance with its methodology may occur from time to time and may not be identified andcorrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and itsshareholders.
■ Issuer Risk — Fund performance depends on the performance of individual securities to which the Fund hasexposure. Changes in the financial condition or credit rating of an issuer of those securities may cause the value ofthe securities to decline.
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■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that previously exhibited high momentum characteristics may not experiencepositive momentum or may experience more volatility than the market as a whole.
■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Quality Stocks Risk — Stocks included in the underlying index are deemed by the index provider to be qualitystocks, but there is no guarantee that the past performance of these stocks will continue. Companies that issuethese stocks may experience lower than expected returns or may experience negative growth, as well as increasedleverage, resulting in lower than expected or negative returns to Fund shareholders. Many factors can affect astock’s quality and performance, and the impact of these factors on a stock or its price can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — Investments in REITs involve unique risks. REITs may have limited financial resources,may trade less frequently and in limited volume, may engage in dilutive offerings of securities and may be morevolatile than other securities. REIT issuers may also fail to maintain their exemptions from investment companyregistration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), which allows REITs to reduce their corporate taxable income for dividendspaid to their shareholders.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculatedat the end of each business day and fluctuates with changes in the market value of the ETF’s holdings since themost recent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hoursbased on market supply and demand rather than net asset value. The trading prices of an ETF’s shares maydeviate significantly from net asset value during periods of market volatility. Any of these factors may lead to anETF’s shares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at
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premiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
■ Value Securities Risk — Securities issued by companies that may be perceived as undervalued may fail toappreciate for long periods of time and may never realize their full potential value. The index provider may beunsuccessful in creating an index that emphasizes undervalued securities. Value securities have generallyperformed better than non-value securities during periods of economic recovery (although there is no assurance thatthey will continue to do so). Value securities may go in and out of favor over time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Performance Information
Because the LifePath Smart Beta 2065 Fund does not have a full calendar year of operations as of the date of thisprospectus, it does not have performance information an investor would find useful in evaluating the risks of investingin the Fund. Information on the Fund’s performance, including its current net asset value, can be obtained by visitinghttp://www.blackrock.com or can be obtained by phone at (800) 882-0052. The Fund will compare its performance tothat of the Russell 1000®Index and the LifePath®Smart Beta 2065 Custom Benchmark. The LifePath®Smart Beta2065 Fund Custom Benchmark is a customized weighted index comprised of the Russell 1000®Index, Russell 2000®Index, MSCI ACWI ex USA IMI Index, FTSE EPRA Nareit Developed Index, Bloomberg Barclays U.S. Aggregate BondIndex and Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L).
Investment Manager
The Fund’s investment manager is BlackRock Advisors, LLC (previously defined as “BlackRock”).
Portfolio Managers
Name Portfolio Manager of the Fund Since Title
Matthew O’Hara, PhD, CFA 2019 Managing Director of BlackRock, Inc.
Ked Hogan, PhD 2019 Managing Director of BlackRock, Inc.
Andrew Ang, PhD 2019 Managing Director of BlackRock, Inc.
* * *
For important information about the purchase and sale of Fund shares, tax information and Financial Intermediarycompensation, please turn to “Important Additional Information” on page 101 of the prospectus.
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Important Additional Information
Purchase and Sale of Fund Shares
Class K Shares of each Fund are available only to (i) certain employee benefit plans, such as health savings accounts,and certain employer-sponsored retirement plans (not including SEP IRAs, SIMPLE IRAs and SARSEPs) (collectively,“Employer-Sponsored Retirement Plans”), (ii) collective trust funds, investment companies and other pooledinvestment vehicles, each of which may purchase shares of the Fund through a Financial Intermediary (as definedbelow) that has entered into an agreement with the Fund’s distributor to purchase such shares, (iii) “InstitutionalInvestors,” which include but are not limited to, endowments, foundations, family offices, banks and bank trusts, local,city, and state governmental institutions, corporations and insurance company separate accounts, each of which maypurchase shares of the Fund through a Financial Intermediary that has entered into an agreement with the Fund’sdistributor to purchase such shares, (iv) fee-based advisory platforms of a Financial Intermediary that (a) hasspecifically acknowledged in a written agreement with the Fund’s distributor and/or its affiliate(s) that the FinancialIntermediary shall offer such shares to fee-based advisory clients through an omnibus account held at the Fund or (b)transacts in the Fund’s shares through another intermediary that has executed such an agreement and (v) any otherinvestors who met the eligibility criteria for BlackRock Shares or Class K Shares prior to August 15, 2016 and havecontinually held Class K Shares of the Fund in the same account since August 15, 2016.
You may purchase or redeem shares of a Fund each day the New York Stock Exchange is open. Purchase orders mayalso be placed by calling (800) 537- 4942, by mail (c/o BlackRock Funds II, P.O. Box 9819, Providence, Rhode Island02940-8019), or online at www.blackrock.com. Institutional Investors are subject to a $5 million minimum initialinvestment requirement. Other investors, including Employer-Sponsored Retirement Plans, have no minimum initialinvestment requirement. There is no minimum investment amount for additional purchases.
Tax Information
Different income tax rules apply depending on whether you are invested through a qualified tax-exempt plan describedin section 401(a) of the Internal Revenue Code of 1986, as amended. If you are invested through such a plan (andFund shares are not “debt-financed property” to the plan), then the dividends paid by the Fund and the gain realizedfrom a redemption or exchange of Fund shares will generally not be subject to U.S. federal income taxes until youwithdraw or receive distributions from the plan. If you are not invested through such a plan, then the Fund’s dividendsand gain from a redemption or exchange may be subject to U.S. federal income taxes and may be taxed as ordinaryincome or capital gains, unless you are a tax-exempt investor.
Payments to Broker/Dealers and Other Financial Intermediaries
If you purchase shares of a Fund through a financial professional or selected securities dealer, broker, investmentadviser, service provider or industry professional (including BlackRock and its affiliates) (each a “FinancialIntermediary”), the Fund and BlackRock Investments, LLC, the Fund’s distributor, or its affiliates may pay the FinancialIntermediary for the sale of Fund shares and related services. These payments may create a conflict of interest byinfluencing the Financial Intermediary and your individual financial professional to recommend a Fund over anotherinvestment.
Class K Shares are only available through a Financial Intermediary if the Financial Intermediary will not receive fromFund assets, or the Fund’s distributor’s or an affiliate’s resources, any commission payments, shareholder servicingfees (including sub-transfer agent and networking fees), or distribution fees (including Rule 12b-1 fees) with respect toassets invested in Class K Shares.
Ask your individual financial professional or visit your Financial Intermediary’s website for more information.
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Details About the FundsIncluded in this prospectus are sections that tell you about buying and selling shares, management information,shareholder features of the BlackRock LifePath®Smart Beta Retirement Fund (the “LifePath Smart Beta RetirementFund”), the BlackRock LifePath®Smart Beta 2025 Fund (the “LifePath Smart Beta 2025 Fund”), the BlackRockLifePath®Smart Beta 2030 Fund (the “LifePath Smart Beta 2030 Fund”), the BlackRock LifePath®Smart Beta 2035Fund (the “LifePath Smart Beta 2035 Fund”), the BlackRock LifePath®Smart Beta 2040 Fund (the “LifePath SmartBeta 2040 Fund”), the BlackRock LifePath®Smart Beta 2045 Fund (the “LifePath Smart Beta 2045 Fund”), theBlackRock LifePath®Smart Beta 2050 Fund (the “LifePath Smart Beta 2050 Fund”), the BlackRock LifePath®SmartBeta 2055 Fund (the “LifePath Smart Beta 2055 Fund”), the BlackRock LifePath®Smart Beta 2060 Fund (the“LifePath Smart Beta 2060 Fund”) and the BlackRock LifePath®Smart Beta 2065 Fund (the “LifePath Smart Beta2065 Fund”) (each, a “Fund” and collectively, the “Funds”) and your rights as a shareholder.
Investment Time Horizons
The Funds are intended to provide distinct investment programs to meet the different investment objectives, timehorizons and risk tolerances of a range of investors. Each Fund is managed for a specific target retirement date (thedate included in the name of the Fund), except for the LifePath Smart Beta Retirement Fund, which is already in its“retirement phase.” Each of the Funds was created by BlackRock Advisors, LLC (“BlackRock”), the Funds’ manager.
An investor’s time horizon marks the point when the investor plans to start making net withdrawals from his or herinvestments, in other words, the time when they will cease making new contributions to their investments. For manyFund investors, their time horizon is tied to the date that they plan to retire and begin gradually utilizing theirinvestment to support themselves in retirement. For other Fund investors, their time horizon may represent the datewhen they plan to make substantial withdrawals for another purpose, such as a major purchase.
As a general rule, investors with a longer time horizon have a greater tolerance for risk than investors with a shortertime horizon. Long-term investors are more likely to accept a greater risk of loss in exchange for the potential toachieve higher long-term returns. Each Fund has its own time horizon, which affects the targeted risk level of that Fundand, in turn, its asset allocation.
The allocations for the LifePath Smart Beta Retirement Fund reflect the expectation that investors in or nearretirement, or otherwise seeking current income, are willing to take some risk of loss of their investment in hopes ofachieving moderate long-term growth of capital. The LifePath Smart Beta Retirement Fund is designed to help balancethree risk factors that investors face during retirement: market risk (potential declines in market values), longevity risk(living longer than expected) and inflation risk (loss of purchasing power). Specifically, the LifePath Smart BetaRetirement Fund seeks to enable investors to maintain a steady withdrawal rate (about 3-5% per year) throughout theirretirement while minimizing the risk of exhausting their investment. The withdrawal rate is the rate at which investorscan redeem shares from the Fund, which is not necessarily equal to the rate of return of the Fund. There is noguarantee that the performance of the LifePath Smart Beta Retirement Fund will be sufficient to enable this withdrawalrate or that any one withdrawal rate is appropriate for all investors. Investors should work with a financial advisor orother expert to determine a sustainable withdrawal rate for their circumstances, and that withdrawal rate should beperiodically reassessed throughout retirement as the value of the investor’s portfolio changes.
The investment objective of each Fund is as follows:
■ The LifePath Smart Beta Retirement Fund seeks to provide for retirement outcomes based on quantitativelymeasured risk. In pursuit of this objective, the LifePath Smart Beta Retirement Fund will be broadly diversifiedacross global asset classes.
■ Each of the LifePath Smart Beta 2025 Fund, the LifePath Smart Beta 2030 Fund, the LifePath Smart Beta 2035Fund, the LifePath Smart Beta 2040 Fund, the LifePath Smart Beta 2045 Fund, the LifePath Smart Beta 2050 Fund,the LifePath Smart Beta 2055 Fund, the LifePath Smart Beta 2060 Fund and the LifePath Smart Beta 2065 Fundseeks to provide for retirement outcomes based on quantitatively measured risk. In pursuit of this objective, eachsuch Fund will be broadly diversified across global asset classes, with asset allocations becoming moreconservative over time.
The investment objective of each Fund is a non-fundamental policy of each Fund and may not be changed without30 days’ prior notice to shareholders.
You should carefully consider the asset allocation and risks of each Fund before deciding whether to invest.
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The Funds are designed to offer individual investors comprehensive asset allocation strategies tailored to the timewhen they expect to begin withdrawing assets. Asset allocation is the distribution of investments among broad types ofasset classes: equity securities and fixed income, including money market instruments. To implement the assetallocation strategy, each Fund invests in a combination of underlying funds in proportions based on its owncomprehensive investment strategy that gradually becomes more conservative as the year in the Fund’s nameapproaches, except for the Retirement Fund, which is already in its most conservative phase.
Which Fund to Consider
The first step in choosing which Fund to consider is answering a key question: When will you need the money you arethinking of investing? Will it be in ten years, when your kids are ready for college? Or 30 years, when you retire?
The number in the name of the Funds (except for the LifePath Smart Beta Retirement Fund) is actually a year — a“target year” when you might expect to begin withdrawing your money. Selecting the Fund that may be mostappropriate for your investment may be as simple as matching your target year with the closest Fund target year.
For example, let’s say that you are investing for retirement purposes, and that you expect to retire at age 65. If you are45 years old, you have 20 years before retirement. By adding 20 to the current year, you can define your “target year.”If you expect to retire in the year 2040, as in this example, you may conclude that LifePath Smart Beta 2040 Fund isthe most appropriate Fund for you.
The investment mix of the Funds gradually shifts from a greater concentration of higher-risk investments (namely,underlying funds that invest primarily in equity securities) to a greater concentration of lower-risk investments (namely,underlying funds that invest primarily in fixed income securities), thereby making the Funds increasingly conservative.
In making your investment decision, you should keep in mind:
■ The Funds’ investment strategies derive from the risk tolerance of average investors with a particular time horizon.
■ The Funds’ time horizons are based on the year in their name, except for the LifePath Smart Beta Retirement Fund,which is designed for investors who are currently withdrawing, or plan in the near future to begin withdrawing, asubstantial portion of their investment.
If you are willing to accept a greater risk of loss in exchange for the potential to achieve higher long-term returns, youmay invest some or all of your assets in a Fund with a longer time horizon. If you desire a more conservativeinvestment and are willing to forego some potential returns, you may invest some or all of your assets in a Fund with ashorter time horizon. The final choice is yours.
A Further Discussion of Principal Investment Strategies
Each Fund, which is a fund of funds, allocates and reallocates its assets among a combination of equity, fixed incomeand money market funds (the “underlying funds”) in proportions based on its own comprehensive investmentstrategy. Under normal circumstances, the Fund intends to invest primarily in affiliated open-end funds and affiliatedexchange-traded funds (“ETFs”), some of which may be index funds.
Each Fund intends to invest a significant portion of its assets in affiliated underlying funds that follow factor-basedinvestment strategies. Most of such factor-based underlying funds seek to track the performance of alternativelyweighted indices that are constructed using methodologies that rely on equal weighting of underlying componentstocks or measure factors such as value, quality, momentum, or volatility, rather than market-cap weighting. Thesemethodologies are sometimes referred to as “Smart Beta.” In addition, each Fund may invest in other factor-basedunderlying funds that are actively managed pursuant to investment strategies that target intuitive investment factorssuch as value, quality, momentum, or volatility.
The Funds with longer time horizons invest a greater portion of their assets in underlying funds that invest in equitysecurities, which provide a greater opportunity for capital appreciation over the long-term but have a greater risk ofloss. The Funds with shorter time horizons invest a greater portion of their assets in underlying funds that invest infixed income, including money market instruments, which typically offer reduced risk and price volatility but foregosome potential returns. Accordingly, under normal circumstances, the Funds with shorter time horizons have lowerexpected returns than the Funds with longer time horizons.
As each Fund approaches its designated time horizon, it systematically seeks to reduce the level of risk by allocatingassets more conservatively among the underlying funds. This systematic shift toward more conservative investments isdesigned to reduce the risk of significant reductions in the value of an investment in a Fund as it approaches its timehorizon.
For example, the LifePath Smart Beta Retirement Fund has entered its “retirement phase” and seeks to maximize returnsconsistent with the risk that an average investor in retirement may be willing to accept. This does not mean, however,
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that it invests exclusively, or primarily, in underlying funds that are money market funds. Rather, because BlackRockbelieves that most investors are still willing to take some risks in pursuing returns even while drawing on theirinvestments, almost all of the LifePath Smart Beta Retirement Fund’s assets will continue to be allocated to underlyingfunds that are equity and fixed income funds.
In determining the allocation of assets to the underlying funds, BlackRock analyzes securities market data, includingrisk, asset class correlations, and expected returns, to provide portfolio allocations among the asset classesrepresented by the underlying funds. The allocations are monitored and rebalanced in an effort to maximize expectedreturn for a given level of risk.
In managing the Funds, BlackRock focuses on long-term targets and objectives. The progression over time of a Fund’sasset allocation based on the glide path to more conservative asset classes is a relatively steady process resulting inonly gradual changes to the asset allocation from quarter to quarter. The underlying funds invest in a mix of equitysecurities and fixed income securities, including money market instruments. Certain underlying funds may follow factor-based investment strategies, and may include single factor and multi-factor strategies. Investments in underlying fundswill be allocated towards the equity and fixed income percentages based on their classification. The Fund may alsoseek asset allocation to equity and fixed income by investing in funds that invest in a mix of equity and fixed incomeinstruments (“multi-asset funds”). Investments in multi-asset funds will be allocated towards the equity and fixedincome percentages listed for the glide path based on the multi-asset fund’s underlying investments in equity and fixedincome instruments.
Certain underlying funds invest in real estate investment trusts (“REITs”), foreign securities, emerging markets, belowinvestment-grade bonds, and commodities and derivatives, which are subject to additional risks, as described in the“Details About the Funds — A Further Discussion of Risk Factors” section of this prospectus and/or the “InvestmentRisks and Considerations” section of the Statement of Additional Information (the “SAI”). The investment modeladjusts each Fund’s risk level by gradually making it more conservative as the year in the Fund’s name approaches,except for the LifePath Smart Beta Retirement Fund, which is already in its most conservative phase.
When a Fund reaches its stated time horizon and enters its most conservative phase, the allocation of its assets isexpected to be similar to that of the LifePath Smart Beta Retirement Fund. Such Fund and the LifePath Smart BetaRetirement Fund may then continue to operate as separate funds or, subject to approval by the Trust’s Board ofTrustees, they may be merged into a single fund.
BlackRock regularly monitors the allocations of the Funds to ensure that they are consistent with each Fund’s currentallocation strategy. The Funds may be brought back to the intended allocations either through the direction of dailycash flows to suitable underlying funds or by monthly rebalancing if necessary.
Within the prescribed percentage allocations to equity and fixed income funds, BlackRock seeks to diversify each Fund.The equity allocation may be further diversified by style factors (including both value and growth funds), marketcapitalization (including large cap, mid cap, small cap and emerging growth funds), region (including domestic andinternational (including emerging market) funds), or other factors. The fixed income allocation may be further diversifiedby sector (including government, corporate, agency, and other sectors), duration (a calculation of the average life of abond which measures its price risk), credit quality (including non-investment grade debt or “junk bonds”), geographiclocation (including U.S. and foreign-issued securities), or other factors. Though BlackRock seeks to diversify each Fund,certain underlying funds may concentrate their investments in specific sectors or geographic regions or countries. Thepercentage allocation to the various styles of equity and fixed income are determined at the discretion of theinvestment team and can be changed to reflect the current market environment.
Each Fund may, when consistent with its investment goal, buy or sell options or futures, or enter into total return swaps andforeign currency transactions (collectively, commonly known as derivatives). An option is the right to buy or sell aninstrument (which can be a security, an index of securities, a currency, or a basket of currencies) at a specific price on orbefore a specific date. A future is an agreement to buy or sell a security or an index of securities at a specific price on aspecific date. A total return swap is a contract in which one party agrees to make periodic payments to another party basedon the change in market value of the assets underlying the contract, which may include a specified security, basket ofsecurities or securities indices, during the specified period, in return for periodic payments. Each Fund may seek to obtainmarket exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or byusing other investment techniques (such as reverse repurchase agreements or dollar rolls). Each Fund may use derivativesas a substitute for taking a position in an underlying fund and/or as part of a strategy to reduce exposure to certain risks.Each Fund may also use derivatives to seek to enhance returns, in which case their use may involve leveraging risk.Derivatives that are used as a substitute for taking a position in an underlying fund, to reduce exposure to risks (other thanduration or currency risk) or to seek to enhance returns will increase or decrease a Fund’s equity or fixed income allocationsfor purposes of the glide path by the notional amount of such derivatives. Derivatives that are used to manage duration orhedge currency risk will not be allocated to a Fund’s equity or fixed income allocations for purposes of the glide path.
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Other Strategies Applicable to the FundsIn addition to the principal strategies discussed above, each Fund may also invest or engage in the followinginvestments/strategies:
■ Borrowing — Each Fund may borrow up to the limits set forth under the Investment Company Act of 1940, asamended (the “Investment Company Act”), the rules and regulations thereunder and any applicable exemptive relief.
■ Illiquid Investments — Each Fund may invest up to an aggregate amount of 15% of its net assets in illiquidinvestments. An illiquid investment is any investment that a Fund reasonably expects cannot be sold or disposed ofin current market conditions in seven calendar days or less without the sale or disposition significantly changing themarket value of the investment.
■ Money Market Securities — In addition to investing in an underlying money market fund, which may include anaffiliated money market fund, each Fund may also invest in high quality money market securities pendinginvestments or when it expects to need cash to pay redeeming shareholders. A Fund will not be deemed to deviatefrom its normal strategies if it holds these securities pending investments.
■ Securities Lending — Each Fund may lend securities with a value up to 331⁄3% of its total assets to financialinstitutions that provide cash or securities issued or guaranteed by the U.S. Government as collateral.
■ Temporary Defensive Strategies — It is possible that in extreme market conditions a Fund temporarily may investsome or all of its assets in high quality money market securities. Such a temporary defensive strategy would beinconsistent with a Fund’s principal investment strategies. The reason for acquiring money market securities wouldbe to avoid market losses. However, if market conditions improve, this strategy could result in reducing the potentialgain from the market upswing, thus reducing the Fund’s opportunity to achieve its investment objective.
ABOUT THE PORTFOLIO MANAGEMENT TEAM OF THE FUNDS
Each Fund is managed by a team of financial professionals. Matthew O’Hara, PhD, CFA, Ked Hogan, PhD andAndrew Ang, PhD, are the portfolio managers and are jointly and primarily responsible for the day-to-daymanagement of each Fund. Please see “Management of the Funds — Portfolio Manager Information” foradditional information about the portfolio management team.
A Further Discussion of Risk Factors
This section contains a description of the general risks of investing in a Fund. The “Investment Objective and Policies”section in the SAI also includes more information about each Fund, its investments and the related risks. There can beno guarantee that a Fund will meet its investment objective or that a Fund’s performance will be positive for any periodof time. Investors may lose money investing in a Fund. An investment in a Fund is not a deposit in any bank and is notinsured or guaranteed by the Federal Deposit Insurance Corporation or by any bank or government agency. Each Fundallocates and reallocates its assets among a combination of underlying funds. Therefore, references to the Fund in thedescription of risks below may include the underlying funds in which the Funds invest, as applicable. The order of thebelow risk factors does not indicate the significance of any particular risk factor.
Principal Risks of the Funds’ Investment Strategies
■ Affiliated Fund Risk — In managing the Fund, BlackRock will have authority to select and substitute underlyingfunds. BlackRock may be subject to potential conflicts of interest in selecting underlying funds because the feespaid to BlackRock by some underlying funds are higher than the fees paid by other underlying funds. However,BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selectingunderlying funds. If an underlying fund holds interests in an affiliated fund, the Fund may be prohibited frompurchasing shares of that underlying fund.
■ Allocation Risk — The Fund’s ability to achieve its investment objective depends upon BlackRock’s skill indetermining the Fund’s strategic asset class allocation and in selecting the best mix of underlying funds and directinvestments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or underlyingfunds may be incorrect in view of actual market conditions. In addition, there is no guarantee that the underlyingfunds will achieve their investment objectives, and the underlying funds’ performance may be lower than theperformance of the asset class which they were selected to represent. The underlying funds may change theirinvestment objectives or policies without the approval of the Fund. If an underlying fund were to change itsinvestment objective or policies, the Fund might be forced to withdraw its investment from the underlying fund at adisadvantageous time and price.
■ Debt Securities Risk — Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, andprepayment risk, among other things.
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Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interestrate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securitieswill increase as interest rates fall and decrease as interest rates rise.
The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all otherfactors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude ofthese fluctuations in the market price of bonds and other fixed-income securities is generally greater for thosesecurities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interestincome derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. TheFund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fundmanagement.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment ofthe Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically resetonly periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can beexpected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating ratedebt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faithand credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, notits current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate invalue when interest rates change.
Following the financial crisis that began in 2007, the Federal Reserve has attempted to stabilize the economy andsupport the economic recovery by keeping the federal funds rate (the interest rate at which depository institutionslend reserve balances to other depository institutions overnight) at or near zero percent. In addition, as part of itsmonetary stimulus program known as quantitative easing, the Federal Reserve has purchased on the open marketlarge quantities of securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. As theFederal Reserve “tapers” or reduces the amount of securities it purchases pursuant to quantitative easing, and/or ifthe Federal Reserve raises the federal funds rate, there is a risk that interest rates will rise. A general rise ininterest rates has the potential to cause investors to move out of fixed-income securities on a large scale, whichmay increase redemptions from mutual funds that hold large amounts of fixed-income securities. Heavy redemptionscould cause the Fund to sell assets at inopportune times or at a loss or depressed value and could hurt the Fund’sperformance.
During periods of very low or negative interest rates, the Fund may be unable to maintain positive returns. Certaincountries have recently experienced negative interest rates on certain fixed-income instruments. Very low or negativeinterest rates may magnify interest rate risk. Changing interest rates, including rates that fall below zero, may haveunpredictable effects on markets, may result in heightened market volatility and may detract from Fund performanceto the extent the Fund is exposed to such interest rates.
Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be ableto make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’sperception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. Thedegree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly thananticipated, causing the value of these obligations to fall. Rising interest rates tend to extend the duration ofsecurities, making them more sensitive to changes in interest rates. The value of longer-term securities generallychanges more in response to changes in interest rates than shorter-term securities. As a result, in a period of risinginterest rates, securities may exhibit additional volatility and may lose value.
Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly thanoriginally anticipated, and the Fund may have to invest the proceeds in securities with lower yields. In periods offalling interest rates, the rate of prepayments tends to increase (as does price fluctuation) as borrowers aremotivated to pay off debt and refinance at new lower rates. During such periods, reinvestment of the prepaymentproceeds by the management team will generally be at lower rates of return than the return on the assets that wereprepaid. Prepayment reduces the yield to maturity and the average life of the security.
■ Derivatives Risk — The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/orincrease volatility. Derivatives involve significant risks, including:
Volatility Risk — The Fund’s use of derivatives may reduce the Fund’s returns and/or increase volatility. Volatility isdefined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short timeperiod. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate with theoverall securities markets.
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Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in thetransaction will not fulfill its contractual obligation.
Market and Illiquidity Risk — Some derivatives are more sensitive to interest rate changes and market pricefluctuations than other securities. The possible lack of a liquid secondary market for derivatives and the resultinginability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and couldmake derivatives more difficult for the Fund to value accurately. The Fund could also suffer losses related to itsderivatives positions as a result of unanticipated market movements, which losses are potentially unlimited. Finally,BlackRock may not be able to predict correctly the direction of securities prices, interest rates and other economicfactors, which could cause the Fund’s derivatives positions to lose value.
Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and marketmakers may be reluctant to purchase complex instruments or quote prices for them. Derivatives may also exposethe Fund to greater risk and increase its costs. Certain transactions in derivatives involve substantial leverage riskand may expose the Fund to potential losses that exceed the amount originally invested by the Fund.
Hedging Risk — When a derivative is used as a hedge against a position that the Fund holds, any loss generated bythe derivative generally should be substantially offset by gains on the hedged investment, and vice versa. Whilehedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject toimperfect matching between the derivative and the underlying security, and there can be no assurance that theFund’s hedging transactions will be effective. The use of hedging may result in certain adverse tax consequencesnoted below.
Tax Risk — The federal income tax treatment of a derivative may not be as favorable as a direct investment in anunderlying asset and may adversely affect the timing, character and amount of income the Fund realizes from itsinvestments. As a result, a larger portion of the Fund’s distributions may be treated as ordinary income rather thancapital gains. In addition, certain derivatives are subject to mark-to-market or straddle provisions of the InternalRevenue Code of 1986, as amended (the “Internal Revenue Code”). If such provisions are applicable, there couldbe an increase (or decrease) in the amount of taxable dividends paid by the Fund. In addition, the tax treatment ofcertain derivatives, such as swaps, is unsettled and may be subject to future legislation, regulation or administrativepronouncements issued by the Internal Revenue Service (the “IRS”).
Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwardsand non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and ConsumerProtection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia andother non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements andswap dealers are required to collect margin from the Fund with respect to such derivatives. Specifically, regulationsare now in effect that require swap dealers to post and collect variation margin (comprised of specified liquidinstruments and subject to a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with theFund. Shares of investment companies (other than certain money market funds) may not be posted as collateralunder these regulations. Requirements for posting of initial margin in connection with OTC swaps willbe phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now ineffect require certain bank-regulated counterparties and certain of their affiliates to include in certain financialcontracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as theFund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers ofcredit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution orinsolvency proceedings. The implementation of these requirements with respect to derivatives, as well asregulations under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, mayincrease the costs and risks to the Fund of trading in these instruments and, as a result, may affect returns toinvestors in the Fund.
Future regulatory developments may impact the Fund’s ability to invest or remain invested in certain derivatives.Legislation or regulation may also change the way in which the Fund itself is regulated. BlackRock cannot predict theeffects of any new governmental regulation that may be implemented on the ability of the Fund to use swaps or anyother financial derivative product, and there can be no assurance that any new governmental regulation will notadversely affect the Fund’s ability to achieve its investment objective.
Risks Specific to Certain Derivatives Used by the Fund
Swaps – Swap agreements, including total return swaps that may be referred to as contracts for difference,are two-party contracts entered into for periods ranging from a few weeks to more than one year. In a standard“swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned orrealized on particular predetermined investments or instruments, which can be adjusted for an interest factor.Swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on itsobligation to pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the other party
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to the agreement. Swap agreements may also involve the risk that there is an imperfect correlation between thereturn on the Fund’s obligation to its counterparty and the return on the referenced asset. In addition, swapagreements are subject to market and illiquidity risk, leverage risk and hedging risk.
Credit Default Swaps – Credit default swaps may have as reference obligations one or more securities that arenot currently held by the Fund. The protection “buyer” may be obligated to pay the protection “seller”an up-front payment or a periodic stream of payments over the term of the contract, provided generally that nocredit event on a reference obligation has occurred. Credit default swaps involve special risks in addition to thosementioned above because they are difficult to value, are highly susceptible to illiquid investments risk and creditrisk, and generally pay a return to the party that has paid the premium only in the event of an actual default by theissuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).
Forward Foreign Currency Exchange Contracts – Forward foreign currency exchange transactions are OTC contractsto purchase or sell a specified amount of a specified currency or multinational currency unit at a price and futuredate set at the time of the contract. Forward foreign currency exchange contracts do not eliminate fluctuations inthe value of non-U.S. securities but rather allow the Fund to establish a fixed rate of exchange for a future point intime. This strategy can have the effect of reducing returns and minimizing opportunities for gain.
Futures – Futures are standardized, exchange-traded contracts that obligate a purchaser to take delivery, and aseller to make delivery, of a specific amount of an asset at a specified future date at a specified price. Theprimary risks associated with the use of futures contracts and options are (a) the imperfect correlation betweenthe change in market value of the instruments held by the Fund and the price of the futures contract or option;(b) the possible lack of a liquid secondary market for a futures contract and the resulting inability to close afutures contract when desired; (c) losses caused by unanticipated market movements, which are potentiallyunlimited; (d) the investment adviser’s inability to predict correctly the direction of securities prices, interestrates, currency exchange rates and other economic factors; and (e) the possibility that the counterparty willdefault in the performance of its obligations.
Options – An option is an agreement that, for a premium payment or fee, gives the option holder (the purchaser)the right but not the obligation to buy (a “call option”) or sell (a “put option”) the underlying asset (or settle forcash in an amount based on an underlying asset, rate, or index) at a specified price (the “exercise price”) duringa period of time or on a specified date. Investments in options are considered speculative. When the Fundpurchases an option, it may lose the total premium paid for it if the price of the underlying security or otherassets decreased, remained the same or failed to increase to a level at or beyond the exercise price (in the caseof a call option) or increased, remained the same or failed to decrease to a level at or below the exercise price (inthe case of a put option). If a put or call option purchased by the Fund were permitted to expire without being soldor exercised, its premium would represent a loss to the Fund. To the extent that the Fund writes or sells anoption, if the decline or increase in the underlying asset is significantly below or above the exercise price of thewritten option, the Fund could experience a substantial loss.
Commodity-Linked Derivatives – The value of a commodity-linked derivative investment typically is based upon theprice movements of a commodity, a commodity futures contract or commodity index, or some other readilymeasurable economic variable. The value of commodity-linked derivative instruments may be affected by changesin overall market movements, volatility of the underlying benchmark, changes in interest rates, or factors affectinga particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs andinternational economic, political and regulatory developments. The value of commodity-linked derivatives will riseor fall in response to changes in the underlying commodity or related index. Investments in commodity-linkedderivatives may be subject to greater volatility than non-derivative based investments. A highly liquid secondarymarket may not exist for certain commodity-linked derivatives, and there can be no assurance that one willdevelop.
Commodity-linked derivatives also may be subject to credit and interest rate risks that in general affect the values offixed-income securities. Therefore, at maturity, the Fund may receive more or less principal than it originally invested.The Fund might receive interest payments that are more or less than the stated coupon interest payments.
In connection with the Fund’s direct and indirect investments in commodity-linked derivatives, the Fund willattempt to manage its counterparty exposure so as to limit its exposure to any one counterparty. However, due tothe limited number of entities that may serve as counterparties (and which the Fund believes are creditworthy) atany one time the Fund may enter into swap agreements with a limited number of counterparties and may invest incommodity-linked notes issued by a limited number of issuers that will act as counterparties, which may increasethe Fund’s exposure to counterparty credit risk. There can be no assurance that the Fund will be able to limitexposure to any one counterparty at all times.
Commodity-Linked Notes – Commodity-linked notes involve substantial risks, including the risk of loss of asignificant portion of their principal value. In addition to commodity risk and general derivatives risk, they may besubject to additional special risks, such as risk of loss of interest and principal, lack of secondary market and riskof greater volatility, that do not affect traditional equity and debt securities.
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■ Equity Securities Risk — Common and preferred stocks represent equity ownership in a company. Stock marketsare volatile. The price of equity securities will fluctuate and can decline and reduce the value of a portfolio investingin equities. The value of equity securities purchased by the Fund could decline if the financial condition of thecompanies the Fund invests in declines or if overall market and economic conditions deteriorate. The value of equitysecurities may also decline due to factors that affect a particular industry or industries, such as labor shortages oran increase in production costs and competitive conditions within an industry. In addition, the value may decline dueto general market conditions that are not specifically related to a company or industry, such as real or perceivedadverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currencyrates or generally adverse investor sentiment.
■ High Portfolio Turnover Risk — The Fund may engage in active and frequent trading of its portfolio securities. Highportfolio turnover (more than 100%) may result in increased transaction costs to the Fund, including brokeragecommissions, dealer mark-ups and other transaction costs on the sale of the securities and on reinvestment inother securities. The sale of Fund portfolio securities may result in the realization and/or distribution toshareholders of higher capital gains or losses as compared to a fund with less active trading policies. These effectsof higher than normal portfolio turnover may adversely affect Fund performance.
■ Investments in Underlying Funds Risk — The Fund will invest substantially all of its assets in underlying funds, sothe Fund’s investment performance is directly related to the performance of the underlying funds. The Fund’s netasset value will change with changes in the value of the underlying funds and other securities in which it invests. Aninvestment in the Fund will entail more direct and indirect costs and expenses than a direct investment in theunderlying funds. For example, the Fund indirectly pays a portion of the expenses (including operating expenses andmanagement fees) incurred by the underlying funds.
One underlying fund may buy the same securities that another underlying fund sells. In addition, the Fund may buythe same securities that an underlying fund sells, or vice-versa. If this happens, an investor in the Fund wouldindirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, aninvestor in the Fund may receive taxable gains from portfolio transactions by an underlying fund, as well as taxablegains from transactions in shares of the underlying fund by the Fund. Certain of the underlying funds may holdcommon portfolio securities, thereby reducing the diversification benefits of the Fund.
As the underlying funds or the Fund’s allocations among the underlying funds change from time to time, or to theextent that the expense ratio of the underlying funds changes, the weighted average operating expenses borne bythe Fund may increase or decrease.
■ Investment Style Risk — Under certain market conditions, growth investments have performed better during thelater stages of economic expansion and value investments have performed better during periods of economicrecovery. Therefore, these investment styles may over time go in and out of favor. At times when the investmentstyle used by the Fund is out of favor, the Fund may underperform other funds that use different investment styles.
■ Leverage Risk — Some transactions may give rise to a form of economic leverage. These transactions may include,among others, derivatives, and may expose the Fund to greater risk and increase its costs. As an open-endinvestment company registered with the SEC, the Fund is subject to the federal securities laws, including theInvestment Company Act, the rules thereunder, and various SEC and SEC staff interpretive positions. In accordancewith these laws, rules and positions, the Fund must “set aside” liquid assets (often referred to as “assetsegregation”), or engage in other SEC- or staff-approved measures, to “cover” open positions with respect to certainkinds of instruments. The use of leverage may cause the Fund to liquidate portfolio positions when it may not beadvantageous to do so to satisfy its obligations or to meet any required asset segregation requirements. Increasesand decreases in the value of the Fund’s portfolio will be magnified when the Fund uses leverage.
■ Market Risk and Selection Risk — Market risk is the risk that one or more markets in which the Fund invests willgo down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk isthe risk that the securities selected by Fund management will underperform the markets, the relevant indices or thesecurities selected by other funds with similar investment objectives and investment strategies. This means youmay lose money.
■ Retirement Income Risk — The Fund does not provide a guarantee that sufficient capital appreciation will beachieved to provide adequate income at and through retirement. The Fund also does not ensure that you will haveassets in your account sufficient to cover your retirement expenses or that you will have enough saved to be able toretire in the target year identified in the Fund’s name, if applicable; this will depend on the amount of money youhave invested in the Fund, the length of time you have held your investment, the returns of the markets over time,the amount you spend in retirement, and your other assets and income sources.
Principal Risks of the Underlying Funds
■ Asset Class Risk — The securities and other assets in the underlying index or in the Fund’s portfolio mayunderperform in comparison to other securities or indexes that track other countries, groups of countries, regions,
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industries, groups of industries, markets, asset classes or sectors. Various types of securities, currencies andindexes may experience cycles of outperformance and underperformance in comparison to the general financialmarkets depending upon a number of factors including, among other things, inflation, interest rates, productivity,global demand for local products or resources, and regulation and governmental controls. This may cause the Fundto underperform other investment vehicles that invest in different asset classes.
■ Authorized Participant Concentration Risk — Only an authorized participant may engage in creation or redemptiontransactions directly with the Fund, and none of those authorized participants is obligated to engage in creationand/or redemption transactions. The Fund has a limited number of institutions that may act as authorizedparticipants on an agency basis (i.e., on behalf of other market participants). To the extent that authorizedparticipants exit the business or are unable to proceed with creation or redemption orders with respect to the Fundand no other authorized participant is able to step forward to create or redeem creation units, Fund shares may bemore likely to trade at a premium or discount to net asset value and possibly face trading halts or delisting.
■ Calculation Methodology Risk — The underlying index relies on various sources of information to assess thecriteria of issuers included in the underlying index (or its parent index), including information that may be based onassumptions and estimates. Neither the Fund nor BlackRock can offer assurances that the underlying index’scalculation methodology or sources of information will provide an accurate assessment of included issuers.
■ Cash Transaction Risk — Certain ETFs intend to effect creations and redemptions principally for cash, rather thanprimarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficientthan investments in ETFs that effect creations and redemptions in-kind.
■ Commodities Related Investments Risk — Exposure to the commodities markets may subject the Fund to greatervolatility than investments in traditional securities. The value of commodity-linked derivative investments may beaffected by changes in overall market movements, commodity index volatility, changes in interest rates, or factorsaffecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and internationaleconomic, political and regulatory developments.
■ Concentration Risk — The Fund may concentrate in a specific industry. The Fund’s strategy of concentrating in aspecific industry’s companies means that its performance will be closely tied to the performance of a particularmarket segment. The Fund’s concentration in these companies may present more risks than if it were broadlydiversified over numerous industries and sectors of the economy. A downturn in these companies would have alarger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, theperformance of these companies will lag the performance of other industries or the broader market as a whole.
■ Convertible Securities Risk — The market value of a convertible security performs like that of a regular debtsecurity; that is, if market interest rates rise, the value of a convertible security usually falls. In addition, convertiblesecurities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and theirmarket value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’screditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, aconvertible security is also subject to the same types of market and issuer risks that apply to the underlyingcommon stock.
■ Depositary Receipts Risk — Depositary receipts are generally subject to the same risks as the foreign securitiesthat they evidence or into which they may be converted. In addition to investment risks associated with theunderlying issuer, depositary receipts expose the Fund to additional risks associated with the non-uniform termsthat apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and otherparties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market fordepositary receipts. The issuers of unsponsored depositary receipts are not obligated to disclose information thatis, in the United States, considered material. Therefore, there may be less information available regarding theseissuers and there may not be a correlation between such information and the market value of the depositaryreceipts.
■ Dividend Risk — There is no guarantee that issuers of the stocks held by the Fund will declare dividends in thefuture or that, if declared, they will either remain at current levels or increase over time.
■ Emerging Markets Risk — The risks of foreign investments are usually much greater for emerging markets.Investments in emerging markets may be considered speculative. Emerging markets may include those in countriesconsidered emerging or developing by the World Bank, the International Finance Corporation or the United Nations.Emerging markets are riskier than more developed markets because they tend to develop unevenly and may neverfully develop. They are more likely to experience hyperinflation and currency devaluations, which adversely affectreturns to U.S. investors. In addition, many emerging markets have far lower trading volumes and less liquidity thandeveloped markets. Since these markets are often small, they may be more likely to suffer sharp and frequent pricechanges or long-term price depression because of adverse publicity, investor perceptions or the actions of a fewlarge investors. In addition, traditional measures of investment value used in the United States, such as price toearnings ratios, may not apply to certain small markets. Also, there may be less publicly available information about
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issuers in emerging markets than would be available about issuers in more developed capital markets, and suchissuers may not be subject to accounting, auditing and financial reporting standards and requirements comparableto those to which U.S. companies are subject.
Many emerging markets have histories of political instability and abrupt changes in policies. As a result, theirgovernments are more likely to take actions that are hostile or detrimental to private enterprise or foreigninvestment than those of more developed countries, including expropriation of assets, confiscatory taxation, highrates of inflation or unfavorable diplomatic developments. In the past, governments of such nations haveexpropriated substantial amounts of private property, and most claims of the property owners have never been fullysettled. There is no assurance that such expropriations will not reoccur. In such an event, it is possible that theFund could lose the entire value of its investments in the affected market. Some countries have pervasive corruptionand crime that may hinder investments. Certain emerging markets may also face other significant internal orexternal risks, including the risk of war, and ethnic, religious and racial conflicts. In addition, governments in manyemerging market countries participate to a significant degree in their economies and securities markets, which mayimpair investment and economic growth. National policies that may limit the Fund’s investment opportunities includerestrictions on investment in issuers or industries deemed sensitive to national interests.
Emerging markets may also have differing legal systems and the existence or possible imposition of exchangecontrols, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to suchinvestments. Sometimes, they may lack or be in the relatively early development of legal structures governing privateand foreign investments and private property. Many emerging markets do not have income tax treaties with theUnited States, and as a result, investments by the Fund may be subject to higher withholding taxes in suchcountries. In addition, some countries with emerging markets may impose differential capital gains taxes on foreigninvestors.
Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those indeveloped markets, in part because the Fund will need to use brokers and counterparties that are less wellcapitalized, and custody and registration of assets in some countries may be unreliable. The possibility of fraud,negligence, undue influence being exerted by the issuer or refusal to recognize ownership exists in some emergingmarkets, and, along with other factors, could result in ownership registration being completely lost. The Fund wouldabsorb any loss resulting from such registration problems and may have no successful claim for compensation. Inaddition, communications between the United States and emerging market countries may be unreliable, increasingthe risk of delayed settlements or losses of security certificates.
■ Foreign Securities Risk — Securities traded in foreign markets have often (though not always) performed differentlyfrom securities traded in the United States. However, such investments often involve special risks not present inU.S. investments that can increase the chances that the Fund will lose money. In particular, the Fund is subject tothe risk that because there may be fewer investors on foreign exchanges and a smaller number of securities tradedeach day, it may be more difficult for the Fund to buy and sell securities on those exchanges. In addition, prices offoreign securities may go up and down more than prices of securities traded in the United States.
Certain Risks of Holding Fund Assets Outside the United States — The Fund generally holds its foreign securitiesand cash in foreign banks and securities depositories. Some foreign banks and securities depositories may berecently organized or new to the foreign custody business. In addition, there may be limited or no regulatoryoversight of their operations. Also, the laws of certain countries limit the Fund’s ability to recover its assets if aforeign bank, depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often moreexpensive for the Fund to buy, sell and hold securities in certain foreign markets than in the United States. Theincreased expense of investing in foreign markets reduces the amount the Fund can earn on its investments andtypically results in a higher operating expense ratio for the Fund than for investment companies invested only in theUnited States.
Currency Risk — Securities and other instruments in which the Fund invests may be denominated or quoted incurrencies other than the U.S. dollar. For this reason, changes in foreign currency exchange rates can affect thevalue of the Fund’s portfolio.
Generally, when the U.S. dollar rises in value against a foreign currency, a security denominated in that currencyloses value because the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar decreases in valueagainst a foreign currency, a security denominated in that currency gains value because the currency is worth moreU.S. dollars. This risk, generally known as “currency risk,” means that a strong U.S. dollar will reduce returns forU.S. investors while a weak U.S. dollar will increase those returns.
Foreign Economy Risk — The economies of certain foreign markets may not compare favorably with the economy ofthe United States with respect to such issues as growth of gross national product, reinvestment of capital,resources and balance of payments position. Certain foreign economies may rely heavily on particular industries orforeign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against aparticular country or countries, changes in international trading patterns, trade barriers and other protectionist or
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retaliatory measures. Investments in foreign markets may also be adversely affected by governmental actions suchas the imposition of capital controls, nationalization of companies or industries, expropriation of assets or theimposition of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantialrestrictions on foreign investments in their capital markets or in certain industries. Any of these actions couldseverely affect securities prices or impair the Fund’s ability to purchase or sell foreign securities or transfer theFund’s assets or income back into the United States, or otherwise adversely affect the Fund’s operations.
Other potential foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults onforeign government securities, difficulties in enforcing legal judgments in foreign courts and political and socialinstability. Diplomatic and political developments, including rapid and adverse political changes, social instability,regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets,and the value of the Fund’s investments, in non-U.S. countries. These factors are extremely difficult, if notimpossible, to predict and take into account with respect to the Fund’s investments.
Governmental Supervision and Regulation/Accounting Standards — Many foreign governments do not supervise andregulate stock exchanges, brokers and the sale of securities to the same extent as such regulations exist in theUnited States. They also may not have laws to protect investors that are comparable to U.S. securities laws. Forexample, some foreign countries may have no laws or rules against insider trading. Insider trading occurs when aperson buys or sells a company’s securities based on material non-public information about that company. Inaddition, some countries may have legal systems that may make it difficult for the Fund to vote proxies, exerciseshareholder rights, and pursue legal remedies with respect to its foreign investments. Accounting standards in othercountries are not necessarily the same as in the United States. If the accounting standards in another country donot require as much detail as U.S. accounting standards, it may be harder for Fund management to completely andaccurately determine a company’s financial condition.
Settlement Risk — Settlement and clearance procedures in certain foreign markets differ significantly from those inthe United States. Foreign settlement and clearance procedures and trade regulations also may involve certain risks(such as delays in payment for or delivery of securities) not typically associated with the settlement of U.S.investments.
At times, settlements in certain foreign countries have not kept pace with the number of securities transactions.These problems may make it difficult for the Fund to carry out transactions. If the Fund cannot settle or is delayed insettling a purchase of securities, it may miss attractive investment opportunities and certain of its assets may beuninvested with no return earned thereon for some period. If the Fund cannot settle or is delayed in settling a saleof securities, it may lose money if the value of the security then declines or, if it has contracted to sell the securityto another party, the Fund could be liable for any losses incurred.
European Economic Risk — The European financial markets have recently experienced volatility and adverse trendsdue to concerns about economic downturns in, or rising government debt levels of, several European countries.These events may spread to other countries in Europe. These events may affect the value and liquidity of certain ofthe Fund’s investments.
Responses to the financial problems by European governments, central banks and others, including austeritymeasures and reforms, may not work, may result in social unrest and may limit future growth and economic recoveryor have other unintended consequences. Further defaults or restructurings by governments and others of their debtcould have additional adverse effects on economies, financial markets and asset valuations around the world. Inaddition, the United Kingdom has withdrawn from the European Union, and one or more other countries maywithdraw from the European Union and/or abandon the Euro, the common currency of the European Union. Theimpact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and farreaching.
■ Geographic Risk — Some of the companies in which the Fund invests are located in parts of the world that havehistorically been prone to natural disasters, such as earthquakes, tornadoes, volcanic eruptions, droughts, floods,hurricanes or tsunamis, and are economically sensitive to environmental events. Any such event may adverselyimpact the economies of these geographic areas or business operations of companies in these geographic areas,causing an adverse impact on the value of the Fund.
■ Income Risk — The Fund’s yield will vary as the short-term securities in its portfolio mature and the proceeds arereinvested in securities with different interest rates.
■ Index-Related Risk — The Fund may seek to achieve a return that corresponds generally to the price and yieldperformance, before fees and expenses, of the applicable underlying index as published by its index provider. Thereis no assurance that an index provider or any agents that may act on its behalf will compile an underlying indexaccurately, or that an underlying index will be determined, composed or calculated accurately. While the indexproviders provide descriptions of what the applicable underlying index is designed to achieve, neither the indexproviders nor their agents provide any warranty or accept any liability in relation to the quality, accuracy orcompleteness of an underlying index or its related data, and they do not guarantee that an underlying index will be
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in line with its index provider’s methodology. BlackRock does not provide any warranty or guarantee against an indexprovider’s or any agent’s errors. Errors in respect of the quality, accuracy and completeness of the data used tocompile an underlying index may occur from time to time and may not be identified and corrected by an indexprovider for a period of time or at all, particularly where the indices are less commonly used as benchmarks byfunds or managers. Such errors may negatively or positively impact the Fund and its shareholders. For example,during a period where an underlying index contains incorrect constituents, the Fund would have market exposure tosuch constituents and would be underexposed to the underlying index’s other constituents. Shareholders shouldunderstand that any gains from index provider errors will be kept by the Fund and its shareholders and any losses orcosts resulting from index provider errors will be borne by the Fund and its shareholders.
Apart from scheduled rebalances, an index provider or its agents may carry out additional ad hoc rebalances to anunderlying index in order, for example, to correct an error in the selection of index constituents. When an underlyingindex is rebalanced and the Fund in turn rebalances its portfolio to attempt to increase the correlation between theFund’s portfolio and the underlying index, any transaction costs and market exposure arising from such portfoliorebalancing will be borne directly by the Fund and its shareholders. Therefore, errors and additional ad hocrebalances carried out by an index provider or its agents to an underlying index may increase the costs to and thetracking error risk of the Fund.
■ Issuer Risk — The performance of the Fund depends on the performance of individual securities to which the Fundhas exposure. Any issuer of these securities may perform poorly, causing the value of its securities to decline. Poorperformance may be caused by poor management decisions, competitive pressures, changes in technology,expiration of patent protection, disruptions in supply, labor problems or shortages, corporate restructurings,fraudulent disclosures, credit deterioration of the issuer or other factors. Issuers may, in times of distress or attheir own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
■ Junk Bonds Risk — Although junk bonds generally pay higher rates of interest than investment grade bonds, junkbonds are high risk investments that are considered speculative and may cause income and principal losses for theFund. The major risks of junk bond investments include:
■ Junk bonds may be issued by less creditworthy issuers. Issuers of junk bonds may have a larger amount ofoutstanding debt relative to their assets than issuers of investment grade bonds. In the event of an issuer’sbankruptcy, claims of other creditors may have priority over the claims of junk bond holders, leaving few or noassets available to repay junk bond holders.
■ Prices of junk bonds are subject to extreme price fluctuations. Adverse changes in an issuer’s industry andgeneral economic conditions may have a greater impact on the prices of junk bonds than on other higher ratedfixed-income securities.
■ Issuers of junk bonds may be unable to meet their interest or principal payment obligations because of aneconomic downturn, specific issuer developments, or the unavailability of additional financing.
■ Junk bonds frequently have redemption features that permit an issuer to repurchase the security from the Fundbefore it matures. If the issuer redeems junk bonds, the Fund may have to invest the proceeds in bonds withlower yields and may lose income.
■ Junk bonds may be less liquid than higher rated fixed-income securities, even under normal economic conditions.There are fewer dealers in the junk bond market, and there may be significant differences in the prices quoted forjunk bonds by the dealers. Because they are less liquid than higher rated fixed-income securities, judgment mayplay a greater role in valuing junk bonds than is the case with securities trading in a more liquid market.
■ The Fund may incur expenses to the extent necessary to seek recovery upon default or to negotiate new termswith a defaulting issuer.
■ The credit rating of a high yield security does not necessarily address its market value risk. Ratings and marketvalue may change from time to time, positively or negatively, to reflect new developments regarding the issuer.
■ Large Capitalization Companies Risk — Large-capitalization companies may be less able than smaller capitalizationcompanies to adapt to changing market conditions. Large-capitalization companies may be more mature and subjectto more limited growth potential compared with smaller capitalization companies. During different market cycles, theperformance of large-capitalization companies has trailed the overall performance of the broader securities markets.
■ Management Risk — If a passively managed underlying fund does not fully replicate its underlying index, it issubject to the risk that the manager’s investment management strategy may not produce the intended results.
■ Momentum Securities Risk — Stocks that have previously exhibited high momentum characteristics may notexperience positive momentum in the future or may experience more volatility than the market as a whole. The indexprovider may be unsuccessful in creating an index that emphasizes momentum securities. In addition, there may beperiods when the momentum style of investing is out of favor and the investment performance of the Fund may suffer.
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■ National Closed Market Trading Risk — To the extent that the underlying securities and/or other assets held bythe Fund trade on foreign exchanges or in foreign markets that may be closed when the securities exchange onwhich the Fund’s shares trade is open, there are likely to be deviations between the current price of an underlyingsecurity and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market).These deviations could result in premiums or discounts to the Fund’s net asset value that may be greater thanthose experienced by other ETFs.
■ Passive Investment Risk — Certain underlying funds are not actively managed and may be affected by a generaldecline in market segments relating to their respective indices. Such underlying funds typically invest in securitiesincluded in, or representative of, their respective indices regardless of their investment merits and do not attempt totake defensive positions in declining markets.
■ Preferred Securities Risk — Preferred securities may pay fixed or adjustable rates of return. Preferred securities aresubject to issuer-specific and market risks applicable generally to equity securities. In addition, a company’spreferred securities generally pay dividends only after the company makes required payments to holders of itsbonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bondsand other debt to actual or perceived changes in the company’s financial condition or prospects. Preferredsecurities of smaller companies may be more vulnerable to adverse developments than preferred securities oflarger companies.
■ Quality Stocks Risk — The Fund invests in stocks that are deemed by the index provider to be of high quality basedon a number of factors, including, among others, historical and expected high returns on equity, stable earningsgrowth and low debt-to-asset ratio, but there is no guarantee that the past performance of these stocks willcontinue. The index provider may be unsuccessful in creating an index that reflects the quality of individual stocks.Companies that issue these stocks may not be able to sustain consistently high returns on equity, earnings andgrowth year after year and may need to borrow money or issue debt despite their prior history. Earnings, growth andother measures of a stock’s quality can be adversely affected by market, regulatory, political, environmental andother factors. The price of a stock also may be affected by factors other than those factors considered by the indexprovider. The degree to which these factors affect a stock’s performance can be difficult to predict.
■ Real Estate-Related Securities Risk — The main risk of real estate-related securities is that the value of theunderlying real estate may go down. Many factors may affect real estate values. These factors include both thegeneral and local economies, vacancy rates, tenant bankruptcies, the ability to re-lease space under expiring leaseson attractive terms, the amount of new construction in a particular area, the laws and regulations (including zoning,environmental and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate.The availability of mortgage financing and changes in interest rates may also affect real estate values. If the Fund’sreal estate-related investments are concentrated in one geographic area or in one property type, the Fund will beparticularly subject to the risks associated with that area or property type. Many issuers of real estate-relatedsecurities are highly leveraged, which increases the risk to holders of such securities. The value of the securitiesthe Fund buys will not necessarily track the value of the underlying investments of the issuers of such securities.
■ REIT Investment Risk — In addition to the risks facing real estate-related securities, such as a decline in propertyvalues due to increasing vacancies, a decline in rents resulting from unanticipated economic, legal or technologicaldevelopments or a decline in the price of securities of real estate companies due to a failure of borrowers to paytheir loans or poor management, investments in REITs involve unique risks. REITs may have limited financialresources, may trade less frequently and in limited volume, may engage in dilutive offerings of securities and maybe more volatile than other securities. REIT issuers may also fail to maintain their exemptions from investmentcompany registration or fail to qualify for the “dividends paid deduction” under the Internal Revenue Code, whichallows REITs to reduce their corporate taxable income for dividends paid to their shareholders. Ordinary REITdividends received by the Fund and distributed to the Fund’s shareholders will generally be taxable as ordinaryincome and will not constitute “qualified dividend income.” However, for tax years beginning after December 31,2017 and before January 1, 2026, a non-corporate taxpayer who is a direct REIT shareholder may claim a 20%“qualified business income” deduction for ordinary REIT dividends, and proposed regulations issued in January2019, on which taxpayers may currently rely, permit a regulated investment company to report dividends as eligiblefor this deduction to the extent the regulated investment company’s income is derived from ordinary REIT dividends(reduced by allocable regulated investment company expenses). A shareholder may treat the dividends as suchprovided the regulated investment company and the shareholder satisfy applicable holding period requirements.
■ Repurchase Agreements Risk — If the other party to a repurchase agreement or purchase and sale contractdefaults on its obligation under the agreement, the Fund may suffer delays and incur costs or lose money inexercising its rights under the agreement. If the seller fails to repurchase the security in either situation and themarket value of the security declines, the Fund may lose money.
■ Restricted Securities Risk — Limitations on the resale of restricted securities may have an adverse effect on theirmarketability, and may prevent the Fund from disposing of them promptly at advantageous prices. Restrictedsecurities may not be listed on an exchange and may have no active trading market. In order to sell such securities,
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the Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays ineffecting the registration. Other transaction costs may be higher for restricted securities than unrestrictedsecurities. Restricted securities may be difficult to value because market quotations may not be readily available,and the securities may have significant volatility. Also, the Fund may get only limited information about the issuer ofa given restricted security, and therefore may be less able to predict a loss. Certain restricted securities may involvea high degree of business and financial risk and may result in substantial losses to the Fund.
■ Shares of an ETF May Trade at Prices Other Than Net Asset Value — Shares of an ETF trade on exchanges atprices at, above or below their most recent net asset value. The per share net asset value of an ETF is calculated atthe end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the mostrecent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based onmarket supply and demand rather than net asset value. The trading prices of an ETF’s shares may deviatesignificantly from net asset value during periods of market volatility. Any of these factors may lead to an ETF’sshares trading at a premium or discount to net asset value. However, because shares can be created andredeemed in creation units, which are aggregated blocks of shares that authorized participants who have enteredinto agreements with the ETF’s distributor can purchase or redeem directly from the ETF, at net asset value (unlikeshares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes atpremiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not likely tobe sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’sshares normally trade on exchanges at prices close to the ETF’s next calculated net asset value, exchange pricesare not expected to correlate exactly with an ETF’s net asset value due to timing reasons as well as market supplyand demand factors. In addition, disruptions to creations and redemptions or the existence of extreme marketvolatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at atime when the market price is at a premium to the net asset value or sells at a time when the market price is at adiscount to the net asset value, the shareholder may sustain losses.
■ Short Sales Risk — Because making short sales in securities that it does not own exposes the Fund to the risksassociated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as aresult of a short sale if the price of the security increases between the date of the short sale and the date on whichthe Fund replaces the security sold short. The Fund will realize a gain if the security declines in price between thosedates. As a result, if the Fund makes short sales in securities that increase in value, it will likely underperformsimilar funds that do not make short sales in securities they do not own. There can be no assurance that the Fundwill be able to close out a short sale position at any particular time or at an acceptable price. Although the Fund’sgain is limited to the amount at which it sold a security short, its potential loss is limited only by the maximumattainable price of the security, less the price at which the security was sold. The Fund may also pay transactioncosts and borrowing fees in connection with short sales.
■ Small and Mid-Capitalization Company Risk — Companies with small or mid-size market capitalizations willnormally have more limited product lines, markets and financial resources and will be dependent upon a morelimited management group than larger capitalized companies. In addition, it is more difficult to get information onsmaller companies, which tend to be less well known, have shorter operating histories, do not have significantownership by large investors and are followed by relatively few securities analysts.
■ Sovereign Debt Risk — Sovereign debt instruments are subject to the risk that a governmental entity may delay orrefuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficientforeign currency reserves, political considerations, the relative size of the governmental entity’s debt position inrelation to the economy or the failure to put in place economic reforms required by the International Monetary Fundor other multilateral agencies. If a governmental entity defaults, it may ask for more time in which to pay or forfurther loans. There is no legal process for collecting sovereign debt that a government does not pay nor are therebankruptcy proceedings through which all or part of the sovereign debt that a governmental entity has not repaidmay be collected.
■ Supranational Entities Risk — The Fund may invest in obligations issued or guaranteed by the World Bank. Thegovernment members, or “stockholders,” usually make initial capital contributions to the World Bank and in manycases are committed to make additional capital contributions if the World Bank is unable to repay its borrowings.There is no guarantee that one or more stockholders of the World Bank will continue to make any necessaryadditional capital contributions. If such contributions are not made, the entity may be unable to pay interest or repayprincipal on its debt securities, and the Fund may lose money on such investments.
■ Tracking Error Risk — Imperfect correlation between a passively managed underlying fund’s portfolio securities andthose in its index, rounding of prices, the timing of cash flows, the underlying fund’s size, changes to the index andregulatory requirements may cause tracking error, which is the divergence of an underlying fund’s performance fromthat of its underlying index. This risk may be heightened during times of increased market volatility or other unusualmarket conditions. Tracking error also may result because an underlying fund incurs fees and expenses while itsunderlying index does not.
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■ U.S. Government Obligations Risk — Not all U.S. Government securities are backed by the full faith and credit ofthe United States. Obligations of certain agencies, authorities, instrumentalities and sponsored enterprises of theU.S. Government are backed by the full faith and credit of the United States (e.g., the Government NationalMortgage Association); other obligations are backed by the right of the issuer to borrow from the U.S. Treasury (e.g.,the Federal Home Loan Banks) and others are supported by the discretionary authority of the U.S. Government topurchase an agency’s obligations. Still others are backed only by the credit of the agency, authority, instrumentalityor sponsored enterprise issuing the obligation. No assurance can be given that the U.S. Government would providefinancial support to any of these entities if it is not obligated to do so by law.
■ Value Securities Risk — Value securities are those issued by companies that may be perceived as undervalued.Value securities may fail to appreciate for long periods of time and may never realize their full potential value. Theindex provider may be unsuccessful in creating an index that emphasizes undervalued securities. Value securitieshave generally performed better than non-value securities during periods of economic recovery (although there is noassurance that they will continue to do so). Value securities may go in and out of favor over time.
■ Variable and Floating Rate Instrument Risk — Variable and floating rate securities provide for periodic adjustmentin the interest rate paid on the securities. These securities may be subject to greater illiquidity risk than other fixedincome securities, meaning the absence of an active market for these securities could make it difficult for the Fundto dispose of them at any given time.
■ Volatility Risk — Although the Fund intends to implement strategies designed to limit volatility during times ofmarket stress, the effectiveness of these strategies may depend on particular market conditions and other factorsthat are beyond the control of Fund management. There can be no assurance that the Fund’s efforts to limitvolatility will be successful or that any particular level of volatility will be achieved.
Investment in a Particular Geographic Region or Country Risks
■ Asia-Pacific Countries — In addition to the risks of investing in non-U.S. securities and the risks of investing inemerging markets, the developing market Asia-Pacific countries are subject to certain additional or specific risks. Inmany of these markets, there is a high concentration of market capitalization and trading volume in a small numberof issuers representing a limited number of industries, as well as a high concentration of investors and financialintermediaries. Many of these markets also may be affected by developments with respect to more establishedmarkets in the region such as in Japan and Hong Kong. Brokers in developing market Asia-Pacific countries typicallyare fewer in number and less well capitalized than brokers in the United States.
Many of the developing market Asia-Pacific countries may be subject to a greater degree of economic, political andsocial instability than is the case in the United States and Western European countries. Such instability may resultfrom, among other things: (i) authoritarian governments or military involvement in political and economic decision-making, including changes in government through extra-constitutional means; (ii) popular unrest associated withdemands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations withneighboring countries; and (v) ethnic, religious and racial disaffection. In addition, the governments of many of suchcountries, such as Indonesia, have a substantial role in regulating and supervising the economy.
Another risk common to most such countries is that the economy is heavily export oriented and, accordingly, isdependent upon international trade. The existence of overburdened infrastructure and obsolete financial systemsalso presents risks in certain countries, as do environmental problems. Certain economies also depend to asignificant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodityprices that, in turn, may be affected by a variety of factors.
The rights of investors in developing market Asia-Pacific companies may be more limited than those of shareholdersof U.S. corporations. It may be difficult or impossible to obtain and/or enforce a judgment in a developing marketAsia-Pacific country.
Some developing Asia-Pacific countries prohibit or impose substantial restrictions on investments in their capitalmarkets, particularly their equity markets, by foreign entities. For example, certain countries may requiregovernmental approval prior to investments by foreign persons or limit the amount of investment by foreign personsin a particular company.
■ Europe — Any adverse developments in connection with the ongoing development of the Economic and MonetaryUnion (“EMU”) could potentially destabilize the EMU and/or could adversely affect the Fund’s Europeaninvestments.
■ India — India is an emerging market and demonstrates significantly higher volatility from time to time in comparisonto more developed markets. Political and legal uncertainty, greater government control over the economy, currencyfluctuations or blockage and the risk of nationalization or expropriation of assets may offer higher potential for losses.
Moreover, governmental actions can have a significant effect on the economic conditions in India, which couldadversely affect the value and liquidity of investments. The securities industries in India are comparatively
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underdeveloped, and stockbrokers and other intermediaries may not perform as well as their counterparts in theUnited States and other more developed securities markets. The limited liquidity of the Indian securities marketsmay also affect the Fund’s ability to acquire or dispose of securities at the price and time that it desires.
Global factors and foreign actions may inhibit the flow of foreign capital on which India is dependent to sustain itsgrowth. In addition, the Reserve Bank of India (“RBI”) has imposed limits on foreign ownership which may decreasethe liquidity of the Fund’s portfolio and result in extreme volatility in the prices of Indian securities. These factors,coupled with the lack of extensive accounting, auditing and financial reporting standards and practices, asapplicable in the United States, may increase the risk of loss.
Further, certain Indian regulatory approvals, including approvals from the Securities and Exchange Board of India, thecentral government and the tax authorities (to the extent that tax benefits need to be utilized), may be requiredbefore the Fund can make investments in Indian companies. Furthermore, the Fund may require the prior approvalsof the Foreign Investment Promotion Board of the Ministry of Finance of the government of India and the RBI forthem to invest in certain Indian companies operating in specified sectors or beyond certain specified investmentlimit ceilings. There is a risk that these approvals may not be given or cancelled at a later point in time, during thelife cycle of the Fund.
■ Latin America — The economies of Latin American countries have in the past experienced considerable difficulties,including high inflation rates and high interest rates. The emergence of the Latin American economies and securitiesmarkets will require continued economic and fiscal discipline that has been lacking at times in the past, as well asstable political and social conditions. International economic conditions, particularly those in the United States, aswell as world prices for oil and other commodities may also influence the development of the Latin Americaneconomies.
Some Latin American currencies have experienced steady devaluations relative to the U.S. dollar and certain LatinAmerican countries have had to make major adjustments in their currencies from time to time. In addition,governments of many Latin American countries have exercised and continue to exercise substantial influence overmany aspects of the private sector. Governmental actions in the future could have a significant effect on economicconditions in Latin American countries, which could affect the companies in which the Fund invests and, therefore,the value of Fund shares. As noted, in the past, many Latin American countries have experienced substantial, and insome periods extremely high, rates of inflation for many years. For companies that keep accounting records in thelocal currency, inflation accounting rules in some Latin American countries require, for both tax and accountingpurposes, that certain assets and liabilities be restated on the company’s balance sheet in order to express itemsin terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits forcertain Latin American companies. Inflation and rapid fluctuations in inflation rates have had, and could, in thefuture, have very negative effects on the economies and securities markets of certain Latin American countries.
Substantial limitations may exist in certain countries with respect to the Fund’s ability to repatriate investmentincome, capital or the proceeds of sales of securities. The Fund could be adversely affected by delays in, or arefusal to grant, any required governmental approval for repatriation of capital, as well as by the application to theFund of any restrictions on investments.
Certain Latin American countries have entered into regional trade agreements that are designed to, among other things,reduce barriers between countries, increase competition among companies and reduce government subsidies in certainindustries. No assurance can be given that these changes will be successful in the long-term, or that these changes willresult in the economic stability intended. There is a possibility that these trade arrangements will not be fullyimplemented, or will be partially or completely unwound. It is also possible that a significant participant could choose toabandon a trade agreement, which could diminish its credibility and influence. Any of these occurrences could haveadverse effects on the markets of both participating and non-participating countries, including sharp appreciation ordepreciation of participants’ national currencies and a significant increase in exchange rate volatility, a resurgence ineconomic protectionism, an undermining of confidence in the Latin American markets, an undermining of Latin Americaneconomic stability, the collapse or slowdown of the drive towards Latin American economic unity, and/or reversion of theattempts to lower government debt and inflation rates that were introduced in anticipation of such trade agreements.Such developments could have an adverse impact on the Fund’s investments in Latin America generally or in specificcountries participating in such trade agreements.
Other Latin American market risks include foreign exchange controls, difficulties in pricing securities, defaults onsovereign debt, difficulties in enforcing favorable legal judgments in local courts and political and social instability.Legal remedies available to investors in certain Latin American countries may be less extensive than those availableto investors in the United States or other foreign countries.
■ Middle East — Many Middle Eastern countries have little or no democratic tradition and the political and legalsystems in such countries may adversely impact the companies in which the Fund invests and, as a result, thevalue of the Fund. Middle Eastern governments have exercised and continue to exercise substantial influence overmany aspects of the private sector. Many economies in the Middle East are highly reliant on income from the saleof oil or trade with countries involved in the sale of oil, and their economies are therefore vulnerable to changes in
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the market for oil and foreign currency values. As global demand for oil fluctuates, many Middle Eastern economiesmay be significantly impacted. A sustained decrease in commodity prices could have a significant negative impacton all aspects of the economy in the region. Middle Eastern economies may be subject to acts of terrorism, politicalstrife, religious, ethnic or socioeconomic unrest and sudden outbreaks of hostilities with neighboring countries.
Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorialdisputes, historical animosities, international alliances, religious tensions or defense concerns, which may adverselyaffect the economies of these countries. Certain Middle Eastern countries experience significant unemployment, aswell as widespread underemployment.
Many Middle Eastern countries periodically have experienced political, economic and social unrest as protestorshave called for widespread reform. Some of these protests have resulted in a governmental regime change, internalconflict or civil war. If further regime changes were to occur, internal conflict were to intensify, or a civil war were tocontinue in any of these countries, such instability could adversely affect the economies of Middle Eastern countriesin which the Fund invests and could decrease the value of the Fund’s investments.
■ Russia — Because of the recent formation of the Russian securities markets, the underdeveloped state of Russia’sbanking and telecommunication system and the legal and regulatory framework in Russia, settlement, clearing andregistration of securities transactions are subject to additional risks. Prior to 2013, there was no central registrationsystem for equity share registration in Russia and registration was carried out either by the issuers themselves or byregistrars located throughout Russia. These registrars may not have been subject to effective state supervision orlicensed with any governmental entity. In 2013, Russia established the National Settlement Depository (“NSD”) as arecognized central securities depository, and title to Russian equities is now based on the records of the NSD andnot on the records of the local registrars. The implementation of the NSD is generally expected to decrease the riskof loss in connection with recording and transferring title to securities; however, loss may still occur. Additionally,issuers and registrars remain prominent in the validation and approval of documentation requirements for corporateaction processing in Russia, and there remain inconsistent market standards in the Russian market with respect tothe completion and submission of corporate action elections. To the extent that the Fund suffers a loss relating totitle or corporate actions relating to its portfolio securities, it may be difficult for the Fund to enforce its rights orotherwise remedy the loss. In addition, Russia also may attempt to assert its influence in the region througheconomic or even military measures, as it did with Georgia in the summer of 2008 and the Ukraine in 2014. Suchmeasures may have an adverse effect on the Russian economy, which may, in turn, negatively impact the Fund.
The United States and the Monetary Union of the European Union, along with the regulatory bodies of a number ofcountries including Japan, Australia, Norway, Switzerland and Canada (collectively, the “Sanctioning Bodies”), haveimposed economic sanctions on certain Russian individuals and Russian corporate entities. The Sanctioning Bodiescould also institute broader sanctions on Russia. These sanctions, or even the threat of further sanctions, mayresult in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverseconsequences to the Russian economy. These sanctions could also result in the immediate freeze of Russiansecurities and/or funds invested in prohibited assets, impairing the ability of the Fund to buy, sell, receive or deliverthose securities and/or assets. Sanctions could also result in Russia taking counter measures or retaliatory actionswhich may further impair the value and liquidity of Russian securities.
■ United Kingdom — Investment in United Kingdom issuers may subject the Fund to regulatory, political, currency,security, and economic risks specific to the United Kingdom. The United Kingdom’s economy relies heavily on theexport of financial services to the United States and other European countries. A prolonged slowdown in thefinancial services sector may have a negative impact on the United Kingdom’s economy. In the past, the UnitedKingdom has been a target of terrorism. Acts of terrorism in the United Kingdom or against United Kingdominterests may cause uncertainty in the United Kingdom’s financial markets and adversely affect the performance ofthe issuers to which the Fund has exposure. On January 31, 2020, the United Kingdom formally withdrew from theEuropean Union. The withdrawal may introduce significant new uncertainties and instability in the financial markets.The United Kingdom’s economy, along with certain other European Union economies, experienced a significanteconomic slowdown during the financial crisis that began in 2007.
■ United States — The Fund may have significant exposure to U.S. issuers. A decrease in imports or exports, changesin trade regulations and/or an economic recession in the United States may have a material adverse effect on the U.S.economy and the securities listed on U.S. exchanges. Policy and legislative changes in the United States are changingmany aspects of financial and other regulation and may have a significant effect on the U.S. markets generally, as wellas the value of certain securities. In addition, a continued rise in the U.S. public debt level or U.S. austerity measuresmay adversely affect U.S. economic growth and the securities to which the Fund has exposure.
Investment in a Particular Market Segment Risks
■ Consumer Staples Sector Risk — Companies in the consumer staples sector may be affected by the regulation ofvarious product components and production methods, marketing campaigns and changes in the global economy,consumer spending and consumer demand. Tobacco companies, in particular, may be adversely affected by new
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laws, regulations and litigation. Companies in the consumer staples sector may also be adversely affected bychanges or trends in commodity prices, which may be influenced by unpredictable factors. These companies may besubject to severe competition, which may have an adverse impact on their profitability.
■ Financials Sector Risk — Companies in the financials sector of an economy are subject to extensive governmentalregulation and intervention, which may adversely affect the scope of their activities, the prices they can charge, theamount of capital they must maintain and, potentially, their size. The extent to which the Fund may invest in acompany that engages in securities-related activities or banking is limited by applicable law. Governmentalregulation may change frequently and may have significant adverse consequences for companies in the financialssector, including effects not intended by such regulation. Recently enacted legislation in the United States hasrelaxed capital requirements and other regulatory burdens on certain U.S. banks. While the effect of the legislationmay benefit certain companies in the financials sector, including non-U.S. financials sector companies, increasedrisk taking by affected banks may also result in greater overall risk in the United States and global financials sector.The impact of changes in capital requirements, or recent or future regulation in various countries, on any individualfinancial company or on the financials sector as a whole cannot be predicted. Certain risks may impact the value ofinvestments in the financials sector more severely than those of investments outside this sector, including the risksassociated with companies that operate with substantial financial leverage. Companies in the financials sector mayalso be adversely affected by increases in interest rates and loan losses, decreases in the availability of money orasset valuations, credit rating downgrades and adverse conditions in other related markets. Insurance companies,in particular, may be subject to severe price competition and/or rate regulation, which may have an adverse impacton their profitability. The financials sector is particularly sensitive to fluctuations in interest rates. The financialssector is also a target for cyber-attacks, and may experience technology malfunctions and disruptions. In recentyears, cyber-attacks and technology malfunctions and failures have become increasingly frequent in this sector andhave reportedly caused losses to companies in this sector, which may negatively impact the Fund.
■ Industrials Sector Risk — The value of securities issued by companies in the industrials sector may be adverselyaffected by supply and demand changes related to their specific products or services and industrials sectorproducts in general. The products of manufacturing companies may face obsolescence due to rapid technologicaldevelopments and frequent new product introduction. Global events, trade disputes and changes in governmentregulations, economic conditions and exchange rates may adversely affect the performance of companies in theindustrials sector. Companies in the industrials sector may be adversely affected by liability for environmentaldamage and product liability claims. The industrials sector may also be adversely affected by changes or trends incommodity prices, which may be influenced by unpredictable factors. Companies in the industrials sector,particularly aerospace and defense companies, may also be adversely affected by government spending policiesbecause companies in this sector tend to rely to a significant extent on government demand for their products andservices.
■ Technology Sector Risk — Technology companies, including information technology companies, face intensecompetition, both domestically and internationally, which may have an adverse effect on a company’s profit margins.Technology companies may have limited product lines, markets, financial resources or personnel. The products oftechnology companies may face obsolescence due to rapid technological developments, frequent new productintroduction, unpredictable changes in growth rates and competition for the services of qualified personnel.Companies in the technology sector are heavily dependent on patent and other intellectual property rights. Atechnology company’s loss or impairment of these rights may adversely affect the company’s profitability.Companies in the technology sector are facing increased government and regulatory scrutiny and may be subject toadverse government or regulatory action. The technology sector may also be adversely affected by changes ortrends in commodity prices, which may be influenced or characterized by unpredictable factors.
Other Risks of Investing in the Funds
The Funds may also be subject to certain other non-principal risks associated with its investments and investmentstrategies, including:
■ Borrowing Risk — Borrowing may exaggerate changes in the net asset value of Fund shares and in the return onthe Fund’s portfolio. Borrowing will cost the Fund interest expense and other fees. The costs of borrowing mayreduce the Fund’s return. Borrowing may cause the Fund to liquidate positions when it may not be advantageous todo so to satisfy its obligations.
■ Cyber Security Risk — Failures or breaches of the electronic systems of the Fund, the Fund’s adviser, distributor,and other service providers, or the issuers of securities in which the Fund invests have the ability to causedisruptions and negatively impact the Fund’s business operations, potentially resulting in financial losses to theFund and its shareholders. While the Fund has established business continuity plans and risk management systemsseeking to address system breaches or failures, there are inherent limitations in such plans and systems.Furthermore, the Fund cannot control the cyber security plans and systems of the Fund’s service providers orissuers of securities in which the Fund invests.
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■ Dollar Rolls Risk — A dollar roll transaction involves a sale by the Fund of a mortgage-backed, U.S. Treasury or othersecurity (as permitted by the Fund’s investment strategies) concurrently with an agreement by the Fund to repurchasea similar security at a later date at an agreed-upon price. The market value of the securities the Fund is required topurchase may decline below the agreed upon repurchase price of those securities. If the broker/dealer to whom theFund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted.Successful use of dollar rolls may depend upon the adviser’s ability to correctly predict interest rates andprepayments, depending on the underlying security. There is no assurance that dollar rolls can be successfullyemployed.
■ Expense Risk — Fund expenses are subject to a variety of factors, including fluctuations in the Fund’s net assets.Accordingly, actual expenses may be greater or less than those indicated. For example, to the extent that the Fund’s netassets decrease due to market declines or redemptions, the Fund’s expenses will increase as a percentage of Fund netassets. During periods of high market volatility, these increases in the Fund’s expense ratio could be significant.
■ Illiquid Investments Risk — The Fund may invest up to an aggregate amount of 15% of its net assets in illiquidinvestments. An illiquid investment is any investment that the Fund reasonably expects cannot be sold or disposedof in current market conditions in seven calendar days or less without the sale or disposition significantly changingthe market value of the investment. The Fund’s illiquid investments may reduce the returns of the Fund because itmay be difficult to sell the illiquid investments at an advantageous time or price. An investment may be illiquid dueto, among other things, the reduced number and capacity of traditional market participants to make a market infixed-income securities or the lack of an active trading market. To the extent that the Fund’s principal investmentstrategies involve derivatives or securities with substantial market and/or credit risk, the Fund will tend to have thegreatest exposure to the risks associated with illiquid investments. Liquid investments may become illiquid afterpurchase by the Fund, particularly during periods of market turmoil. Illiquid investments may be harder to value,especially in changing markets, and if the Fund is forced to sell these investments to meet redemption requests orfor other cash needs, the Fund may suffer a loss. This may be magnified in a rising interest rate environment orother circumstances where investor redemptions from fixed-income mutual funds may be higher than normal. Inaddition, when there is illiquidity in the market for certain securities, the Fund, due to limitations on illiquidinvestments, may be subject to purchase and sale restrictions.
■ Money Market Securities Risk — If market conditions improve while the Fund has invested some or all of itsassets in high quality money market securities, this strategy could result in reducing the potential gain from themarket upswing, thus reducing the Fund’s opportunity to achieve its investment objective.
■ Purchase and Sale Contracts Risk — If the other party to a purchase and sale contract defaults on its obligationunder the agreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under theagreement. If the seller fails to repurchase the security and the market value of the security declines, the Fund maylose money.
■ Reverse Repurchase Agreements Risk — Reverse repurchase agreements involve the sale of securities held by theFund with an agreement to repurchase the securities at an agreed-upon price, date and interest payment. Reverserepurchase agreements involve the risk that the other party may fail to return the securities in a timely manner or atall. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by theFund, including the value of the investments made with cash collateral, is less than the value of the securities.These events could also trigger adverse tax consequences to the Fund.
■ Securities Lending Risk — Securities lending involves the risk that the borrower may fail to return the securities ina timely manner or at all. As a result, the Fund may lose money and there may be a delay in recovering the loanedsecurities. The Fund could also lose money if it does not recover the securities and/or the value of the collateralfalls, including the value of investments made with cash collateral. These events could trigger adverse taxconsequences for the Fund.
■ Treasury Obligations Risk — Direct obligations of the U.S. Treasury have historically involved little risk of loss ofprincipal if held to maturity. However, due to fluctuations in interest rates, the market value of such securities mayvary during the period shareholders own shares of the Fund.
■ Valuation Risk — The price the Fund could receive upon the sale of any particular portfolio investment may differfrom the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or thatare valued using a fair valuation methodology or a price provided by an independent pricing service. As a result, theprice received upon the sale of an investment may be less than the value ascribed by the Fund, and the Fund couldrealize a greater than expected loss or lesser than expected gain upon the sale of the investment. Pricing servicesthat value fixed-income securities generally utilize a range of market-based and security-specific inputs andassumptions, as well as considerations about general market conditions, to establish a price. Pricing servicesgenerally value fixed-income securities assuming orderly transactions of an institutional round lot size, but may beheld or transactions may be conducted in such securities in smaller, odd lot sizes. Odd lots may trade at lowerprices than institutional round lots. The Fund’s ability to value its investments may also be impacted bytechnological issues and/or errors by pricing services or other third-party service providers.
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Information About Underlying Funds
Description of Underlying FundsUnder normal circumstances, each Fund intends to invest primarily in affiliated open-end funds and affiliated ETFs. EachFund may invest in any of the underlying funds. Underlying funds may include open-end funds that are managed by theFunds’ portfolio managers. The following tables set forth (i) the names of the underlying funds, and (ii) brief descriptionsof the underlying funds’ investment objectives and principal investment strategies. The list of underlying funds is subjectto change at the discretion of BlackRock without notice to shareholders. In addition, the investment objective andprincipal investment strategies of each underlying fund are subject to change without notice to shareholders.
Prospectuses for the open-end funds can be accessed at www.blackrock.com/prospectus or obtained by calling(800) 441-7762. Prospectuses for the ETFs can be accessed at www.iShares.com or obtained by calling(800) 474-2737.
Fund Name Investment Objective and Principal Investment Strategies
Large Cap Index Master Portfolio The investment objective of Large Cap Index Master Portfolio (the “Master Portfolio”) is tomatch the performance of the Russell 1000®Index (the “Russell 1000”) as closely aspossible before the deduction of Master Portfolio expenses.
Large Cap Index Master Portfolio attempts to achieve, in both rising and falling markets, acorrelation of at least 95% between the total return of its net assets before fees andexpenses and the total return of the Master Portfolio’s benchmark index, the Russell 1000.Notwithstanding the factors described below, perfect (100%) correlation would be achieved ifthe total return of the Master Portfolio’s net assets, before fees and expenses, increased ordecreased exactly as the total return of the Master Portfolio’s benchmark index increased ordecreased. The Master Portfolio’s ability to match its investment performance to theinvestment performance of its benchmark index may be affected by, among other things, theMaster Portfolio’s expenses, the amount of cash and cash equivalents held by the MasterPortfolio, the manner in which the total return of the Master Portfolio’s benchmark index iscalculated; the size of the Master Portfolio’s investment portfolio; and the timing, frequencyand size of interestholder purchases and withdrawals.
The Master Portfolio will be substantially invested in equity securities in the Russell 1000,and will invest, under normal circumstances, at least 80% of its assets in securities or otherfinancial instruments that are components of or have economic characteristics similar to thesecurities included in the Russell 1000. This is a non-fundamental policy of the MasterPortfolio and may not be changed without 60 days’ prior notice to interestholders. TheMaster Portfolio may change its target index if Master Portfolio management believes adifferent index would better enable the Master Portfolio to match the performance of themarket segment represented by the current index.
The Master Portfolio may invest in all stocks in the Russell 1000 in roughly the sameproportions as their weightings in the Russell 1000. For example, if 2% of the Russell 1000is made up of the stock of a particular company, the Master Portfolio will normally investapproximately 2% of its assets in that company. This strategy is known as “full replication.”However, when Master Portfolio management believes it would be cost efficient, MasterPortfolio management is authorized to deviate from full replication and to invest instead in astatistically selected sample of the stocks in the Russell 1000 which has aggregateinvestment characteristics, such as average market capitalization and industry weightings,similar to the Russell 1000 as a whole, but which involves less transaction cost than wouldbe incurred through full replication. The Master Portfolio also may engage in futurestransactions to manage its short-term liquidity and/or as substitutes for comparable marketpositions in the securities in its benchmark index. Master Portfolio management may alsopurchase stocks not included in the Russell 1000 when it believes that it would be a costefficient way of approximating the Russell 1000’s performance to do so. Master Portfoliomanagement may omit or remove a security which is included in an index from the portfolioof the Master Portfolio if, following objective criteria, Master Portfolio management judgesthe security to be insufficiently liquid or believes the merit of the investment has beensubstantially impaired by extraordinary events or financial conditions. If Master Portfoliomanagement uses these techniques, the Master Portfolio may not track the Russell 1000 asclosely as it would if it were fully replicating the Russell 1000.
The Master Portfolio may lend securities with a value up to 331⁄3% of its total assets tofinancial institutions that provide cash or securities issued or guaranteed by the U.S.Government as collateral. The Master Portfolio will concentrate its investments (i.e., hold25% or more of its total assets) in a particular industry or group of industries toapproximately the same extent that the Russell 1000 is concentrated.
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Fund Name Investment Objective and Principal Investment Strategies
Master Small Cap Index Series The investment objective of Master Small Cap Index Series (the “Series”) is to match theperformance of the Russell 2000®Index (the “Russell 2000”) as closely as possible beforethe deduction of Series expenses.
The Series will not attempt to buy or sell securities based on Series management’seconomic, financial or market analysis, but will instead employ a “passive” investmentapproach. This means that Series management will attempt to invest in a portfolio of assetswhose performance is expected to match approximately the performance of the Russell2000 before deduction of expenses. The Series will buy or sell securities only when Seriesmanagement believes it is necessary to do so in order to match the performance of theRussell 2000. Accordingly, it is anticipated that the Series’ portfolio turnover rate and tradingcosts will be lower than those of an “actively” managed fund. However, the Series hasoperating and other expenses, while an index does not. Therefore, the Series will tend tounderperform its target index to some degree over time.
The Series will be substantially invested in securities in the Russell 2000, and will invest,under normal circumstances, at least 80% of its assets in securities or other financialinstruments that are components of or have economic characteristics similar to thesecurities included in the Russell 2000. This is a non-fundamental policy of the Series andmay not be changed without 60 days’ prior notice to interestholders. The Series may changeits target index if Series management believes a different index would better enable theSeries to match the performance of the market segment represented by the Russell 2000and, accordingly, the investment objective of the Series may be changed withoutinterestholder approval.
Master Small Cap Index Series may not invest in all of the common stocks in the Russell2000, or in the same weightings as in the Russell 2000. Instead, the Series may invest in astatistically selected sample of the stocks included in the Russell 2000 and in derivativeinstruments linked to the Russell 2000. The Series will choose investments so that themarket capitalizations, industry weightings and other fundamental characteristics of thestocks and derivative instruments in its portfolio are similar to the Russell 2000 as a whole.
U.S. Total Bond Index MasterPortfolio
U.S. Total Bond Index Master Portfolio (the “Master Portfolio”) seeks to provide investmentresults that correspond to the total return performance of fixed-income securities in theaggregate, as represented by the Bloomberg Barclays U.S. Aggregate Bond Index (the“Barclays U.S. Aggregate Index”).
Under normal circumstances, at least 90% of the value of the Master Portfolio’s assets, plusthe amount of any borrowing for investment purposes, is invested in securities comprisingthe Barclays U.S. Aggregate Index, which, for the Master Portfolio, are considered bonds. TheMaster Portfolio attempts to achieve, in both rising and falling markets, a correlation of atleast 95% between the total return of its net assets before fees and expenses and the totalreturn of the Master Portfolio’s benchmark index, the Barclays U.S. Aggregate Index.Notwithstanding the factors described below, perfect (100%) correlation would be achieved ifthe total return of the Master Portfolio’s net assets, before fees and expenses, increased ordecreased exactly as the total return of the Master Portfolio’s benchmark index increased ordecreased. The Master Portfolio’s ability to match its investment performance to theinvestment performance of its benchmark index may be affected by, among other things, theMaster Portfolio’s expenses, the amount of cash and cash equivalents held by the MasterPortfolio, the manner in which the total return of the Master Portfolio’s benchmark index iscalculated, the size of the Master Portfolio’s investment portfolio, and the timing, frequencyand size of purchases of interests and withdrawals.
The Master Portfolio utilizes sampling techniques that are designed to allow the MasterPortfolio to duplicate substantially the investment performance of the Barclays U.S.Aggregate Index. However, the Master Portfolio is not expected to track the Barclays U.S.Aggregate Index with the same degree of accuracy that complete replication of the BarclaysU.S. Aggregate Index would provide. No attempt is made to manage the Master Portfoliousing economic, financial or market analysis. In addition, at times, the portfolio compositionof the Master Portfolio may be altered (or “rebalanced”) to reflect changes in thecharacteristics of the index that the Master Portfolio tracks.
The Master Portfolio also may engage in futures and options transactions and otherderivative securities transactions and lend its portfolio securities, each of which involvesrisk. The Master Portfolio may use futures contracts, options and other derivativetransactions to manage its short-term liquidity and/or as substitutes for comparable marketpositions in the securities in its benchmark index. The Master Portfolio may also invest inhigh-quality money market instruments, including shares of money market funds advised byBlackRock Fund Advisors or its affiliates.
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Fund Name Investment Objective and Principal Investment Strategies
BlackRock Total Factor Fund The investment objective of BlackRock Total Factor Fund (the “Fund”) is to seek total return.
The Fund seeks to achieve its investment objective by investing in a broad range of globalasset classes, such as equity securities (which may include derivative instruments that aretied economically to equity securities), fixed and floating rate debt instruments, derivatives,other investment companies, including exchange-traded funds (“ETFs”), real estateinvestment trusts (“REITs”) and commodity-related instruments. The Fund will have flexibilitywith respect to the relative weighting of each asset class to produce total return and reducerisk.
The Fund applies a factor-based approach to portfolio construction to seek to more efficientlygenerate total return from a risk/return perspective than a traditional combination of equityand fixed-income securities. Through its research, BlackRock has identified macro and stylefactors that drive returns across and within asset classes. BlackRock uses this research todetermine the ideal allocations of the portfolio with reference to these factors and translatesthose allocations into asset classes. Such allocation across a range of asset classes andfactors is expected to result in greater diversification and lower risk than a portfolioconsisting solely of global equity securities. In determining the appropriate allocation acrossasset classes, the Fund will seek to manage exposure to macroeconomic factors, including,but not limited to, interest rates and economic growth and style factors, including, but notlimited to, value, momentum, carry, and defensive factors. Allocations are computed not onlyin terms of capital but also in terms of risk in order to avoid any overconcentration in anyparticular factor and to broaden the sources of potential returns.
The Fund will normally invest in both U.S. and non-U.S. companies, including companieslocated in emerging markets and in securities denominated in both U.S. dollars and foreigncurrencies. Equity securities include common stock, preferred stock, securities convertibleinto common stock, non-convertible preferred stock and depositary receipts. The Fund mayinvest in securities of issuers of any market capitalization.
The Fund’s investment in debt securities may include fixed and floating rate government andcorporate bonds and other fixed-income instruments, such as medium term notes. The Fundmay invest in debt securities of any credit quality, as determined by Fund management,which may include high yield securities (commonly called “junk bonds”).
The Fund may invest in derivatives, including but not limited to, total return swaps (some ofwhich may be referred to as contracts for difference), credit default swaps, interest rateswaps, options, futures, options on futures and swaps and foreign exchange transactions,for hedging purposes, as well as to enhance the return on its portfolio investments.
There is no limit to the Fund’s ability to invest in derivatives. The Fund may engage in shortsales of securities either to hedge against potential declines in the value of a security held inthe portfolio or to realize appreciation when a security the Fund does not own declines invalue.
The Fund may invest in other investment companies, including ETFs, which may be affiliatedwith BlackRock.
With respect to its cash investments, the Fund may hold high quality U.S.and non-U.S. money market securities, including, among others, short term U.S. Governmentsecurities, U.S. Government agency securities, securities issued by U.S. Government-sponsored enterprises and U.S. Government instrumentalities, short-term obligations offoreign issuers, bank obligations, commercial paper, including asset-backed commercialpaper, corporate notes, repurchase agreements and obligations of supranationalorganizations. The Fund may invest a significant portion of its assets in money market funds,including those advised by BlackRock or its affiliates.
The Fund may invest in U.S. and non-U.S. REITs and other real estate related securities.
The Fund may invest in commodity-related instruments. The Fund may make suchinvestments through investments in its subsidiary, which invests primarily in commodity-related instruments and other derivatives. The Fund will not invest more than 25% of its totalassets (measured at the time of investment) in the subsidiary.
Description of ETFsBlackRock Fund Advisors (“BFA”), an affiliate of BlackRock, is each ETF’s investment adviser. BFA utilizes either a“passive” or active investment approach to try to achieve an ETF’s investment objective.
Passively Managed ETFsUnlike many investment companies, a passively managed ETF does not try to “beat” the index it seeks to track (the“Underlying Index”) and does not seek temporary defensive positions when markets decline or appear overvalued.Indexing may eliminate the chance that the ETF will substantially outperform the Underlying Index but also may reduce
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some of the risks of active management, such as poor security selection. Indexing seeks to achieve lower costs andbetter after-tax performance by keeping portfolio turnover low in comparison to actively managed investmentcompanies.
For some ETFs, BFA may invest in all securities included in the Underlying Index in roughly the same proportions aseach security is weighted in such Underlying Index in an indexing strategy known as “full replication.” For other ETFs,BFA uses a representative sampling indexing strategy to manage the ETFs. “Representative sampling” is an indexingstrategy that involves investing in a representative sample of securities that collectively has an investment profilesimilar to the Underlying Index. The securities selected are expected to have, in the aggregate, investmentcharacteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics(such as return variability and yield) and liquidity measures similar to those of the Underlying Index. The ETF may ormay not hold all of the securities in the Underlying Index. ETFs that employ a representative sampling strategy mayincur tracking error risk to a greater extent than a fund that seeks to replicate an index.
Actively Managed ETFsUnlike passively managed ETFs, actively managed ETFs do not seek to replicate the performance of a specified index.Accordingly, BFA has discretion on a daily basis to manage an ETF’s portfolio in accordance with its investmentobjective. Actively managed ETFs may have a higher degree of portfolio turnover than ETFs that are passively managed.
Equity ETFs
Fund Name Investment Objective and Principal Investment Strategies
iShares Core MSCI TotalInternational Stock ETF
The iShares Core MSCI Total International Stock ETF (the “Fund”) seeks to track theinvestment results of an index composed of large-, mid- and small-capitalization non-U.S.equities.
The Fund seeks to track the investment results of the MSCI ACWI ex USA IMI (the“Underlying Index”), which is a free float-adjusted market capitalization index designed tomeasure the combined equity market performance of developed and emerging marketscountries, excluding the U.S. As of July 31, 2019, the Underlying Index consisted ofsecurities from companies in the following countries or regions: Argentina, Australia, Austria,Belgium, Brazil, Canada, Chile, China, Colombia, Czechia, Denmark, Egypt, Finland, France,Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, Peru, the Philippines,Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain,Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates and the UnitedKingdom. As of July 31, 2019, the Underlying Index was comprised of 6,403 securities. TheUnderlying Index may include large-, mid- or small-capitalization companies. As of July 31,2019, a significant portion of the Underlying Index is represented by securities of companiesin the financials industry or sector. The components of the Underlying Index are likely tochange over time.
iShares Edge MSCI Min Vol EAFEETF
The iShares Edge MSCI Min Vol EAFE ETF (the “Fund”) seeks to track the investment resultsof an index composed of developed market equities that, in the aggregate, have lowervolatility characteristics relative to the broader developed equity markets, excluding the U.S.and Canada.
The Fund seeks to track the investment results of the MSCI EAFE Minimum Volatility (USD)Index (the “Underlying Index”), which has been developed by MSCI Inc. (“MSCI”) to measurethe performance of international equity securities that in the aggregate have lower volatilityrelative to the MSCI EAFE Index (the “Parent Index”), which is a capitalization-weighted index.In constructing the Underlying Index, MSCI uses a rules-based methodology to selectsecurities from the Parent Index and to determine the weightings of such securities in theUnderlying Index. Under the rules-based methodology, securities and weightings of theUnderlying Index are established based on pre-established parameters and discretionaryfactors are not relied on.
Generally, the rules-based methodology includes specified requirements for securityeligibility, maximum and minimum weightings by security and, in some cases, by sector andcountry, established rules relating to handling of special dividends and other distributionsand treatment of corporate events. In order to determine weightings by security within theUnderlying Index, MSCI seeks to construct a portfolio of lowest absolute volatility, asmeasured by MSCI, using its multi-factor risk model. The portfolio is then further refined byan optimization tool that aims to determine the lowest absolute volatility based on theprojected “riskiness” of securities in the Parent Index while applying constraints based onestablished minimum and maximum weightings of index constituents and sectors as well asfactor constraints (for example, liquidity and financial leverage) as measured by MSCI.
The Underlying Index includes stocks from Europe, Australasia, the Middle East and the FarEast and, as of July 31, 2019, consisted of securities from the following 19 developed
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Fund Name Investment Objective and Principal Investment Strategies
iShares Edge MSCI Min Vol EAFEETF (continued)
market countries or regions: Australia, Belgium, Denmark, Finland, France, Germany,Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore,Spain, Sweden, Switzerland and the United Kingdom. The Underlying Index may include large-or mid-capitalization companies. As of July 31, 2019, a significant portion of the UnderlyingIndex is represented by securities of companies in the consumer staples and financialsindustries or sectors. The components of the Underlying Index are likely to change over time.
iShares Edge MSCI Min Vol USA ETF The iShares Edge MSCI Min Vol USA ETF (the “Fund”) seeks to track the investment resultsof an index composed of U.S. equities that, in the aggregate, have lower volatilitycharacteristics relative to the broader U.S. equity market.
The Fund seeks to track the investment results of the MSCI USA Minimum Volatility (USD)Index (the “Underlying Index”), which has been developed by MSCI Inc. (“MSCI”) to measurethe performance of large and mid-capitalization equity securities listed on stock exchanges inthe U.S. that, in the aggregate, have lower volatility relative to the large- and mid-cap U.S.equity market. In constructing the Underlying Index, MSCI uses a rules-based methodology toselect securities from the MSCI USA Index (the “Parent Index”), which is a capitalization-weighted index, and to determine the weightings of such securities in the Underlying Index.Under the rules-based methodology, securities and weightings of the Underlying Index areestablished based on pre-established parameters and discretionary factors are not relied on.
Generally, the rules-based methodology includes specified requirements for securityeligibility, maximum and minimum weightings by security and, in some cases, by sector andcountry, established rules relating to handling of special dividends and other distributionsand treatment of corporate events. In order to determine weightings by security within theUnderlying Index, MSCI seeks to construct a portfolio of the lowest absolute volatility, asmeasured by MSCI, using its multi-factor risk model. The portfolio is then further refined byan optimization tool that aims to determine the lowest absolute volatility based on theprojected “riskiness” of securities in the Parent Index while applying constraints based onestablished minimum and maximum weightings of index constituents and sectors as well asfactor constraints (for example, liquidity and financial leverage) as measured by MSCI.
The Underlying Index may include large- or mid-capitalization companies. As of July 31, 2019,a significant portion of the Underlying Index is represented by securities of companies in thetechnology industry or sector. The components of the Underlying Index are likely to changeover time.
iShares Edge MSCI Multifactor IntlETF
The iShares Edge MSCI Multifactor Intl ETF (the “Fund”) seeks to track the investmentresults of an index composed of global developed market large- and mid-capitalizationstocks, excluding the U.S., that have favorable exposure to target style factors subject toconstraints.
The Fund seeks to track the investment results of the MSCI World ex USA DiversifiedMultiple-Factor Index (the “Underlying Index”), which has been developed by MSCI Inc.(“MSCI”). The Underlying Index is designed to select equity securities from the MSCI Worldex USA Index (the “Parent Index”) that have high exposure to four investment style factors —value, quality, momentum and low size — while maintaining a level of risk similar to that ofthe Parent Index. The Underlying Index is also constrained in its construction to limit turnoverand extreme exposures to particular sectors, countries, component weights or otherinvestment style factors.
MSCI, in selecting equity securities from the Parent Index, which is comprised of large- andmid-capitalization stocks, assigns a composite score for a security through a proprietarymodel based on four equally-weighted investment style factors. The score for all four factors— value, quality, momentum and low size — is derived through a global equity model. Thevalue score is calculated from a company’s valuation ratios (e.g., forward and trailing earningsto share price, cash earnings to share price, book value to share price and enterprise value toearnings before interest & taxes (EBIT)); the quality score is calculated from a company’sunderlying metrics (e.g., profitability metrics (asset turnover, gross profitability, gross marginand return-on-assets), investment quality metrics (total assets growth rate, issuance growthand capital expenditure growth), leverage ratios (market leverage, book leverage anddebt-to-assets) and earnings variability (measured by volatility of earnings, cash flow, sales,and forward share price to earnings estimates)); the momentum score aims to measure asecurity’s sustained relative performance against the global market over a two-year period andagainst other securities based in the same country over the previous 12 months (with a onemonth lag); and the low size score seeks to measure the market capitalization of a companyas compared to other companies based in the same country.
As of July 31, 2019, the Underlying Index consisted of securities from approximately 207companies from the following countries or regions: Australia, Austria, Belgium, Canada,
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Fund Name Investment Objective and Principal Investment Strategies
iShares Edge MSCI Multifactor IntlETF (continued)
Denmark, Finland, France, Germany, Hong Kong, Israel, Italy, Japan, the Netherlands,New Zealand, Singapore, Spain, Sweden, Switzerland and the United Kingdom. TheUnderlying Index may include large- and mid-capitalization companies. As of July 31, 2019, asignificant portion of the Underlying Index is represented by securities of companies in thefinancials industry or sector. The components of the Underlying Index are likely to changeover time.
iShares Edge MSCI Multifactor USAETF
The iShares Edge MSCI Multifactor USA ETF (the “Fund”) seeks to track the investmentresults of an index composed of U.S. large- and mid-capitalization stocks that have favorableexposure to target style factors subject to constraints.
The Fund seeks to track the investment results of the MSCI USA Diversified Multiple-FactorIndex (the “Underlying Index”), which has been developed by MSCI Inc. (“MSCI”). TheUnderlying Index is designed to select equity securities from the MSCI USA Index (the“Parent Index”) that have high exposure to four investment style factors — value, quality,momentum and low size — while maintaining a level of risk similar to that of the ParentIndex. The Underlying Index is also constrained in its construction to limit turnover andextreme exposures to particular sectors, countries, component weights or other investmentstyle factors.
MSCI, in selecting equity securities from the Parent Index, assigns a composite score for asecurity through a proprietary model based on four equally-weighted investment style factors.The score for all four factors — value, quality, momentum and low size — is derived througha global equity model. The value score is calculated from a company’s valuation ratios (e.g.,forward and trailing earnings to share price, cash earnings to share price, book value toshare price and enterprise value to earnings before interest & taxes (EBIT)); the quality scoreis calculated from a company’s underlying metrics (e.g., profitability metrics (asset turnover,gross profitability, gross margin and return-on-assets), investment quality metrics (totalassets growth rate, issuance growth and capital expenditure growth), leverage ratios (marketleverage, book leverage and debt-to-assets) and earnings variability (measured by volatility ofearnings, cash flow, sales, and forward earnings estimates to share price)); the momentumscore aims to measure a security’s sustained relative performance against the global marketover a two-year period and against other securities based in the same country over theprevious 12 months (with a one month lag); and the low size score seeks to measure themarket capitalization of a company as compared to other companies based in the samecountry.
As of July 31, 2019, the Underlying Index consisted of securities from approximately 161companies from the U.S. The Underlying Index may include large- and mid-capitalizationcompanies. As of July 31, 2019, a significant portion of the Underlying Index is representedby securities of companies in the technology industry or sector. The components of theUnderlying Index are likely to change over time.
iShares Edge MSCI Multifactor USASmall-Cap ETF
The iShares Edge MSCI Multifactor USA Small-Cap ETF (the “Fund”) seeks to track theinvestment results of an index composed of U.S. small-capitalization stocks that havefavorable exposure to target style factors subject to constraints.
The Fund seeks to track the investment results of the MSCI USA Small Cap DiversifiedMultiple-Factor Index (the “Underlying Index”), which has been developed by MSCI Inc.(“MSCI”). The Underlying Index is designed to select equity securities from the MSCI USASmall Cap Index (the “Parent Index”) that have high exposure to four investment style factors— value, quality, momentum and low size — while maintaining a level of risk similar to thatof the Parent Index. The Underlying Index is also constrained in its construction to limitturnover and extreme exposures to particular sectors, countries, component weights or otherinvestment style factors. Small capitalization companies, as calculated by MSCI, representthe bottom 14% of the free floated-adjusted market capitalization in the U.S. securitiesmarket, as determined by MSCI.
MSCI, in selecting equity securities from the Parent Index, assigns a composite score for asecurity through a proprietary model based on four equally-weighted investment style factors.The score for all four factors — value, quality, momentum and low size — is derived througha global equity model. The value score is calculated from a company’s valuation ratios (e.g.,forward and trailing earnings to share price, cash earnings to share price, book value toshare price and enterprise value to earnings before interest & taxes (EBIT)); the quality scoreis calculated from a company’s underlying metrics (e.g., profitability metrics (asset turnover,gross profitability, gross margin and return-on-assets), investment quality metrics (totalassets growth rate, issuance growth and capital expenditure growth), leverage ratios (marketleverage, book leverage and debt-to-assets) and earnings variability (measured by volatility ofearnings, cash flow, sales and forward earnings estimates to share price)); the momentumscore aims to measure a security’s sustained relative performance against the global market
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Fund Name Investment Objective and Principal Investment Strategies
over a two-year period and against other securities based in the same country over theprevious 12 months (with a one month lag); and the low size score seeks to measure themarket capitalization of a company as compared to other companies based in the samecountry.
As of July 31, 2019, the Underlying Index consisted of securities from approximately 488companies from the U.S. As of July 31, 2019, a significant portion of the Underlying Index isrepresented by securities of companies in the healthcare and technology industries orsectors. The components of the Underlying Index are likely to change over time.
iShares Global REIT ETF The iShares Global REIT ETF (the “Fund”) seeks to track the investment results of an indexcomposed of global real estate equities in developed and emerging markets.
The Fund seeks to track the investment results of the FTSE EPRA Nareit Global REITs Index(the “Underlying Index”), which is designed to track the performance of publicly-listed realestate investment trusts (“REITs”) (or their local equivalents) in both developed andemerging markets. The index components must qualify for REIT (or its local equivalent)status in their country of domicile and meet certain liquidity, size, and earnings beforeinterest, taxes, depreciation and amortization (EBITDA) requirements. Components areadjusted for free float and foreign ownership limits. As of April 30, 2019, the UnderlyingIndex was comprised of securities of companies in the following countries or regions:Australia, Belgium, Canada, China, France, Germany, Greece, Hong Kong, Indonesia, Ireland,Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Singapore,South Africa, Spain, Thailand, Turkey, the United Kingdom and the U.S. As of April 30, 2019,a significant portion of the Underlying Index is represented by REITs. The components of theUnderlying Index are likely to change over time.
iShares Core MSCI EmergingMarkets ETF
The iShares Core MSCI Emerging Markets ETF (the “Fund”) seeks to track the investmentresults of an index composed of large-, mid- and small-capitalization emerging market equities.
The Fund seeks to track the investment results of the MSCI Emerging Markets InvestableMarket Index (IMI) (the “Underlying Index”), which is designed to measure large-, mid- andsmall-cap equity market performance in the global emerging markets. As of August 31,2019, the Underlying Index consisted of securities from the following 26 emerging marketcountries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary,India, Indonesia, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia,Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United ArabEmirates. As of August 31, 2019, the Underlying Index was comprised of 2,831constituents. As of August 31, 2019, a significant portion of the Underlying Index isrepresented by securities of companies in the financials industry or sector. The componentsof the Underlying Index are likely to change over time.
iShares Edge MSCI Min VolEmerging Markets ETF
The iShares Edge MSCI Min Vol Emerging Markets ETF (the “Fund”) seeks to track theinvestment results of an index composed of emerging market equities that, in the aggregate,have lower volatility characteristics relative to the broader emerging equity markets.
The Fund seeks to track the investment results of the MSCI Emerging Markets MinimumVolatility (USD) Index (the “Underlying Index”), which has been developed by MSCI Inc.(“MSCI”) to measure the performance of equity securities in global emerging markets that, inthe aggregate, have lower volatility relative to the large- and mid-cap global emerging markets.The Underlying Index is designed by selecting securities from the MSCI Emerging MarketsIndex (the “Parent Index”), which is a capitalization-weighted index, and then follows a rules-based methodology to optimize the Underlying Index and determine weights for securities inthe index having the lowest total risk. Under a rules-based methodology, securities andweighting of the index are established based on pre-established parameters and discretionaryfactors are not relied on. Generally, rules-based methodologies include specified requirementsfor security eligibility, maximum and minimum weightings by security and, in some cases bysector and country, established rules relating to handling of special dividends and otherdistributions, and treatment of corporate events. In order to determine weightings by securitywithin the Underlying Index, MSCI seeks to construct a portfolio of lowest absolute volatilityusing its multi-factor risk model. The portfolio is then further refined by an optimization toolthat aims to determine the lowest absolute volatility based on the projected “riskiness” ofsecurities in the Parent Index while subjected to constraints based on established minimumand maximum weightings of index constituents and sectors as well as factor constraints (forexample, liquidity and financial leverage) as measured by MSCI. As of August 31, 2019, theUnderlying Index consisted of securities of companies in the following 24 countries: Brazil,Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia,Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa,South Korea, Taiwan, Thailand and the United Arab Emirates. The Underlying Index will include
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Fund Name Investment Objective and Principal Investment Strategies
iShares Edge MSCI Min VolEmerging Markets ETF (continued)
large- and mid-capitalization companies and may change over time. As of August 31, 2019, asignificant portion of the Underlying Index is represented by securities of companies in thefinancials industry or sector. The components of the Underlying Index are likely to change overtime.
iShares Edge MSCI Intl MomentumFactor ETF
The iShares Edge MSCI Intl Momentum Factor ETF (the “Fund”) seeks to track theinvestment results of an index that measures the performance of international developedlarge- and mid-capitalization stocks exhibiting relatively higher momentum characteristics.
The Fund seeks to track the investment results of the MSCI World ex USA Momentum Index(the “Underlying Index”), which consists of stocks exhibiting relatively higher momentumcharacteristics than the traditional market capitalization-weighted parent index, the MSCIWorld ex USA Index (the “Parent Index”), as determined by MSCI Inc. (“MSCI”). The ParentIndex includes equity securities in the top 85% of equity market capitalization in developedmarket countries, as defined by MSCI, excluding the U.S. The Underlying Index is designed toreflect the performance of an equity momentum strategy that emphasizes stocks with highprice momentum, while maintaining reasonably high trading liquidity, investment capacity andmoderate index turnover. A risk-adjusted price momentum, defined by MSCI as the excessreturn over the risk-free rate divided by the annualized standard deviation of weekly returnsover the past three years, is calculated for each security in the Parent Index over 6- and12-month time periods. The 6- and 12-month risk-adjusted price momentum calculations arethen standardized at +/- 3 standard deviations and translated into an average momentumscore. The weight of each Underlying Index constituent is determined by multiplying thesecurity’s momentum score by its market capitalization-weight in the Parent Index.Additionally, each individual issuer is capped at 5%. MSCI uses an algorithm to determinethe number of components in the Underlying Index based on the number of constituents inthe Parent Index. The number of components is evaluated semi-annually.
As of July 31, 2019, the Underlying Index consisted of securities from 299 companies in thefollowing 22 countries or regions: Australia, Austria, Belgium, Canada, Denmark, Finland,France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand,Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. TheUnderlying Index includes large- and mid-capitalization companies. As of July 31, 2019, asignificant portion of the Underlying Index is represented by securities of companies in theconsumer staples industry or sector. The components of the Underlying Index are likely tochange over time.
iShares Edge MSCI Intl QualityFactor ETF
The iShares Edge MSCI Intl Quality Factor ETF (the “Fund”) seeks to track the investmentresults of an index that measures the performance of international developed large- andmid-capitalization stocks exhibiting relatively higher quality characteristics as identifiedthrough three fundamental variables: return on equity, earnings variability and debt-to-equity.
The Fund seeks to track the investment results of the MSCI World ex USA Sector NeutralQuality Index (the “Underlying Index”), which is based on a traditional market capitalization-weighted parent index, the MSCI World ex USA Index (the “Parent Index”). The Parent Indexincludes equity securities in the top 85% of equity market capitalization in developed marketcountries, as defined by MSCI Inc. (“MSCI”), excluding the U.S. The Underlying Index seeksto measure the performance of securities in the Parent Index that exhibit higher qualitycharacteristics relative to their peers within the corresponding Global Industry ClassificationStandard (GICS®) sector. To construct the Underlying Index, MSCI determines the “qualityscore” of each security in the Parent Index based on three fundamental variables: high returnon equity, stable year-over-year earnings growth and low financial leverage. The UnderlyingIndex is weighted based on a component’s quality score multiplied by its weight in the ParentIndex. Weights in the Underlying Index are next normalized so that sectors in the UnderlyingIndex represent the same weight as in the Parent Index. Additionally, each individual issueris capped at 5%. The Underlying Index is rebalanced semi-annually.
As of July 31, 2019, the Underlying Index consisted of securities from 300 companies in thefollowing 22 countries or regions: Australia, Austria, Belgium, Canada, Denmark, Finland, France,Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway,Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Underlying Indexincludes large- and mid-capitalization companies. As of July 31, 2019, a significant portion of theUnderlying Index is represented by securities of companies in the financials industry or sector.The components of the Underlying Index are likely to change over time.
iShares Edge MSCI Intl ValueFactor ETF
The iShares Edge MSCI Intl Value Factor ETF (the “Fund”) seeks to track the investmentresults of an index composed of international developed large- and mid-capitalization stockswith value characteristics and relatively lower valuations.
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Fund Name Investment Objective and Principal Investment Strategies
The Fund seeks to track the investment results of the MSCI World ex USA Enhanced ValueIndex (the “Underlying Index”), which is based on a traditional market capitalization-weightedparent index, the MSCI World ex USA Index (the “Parent Index”). The Parent Index includesequity securities in the top 85% of equity market capitalization in developed marketcountries, as defined by MSCI Inc. (“MSCI”), excluding the U.S. The Underlying Index isdesigned to represent the performance of securities that exhibit higher value stylecharacteristics relative to their peers within the corresponding Global Industry ClassificationStandard (GICS®) sector. The value style characteristics for index construction are defined byMSCI using three accounting variables based on publicly reported financial data:price-to-book value, price-to-forward earnings and enterprise value-to-cash flow fromoperations. MSCI calculates a “value score” based on these three variables. MSCI assignsweights by multiplying a component’s value score by its market capitalization. Weights in theUnderlying Index are next normalized so that sectors in the Underlying Index represent thesame weight as in the Parent Index. MSCI uses an algorithm to determine the number ofcomponents in the Underlying Index based on the number of constituents in the ParentIndex. The number of components is evaluated semi-annually.
As of July 31, 2019, the Underlying Index consisted of securities from 350 companies in thefollowing 20 countries or regions: Australia, Austria, Belgium, Canada, Denmark, Finland,France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, Norway,Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Underlying Indexincludes large- and mid-capitalization companies. As of July 31, 2019, a significant portion ofthe Underlying Index is represented by securities of companies in the financials industry orsector. The components of the Underlying Index are likely to change over time.
iShares Edge MSCI USA MomentumFactor ETF
The iShares Edge MSCI USA Momentum Factor ETF (the “Fund”) seeks to track theinvestment results of an index composed of U.S. large- and mid-capitalization stocksexhibiting relatively higher price momentum.
The Fund seeks to track the investment results of the MSCI USA Momentum Index (the“Underlying Index”), which consists of stocks exhibiting relatively higher momentumcharacteristics than the traditional market capitalization-weighted parent index, the MSCIUSA Index (the “Parent Index”), as determined by MSCI Inc. (“MSCI”). The Parent Indexincludes U.S. large- and mid-capitalization stocks, as defined by MSCI. The Underlying Indexis designed to measure the performance of an equity momentum strategy by emphasizingstocks with high price momentum, while maintaining reasonably high trading liquidity,investment capacity and moderate index turnover, each as determined by MSCI.
A risk-adjusted price momentum, defined by MSCI as the excess return over the risk-free ratedivided by the annualized standard deviation of weekly returns over the past 3-years, iscalculated for each security in the Parent Index over 6- and 12-month time periods. The 6-and 12-month risk-adjusted price momentum calculations are then standardized at plus- orminus-3 standard deviations and translated into an average momentum score. The weight ofeach Underlying Index constituent is determined by multiplying the security’s momentumscore by its market capitalization-weight in the Parent Index. Additionally, each individualissuer is capped at 5%. MSCI uses an algorithm to determine the number of components inthe Underlying Index based on the number of constituents in the Parent Index. The number ofcomponents is evaluated semi-annually. As of July 31, 2019, there were 124 securities inthe Underlying Index. As of July 31, 2019, a significant portion of the Underlying Index isrepresented by securities of companies in the technology industry or sector. The componentsof the Underlying Index are likely to change over time.
iShares Edge MSCI USA QualityFactor ETF
The iShares Edge MSCI USA Quality Factor ETF (the “Fund”) seeks to track the investmentresults of an index composed of U.S. large- and mid-capitalization stocks with qualitycharacteristics as identified through certain fundamental metrics.
The Fund seeks to track the investment results of the MSCI USA Sector Neutral Quality Index(the “Underlying Index”), which is based on a traditional market capitalization-weightedparent index, the MSCI USA Index (the “Parent Index”). The Parent Index includes U.S. large-and mid-capitalization stocks, as defined by MSCI Inc. (“MSCI”). The Underlying Index seeksto measure the performance of securities in the Parent Index that exhibit higher qualitycharacteristics relative to their peers within the corresponding Global Industry ClassificationStandard (GICS®) sector. To construct the Underlying Index, MSCI determines the qualityscore of each security in the Parent Index based on three fundamental variables: high returnon equity, low earnings variability and low leverage. The Underlying Index is weighted basedon a component’s quality score multiplied by its weight in the parent index. Weights in theUnderlying Index are next normalized so that sectors in the Underlying Index represent thesame weight as in the Parent Index. Additionally, each individual issuer is capped at 5%. As
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Equity ETFs (continued)
Fund Name Investment Objective and Principal Investment Strategies
iShares Edge MSCI USA QualityFactor ETF (continued)
of July 31, 2019, there were 125 securities in the Underlying Index. As of July 31, 2019, asignificant portion of the Underlying Index is represented by securities of companies in thetechnology industry or sector. The components of the Underlying Index are likely to changeover time.
iShares Edge MSCI USA SizeFactor ETF
The iShares Edge MSCI USA Size Factor ETF (the “Fund”) seeks to track the investmentresults of an index composed of U.S. large- and mid-capitalization stocks with relativelysmaller average market capitalization.
The Fund seeks to track the investment results of the MSCI USA Low Size Index (the“Underlying Index”), which is based on a traditional market capitalization-weighted parentindex, the MSCI USA Index (the “Parent Index”). The Parent Index includes U.S. large- andmid-capitalization stocks, as defined by MSCI Inc. (“MSCI”). The Underlying Index isconstructed by applying a mathematical formula at each rebalancing that reweights thecomponents of its market capitalization-weighted Parent Index, such that the representation ofsmaller capitalization companies is increased relative to larger capitalization companies. Inaddition, at each rebalancing, MSCI calculates a “constraint factor” for each component. Theconstraint factor is the ratio of the component’s weight in the Underlying Index to thatcomponent’s weight in the Parent Index. The constraint factor is held constant between eachrebalancing, except in the case of corporate events (as defined by MSCI). Changes in therelative weight of an individual component in the Parent Index due to market appreciation/depreciation result in that component increasing/decreasing in weight in the Underlying Indexto hold the constraint factor for that component constant between each rebalancing. TheUnderlying Index is rebalanced semi-annually in May and November. As of July 31, 2019,there are 639 component securities in the Underlying Index. As of July 31, 2019, a significantportion of the Underlying Index is represented by securities of companies in the technologyindustry or sector. The components of the Underlying Index are likely to change over time.
iShares Edge MSCI USA ValueFactor ETF
The iShares Edge MSCI USA Value Factor ETF (the “Fund”) seeks to track the investmentresults of an index composed of U.S. large- and mid-capitalization stocks with valuecharacteristics and relatively lower valuations.
The Fund seeks to track the investment results of the MSCI USA Enhanced Value Index (the“Underlying Index”), which is based on a traditional market capitalization-weighted parentindex, the MSCI USA Index (the “Parent Index”). The Parent Index includes U.S. large- andmid- capitalization stocks, as defined by MSCI Inc. (“MSCI”). The Underlying Index isdesigned to measure the performance of securities in the Parent Index that exhibit highervalue characteristics relative to their peers within the corresponding Global IndustryClassification Standard (GICS®) sector. To construct the Underlying Index, MSCI calculates a“value score” for each security in the Parent Index using three variables: price-to-book value,price-to-forward earnings and enterprise value-to-cash flow from operations. MSCI uses analgorithm to determine the number of components in the Underlying Index based on thenumber of constituents in the Parent Index. The number of components is evaluated semi-annually. MSCI assigns weights by multiplying a component’s value score by its marketcapitalization. Weights in the Underlying Index are next normalized so that sectors in theUnderlying Index represent the same weight as in the Parent Index. As of July 31, 2019,there were 150 securities in the Underlying Index. As of July 31, 2019, a significant portionof the Underlying Index is represented by securities of companies in the technology industryor sector. The components of the Underlying Index are likely to change over time.
iShares MSCI EAFE Small-Cap ETF The iShares MSCI EAFE Small-Cap ETF (the “Fund”) seeks to track the investment results ofan index composed of small-capitalization developed market equities, excluding the U.S. andCanada.
The Fund seeks to track the investment results of the MSCI EAFE Small Cap Index (the“Underlying Index”), which represents the small-capitalization segment of the MSCI EAFE IMIIndex. The MSCI EAFE IMI Index is an equity index developed by MSCI Inc. (“MSCI”) thatcaptures large-, mid- and small-capitalization representation across developed marketsoutside of the U.S. and Canada. Constituents of the Underlying Index include securities fromEurope, Australasia and the Far East. Under MSCI’s Global Investable Market Index (IMI)methodology, the small-capitalization universe consists of securities of those companies notincluded in the large-capitalization or mid-capitalization segments of a particular market,which together comprise approximately 85% of each market’s free float-adjusted marketcapitalization.
As of July 31, 2019, the Underlying Index consisted of securities from the following 21developed market countries or regions: Australia, Austria, Belgium, Denmark, Finland,France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand,
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Fund Name Investment Objective and Principal Investment Strategies
iShares MSCI EAFE Small-Cap ETF(continued)
Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Thesmall-cap segment covers the 85%-99% range of each market’s free float-adjusted marketcapitalization. As of July 31, 2019, a significant portion of the Underlying Index isrepresented by securities of companies in the industrials industry or sector. The componentsof the Underlying Index are likely to change over time.
Fixed Income ETFs
Fund Name Investment Objective and Principal Investment Strategies
iShares 20+ Year Treasury Bond ETF The iShares 20+ Year Treasury Bond ETF (the “Fund”) seeks to track the investment resultsof an index composed of U.S. Treasury bonds with remaining maturities greater than twentyyears.
The Fund seeks to track the investment results of the ICE U.S. Treasury 20+ Year BondIndex (the “Underlying Index”), which measures the performance of public obligations of theU.S. Treasury that have a remaining maturity greater than or equal to twenty years. As ofFebruary 28, 2019, there were 40 issues in the Underlying Index.
The Underlying Index consists of publicly-issued U.S. Treasury securities that have aremaining maturity greater than or equal to twenty years and have $300 million or more ofoutstanding face value, excluding amounts held by the Federal Reserve System. In addition,the securities in the Underlying Index must be fixed-rate and denominated in U.S. dollars.Excluded from the Underlying Index are inflation-linked securities, Treasury bills, cashmanagement bills, any government agency debt issued with or without a governmentguarantee and zero-coupon issues that have been stripped from coupon-paying bonds. TheUnderlying Index is market value weighted, and the securities in the Underlying Index areupdated on the last business day of each month.
iShares Edge U.S. Fixed IncomeBalanced Risk ETF
The iShares Edge U.S. Fixed Income Balanced Risk ETF (the “Fund”) seeks to track theinvestment results of an index, composed of taxable U.S. dollar-denominated bonds and U.S.Treasury futures, which targets an equal allocation between interest rate and credit spread risk.
The Fund seeks to track the Bloomberg Barclays U.S. Fixed Income Balanced Risk Index (the“Underlying Index”), which measures the performance of the corporate and mortgage portionof the Bloomberg Barclays U.S. Universal Index (the “Parent Index”) while targeting an equalallocation between interest rate and credit spread risk.
As of October 31, 2018, approximately 84.9% of the Underlying Index consisted of issuersorganized or located in the United States, and there were 771 issues in the Underlying Indexfrom issuers in over 17 countries or regions. The Underlying Index may include large-, mid- orsmall-capitalization companies. Components of the Underlying Index primarily includemortgage-backed securities (“MBS”) and companies in the financials and industrialsindustries or sectors. A significant portion of the portfolio is invested in U.S. dollar-denominated investment-grade and high yield fixed-income securities (commonly known toinvestors as “junk bonds”). The components of the Underlying Index are likely to change overtime. Securities may be registered or privately placed.
The Underlying Index uses a rules-based approach to calculate an equal volatility-weightedallocation to each of five segments of the Parent Index: (1) investment-grade corporatebonds 1-5 year; (2) investment-grade corporate bonds 5-10 year; (3) high yield corporatebonds rated BB or higher; (4) high yield corporate bonds rated below BB; and (5) U.S. agencyMBS. Segments with lower credit spread volatility receive a higher weighting, and segmentswith higher credit spread volatility receive a lower weighting, with the result that thecontribution of each segment to overall credit spread volatility is approximately equal. Creditspread volatility for investment-grade corporate securities and MBS components aremeasured differently than the Fund’s high yield securities, but aim to capture the volatility ofthe return attributable to the credit quality of the security.
To increase overall yield and credit spread exposure, the Underlying Index incorporates aleverage factor of up to 25% that redeploys MBS exposure, via cash pending settlementfrom to-be-announced mortgage transactions, toward other index constituent securities. TheUnderlying Index further adjusts interest rate risk so that it equals credit spread risk, byadding either long positions in U.S. Treasury bonds or short positions in U.S. Treasuryfutures. The Underlying Index is rebalanced monthly.
iShares TIPS Bond ETF The iShares TIPS Bond ETF (the “Fund”) seeks to track the investment results of an indexcomposed of inflation-protected U.S. Treasury bonds.
The Fund seeks to track the investment results of the Bloomberg Barclays U.S. TreasuryInflation Protected Securities (TIPS) Index (Series-L) (the “Underlying Index”), which measures
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Fixed Income ETFs (continued)
Fund Name Investment Objective and Principal Investment Strategies
iShares TIPS Bond ETF (continued) the performance of the inflation-protected public obligations of the U.S. Treasury, commonlyknown as “TIPS.” TIPS are securities issued by the U.S. Treasury that are designed toprovide inflation protection to investors. TIPS are income-generating instruments whoseinterest and principal payments are adjusted for inflation — a sustained increase in pricesthat erodes the purchasing power of money. The inflation adjustment, which is typicallyapplied monthly to the principal of the bond, follows a designated inflation index, theconsumer price index (“CPI”), and TIPS’ principal payments are adjusted according tochanges in the CPI. A fixed coupon rate is applied to the inflation-adjusted principal so thatas inflation rises, both the principal value and the interest payments increase. This canprovide investors with a hedge against inflation, as it helps preserve the purchasing power ofan investment. Because of this inflation adjustment feature, inflation-protected bondstypically have lower yields than conventional fixed-rate bonds.
The Underlying Index includes all publicly-issued U.S. Treasury inflation-protected securitiesthat have at least one year remaining to maturity, are rated investment-grade (as determinedby Bloomberg Index Services Limited) and have $300 million or more of outstanding facevalue. In addition, the securities in the Underlying Index must be denominated in U.S. dollarsand must be fixed-rate and non-convertible. The Underlying Index is market capitalization-weighted and the securities in the Underlying Index are updated on the last calendar day ofeach month.
iShares Edge Investment GradeEnhanced Bond ETF
The iShares Edge Investment Grade Enhanced Bond ETF (the “Fund”) seeks to track theinvestment results of an index composed of U.S. dollar-denominated, investment-gradecorporate bonds.
The Fund seeks to track the investment results of the BlackRock Investment GradeEnhanced Bond Index (the “Underlying Index”), which consists of U.S. dollar-denominated,investment-grade (as determined by BlackRock Index Services, LLC) corporate bonds.Component securities include publicly-issued debt of U.S. corporations and U.S. dollar-denominated, publicly issued debt of non-U.S. corporations or similar entities. As ofFebruary 28, 2019, a significant portion of the Underlying Index is represented by securitiesof companies in the financials and industrials industries or sectors. The components of theUnderlying Index are likely to change over time.
The securities in the Underlying Index must have $500 million or more current face amountoutstanding, and have at least one year to final maturity, regardless of optionality, at time ofrebalance. In addition, the securities in the Underlying Index must be denominated in U.S.dollars and have a fixed-rate, although they can carry a coupon that steps-up, or changesaccording to a predetermined schedule. Component securities must be rated investment-grade, which is Baa3 or higher by Moody’s Investors Service, Inc. or BBB- or higher byStandard & Poor’s® Global Ratings, a subsidiary of S&P Global or Fitch Ratings, Inc. Eligibilityin the Underlying Index is determined by the middle of the three available ratings. When arating from only two agencies is available, the lower rating is used. When a rating from onlyone agency is available, that rating is used to determine eligibility in the Underlying Index.
The Underlying Index determines constituent weights based on a proprietary methodologywhich first aims to systematically screen out certain bonds with the highest probability ofdefault (a measure of credit quality) and then optimizes to improve risk-adjusted returns byweighting more heavily to bonds with attractive default-adjusted spreads (a measure of value)while mitigating portfolio risks and limiting turnover. This methodology, unlike themethodologies used by traditional market-value-weighted bond indexes, selects a portion ofthe component bonds from the broader universe of investment-grade bonds based onapplication of analytics measuring the probability of default. The resulting grouping of bondsis referred to as “enhanced,” by comparison to other groupings of investment-grade bonds,because the Underlying Index seeks to provide superior risk-adjusted and total returns overlonger periods of time than a comparable market-value-weighted index. Key investmentcharacteristics such as duration are constrained to be within a specified range of a broadermarket-value-weighted investment-grade bond universe. The Underlying Index is rebalancedon the last business day of each month to reflect changes in eligibility, credit quality andvaluation. Investment-grade bonds included in the Underlying Index, like all investment-gradedebt, continue to be subject to a number of risks, including the risk of an issuer default andvolatility of the market value of the bonds.
iShares Edge High Yield DefensiveBond ETF
The iShares Edge High Yield Defensive Bond ETF (the “Fund”) seeks to track the investmentresults of an index composed of U.S. dollar-denominated, high yield corporate bonds.
The Fund seeks to track the investment results of the BlackRock High Yield Defensive BondIndex (the “Underlying Index”), which consists of U.S. dollar-denominated, high yield (asdetermined by BlackRock Index Services, LLC) corporate bonds. Component securities
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Fixed Income ETFs (continued)
Fund Name Investment Objective and Principal Investment Strategies
iShares Edge High Yield DefensiveBond ETF (continued)
include publicly-issued debt of U.S. corporations, U.S. dollar-denominated, publicly issueddebt of non-U.S. corporations or similar entities, and bonds offered pursuant to Rule 144Aunder the Securities Act of 1933, as amended, with or without registration rights. As ofFebruary 28, 2019, a significant portion of the Underlying Index is represented by securitiesof companies in the industrials industry or sector. The components of the Underlying Indexare likely to change over time.
The securities in the Underlying Index must have $350 million or more current face amountoutstanding, and have at least one year to final maturity, regardless of optionality, at time ofrebalance. In addition, the securities in the Underlying Index must be denominated in U.S.dollars and have a fixed-rate, although they can carry a coupon that steps-up, or changesaccording to a predetermined schedule, and must be rated below investment-grade, which isbelow Baa3 by Moody’s Investors Service, Inc. or below BBB- by Standard & Poor’s® GlobalRatings, a subsidiary of S&P Global or Fitch Ratings, Inc. Eligibility in the Underlying Index isdetermined by the middle of the three available ratings. When a rating from only twoagencies is available, the lower rating is used. When a rating from only one agency isavailable, that rating is used to determine eligibility in the Underlying Index.
The Underlying Index determines constituent weights based on a proprietary methodologywhich first aims to systematically screen out certain bonds with the highest probability ofdefault (a measure of credit quality) and then optimizes to improve risk-adjusted returns byweighting more heavily to bonds with attractive default-adjusted spreads (a measure of value)while mitigating portfolio risks and limiting turnover. This methodology, unlike themethodologies used by traditional market-value-weighted bond indexes, selects a portion ofthe component bonds from the broader universe of high yield bonds based on application ofanalytics measuring the probability of default. The resulting grouping of bonds is referred toas “defensive,” by comparison to other groupings of high yield bonds, because thoseincluded in the Underlying Index possess specific characteristics that the index methodologyidentifies as reducing the risk of default. Key investment characteristics such as duration areconstrained to be within a specified range of a broader market-value-weighted high yield bonduniverse. The Underlying Index is rebalanced on the last business day of each month toreflect changes in eligibility, credit quality and valuation. High yield bonds included in theUnderlying Index, like all high yield debt, continue to be subject to a number of risks,including the risk of an issuer default and volatility of the market value of the bonds.
iShares U.S. Treasury Bond ETF The iShares U.S. Treasury Bond ETF (the “Fund”) seeks to track the investment results of anindex composed of U.S. Treasury bonds.
The Fund seeks to track the investment results of the ICE U.S. Treasury Core Bond Index (the“Underlying Index”), which measures the performance of public obligations of the U.S.Treasury. As of October 31, 2018, there were 259 issues in the Underlying Index. TheUnderlying Index includes publicly-issued U.S. Treasury securities that have a remainingmaturity greater than one year and less than or equal to thirty years and have $300 million ormore of outstanding face value, excluding amounts held by the Federal Reserve System (the“Fed”) Open Market Account or bought at issuance by the Fed. As of October 31, 2018, thedollar-weighted average maturity of the Underlying Index was 7.39 years. In addition, thesecurities in the Underlying Index must be fixed-rate and denominated in U.S. dollars.Excluded from the Underlying Index are inflation-linked securities, cash management bills,Treasury bills, any government agency debt issued with or without a government guaranteeand zero coupon issues that have been stripped from coupon-paying bonds. The UnderlyingIndex is weighted by market capitalization excluding amounts held by the Fed Open MarketAccount or bought at issuance by the Fed, and the securities in the Underlying Index areupdated on the last business day of each month.
iShares 7-10 Year Treasury BondETF
The iShares 7-10 Year Treasury Bond ETF (the “Fund”) seeks to track the investment resultsof an index composed of U.S. Treasury bonds with remaining maturities between seven andten years.
The Fund seeks to track the investment results of the ICE U.S. Treasury 7-10 Year BondIndex (the “Underlying Index”), which measures the performance of public obligations of theU.S. Treasury that have a remaining maturity of greater than or equal to seven years and lessthan ten years. As of February 28, 2019, there were 20 issues in the Underlying Index. TheUnderlying Index consists of publicly-issued U.S. Treasury securities that have a remainingmaturity of greater than or equal to seven years and less than ten years and have$300 million or more of outstanding face value, excluding amounts held by the FederalReserve System (the “Fed”). In addition, the securities in the Underlying Index must be fixed-rate and denominated in U.S. dollars. Excluded from the Underlying Index are inflation-linked
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Fixed Income ETFs (continued)
Fund Name Investment Objective and Principal Investment Strategies
iShares 7-10 Year Treasury BondETF (continued)
securities, Treasury bills, cash management bills, any government agency debt issued with orwithout a government guarantee and zero-coupon issues that have been stripped fromcoupon-paying bonds. The Underlying Index is market value weighted, and the securities inthe Underlying Index are updated on the last business day of each month.
Money Market Fund
Fund Name Investment Objective and Principal Investment Strategies
T-Fund The investment objective of T-Fund (the “Fund”), a series of BlackRock Liquidity Funds (the“Trust”), is to seek current income as is consistent with liquidity and stability of principal.
T-Fund invests at least 99.5% of its total assets in cash, U.S. Treasury bills, notes and otherobligations issued or guaranteed as to principal and interest by the U.S. Treasury, andrepurchase agreements secured by such obligations or cash. The Fund invests in securitiesmaturing in 397 days or less (with certain exceptions) and the portfolio will have a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 daysor less. The Fund may invest in variable and floating rate instruments, and transact insecurities on a when-issued, delayed delivery or forward commitment basis.
The Fund will invest, under normal circumstances, at least 80% of its net assets, plus theamount of any borrowings for investment purposes, in U.S. Treasury bills, notes and otherobligations of the U.S. Treasury, and repurchase agreements secured by such obligations.This policy is a non-fundamental policy of the Fund and the Fund will not change the policywithout providing shareholders with at least 60 days’ prior notice of any change in the policy.
The securities purchased by the Fund are subject to the quality, diversification, and otherrequirements of Rule 2a-7 under the Investment Company Act of 1940, as amended, andother rules of the Securities and Exchange Commission. The Fund will only purchasesecurities that present minimal credit risk as determined by BlackRock, the Fund’sinvestment manager, pursuant to guidelines approved by the Trust’s Board of Trustees.
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Account Information
Details About the Share Class
Each Fund currently offers multiple share classes (Class K Shares in this prospectus), each with its own sales chargeand expense structure, allowing you to invest in the way that best suits your needs. Each share class represents anownership interest in the same investment portfolio of the particular Fund. When you choose your class of shares, youshould consider the size of your investment and how long you plan to hold your shares. Only certain investors areeligible to buy Class K Shares. Either your financial professional or your selected securities dealer, broker, investmentadviser, service provider, or industry professional (including BlackRock and its affiliates) (each a “FinancialIntermediary”) can help you determine whether you are eligible to buy Class K Shares.
Each Fund’s shares are distributed by BlackRock Investments, LLC (the “Distributor”), an affiliate of BlackRock.
The table below summarizes key features of Class K Shares of the Funds.
Class K Shares at a GlanceAvailability Available only to (i) certain employee benefit plans, such as health
savings accounts, and certain employer-sponsored retirementplans (not including SEP IRAs, SIMPLE IRAs and SARSEPs)(collectively, “Employer-Sponsored Retirement Plans”),(ii) collective trust funds, investment companies and other pooledinvestment vehicles, each of which may purchase shares of theFund through a Financial Intermediary that has entered into anagreement with the Distributor to purchase such shares,(iii) “Institutional Investors,” which include, but are not limited to,endowments, foundations, family offices, banks and bank trusts,local, city, and state governmental institutions, corporations andinsurance company separate accounts, each of which maypurchase shares of the Fund through a Financial Intermediary thathas entered into an agreement with the Distributor to purchasesuch shares, (iv) fee-based advisory platforms of a FinancialIntermediary that (a) has specifically acknowledged in a writtenagreement with the Distributor and/or its affiliate(s) that theFinancial Intermediary shall offer such shares to fee-basedadvisory clients through an omnibus account held at the Fund or(b) transacts in the Fund’s shares through another intermediarythat has executed such an agreement and (v) any other investorswho met the eligibility criteria for BlackRock Shares or Class KShares prior to August 15, 2016 and have continually held Class KShares of the Fund in the same account since August 15, 2016.
Minimum Investment $5 million minimum initial investment for Institutional Investors.
There is no minimum initial investment requirement for anyEmployer-Sponsored Retirement Plans or any other eligibleinvestors other than Institutional Investors.
There is no minimum investment amount for additional purchases.
Initial Sales Charge? No. Entire purchase price is invested in shares of the Fund.
Deferred Sales Charge? No.
Distribution and Service (12b-1) Fees? No.
Redemption Fees? No.
The Fund reserves the right to modify or waive the above-stated policies at any time.
When Class K Shares are purchased through a customer’s account in an Employer-Sponsored Retirement Plan throughprocedures established by the Employer-Sponsored Retirement Plan, confirmation of share purchases and redemptionswill be sent to the Employer-Sponsored Retirement Plan. A customer’s ownership of shares will be recorded by theEmployer-Sponsored Retirement Plan and reflected in the account statements provided by the Employer-SponsoredRetirement Plan to its participants.
If you purchased your shares through an Employer-Sponsored Retirement Plan and you transfer your investment froman Employer-Sponsored Retirement Plan to a type of account, such as an individual retirement account, that is not an
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eligible Class K Share investor in the Fund, you must liquidate your investment in Class K Shares of the Fund andpurchase a share class of the Fund or another fund advised by BlackRock or its affiliates that is available for purchaseby that type of account.
For investors not purchasing shares through an Employer-Sponsored Retirement Plan, please see below for informationon how to buy, sell, exchange and transfer shares.
Right of AccumulationInvestors have a “right of accumulation” under which any of the following may be combined with the amount of thecurrent purchase in determining whether an investor qualifies for a breakpoint and a reduced front-end sales charge:
i. The current value of an investor’s existing Investor A and A1, Investor C, Investor P, Institutional, Class K andPremier Shares in most mutual funds sponsored and advised by BlackRock or its affiliates (“BlackRockFunds”),
ii. The current value of an investor’s existing shares of certain unlisted closed-end management investmentcompanies sponsored and advised by BlackRock or its affiliates and
iii. The investment in the BlackRock CollegeAdvantage 529 Program by the investor or by or on behalf of theinvestor’s spouse and children.
Financial Intermediaries may value current holdings of their customers differently for purposes of determining whetheran investor qualifies for a breakpoint and a reduced front-end sales charge, although customers of the same FinancialIntermediary will be treated similarly. In order to use this right, the investor must alert BlackRock to the existence ofany previously purchased shares.
How to Buy, Sell, Exchange and Transfer Shares
The chart on the following pages summarizes how to buy, sell, exchange and transfer shares through your FinancialIntermediary. If you are not purchasing shares through an Employer-Sponsored Retirement Plan, you may also buy, sell,exchange and transfer shares through BlackRock if your account is held directly with BlackRock. To learn more aboutbuying, selling, exchanging or transferring shares through BlackRock, call (800) 537-4942. Because the selection of amutual fund involves many considerations, your Financial Intermediary may help you with this decision.
With certain limited exceptions, the Funds are generally available only to investors residing in the United States andmay not be distributed by a foreign Financial Intermediary. Under this policy, in order to accept new accounts oradditional investments (including by way of exchange from another BlackRock Fund) into existing accounts, a Fundgenerally requires that (i) a shareholder that is a natural person be a U.S. citizen or resident alien, in each caseresiding within the United States or a U.S. territory (including APO/FPO/DPO addresses), and have a valid U.S.taxpayer identification number, and (ii) a Financial Intermediary or a shareholder that is an entity be domiciled in theUnited States and have a valid U.S. taxpayer identification number or be domiciled in a U.S. territory and have a validU.S. taxpayer identification number or IRS Form W-8. Any existing account that is updated to reflect a non-U.S. addresswill also be restricted from making additional investments.
A Fund may reject any purchase order, modify or waive the minimum initial or subsequent investment requirements forany shareholders and suspend and resume the sale of any share class of the Fund at any time for any reason. Inaddition, a Fund may waive certain requirements regarding the purchase, sale, exchange or transfer of sharesdescribed below.
Under certain circumstances, if no activity occurs in an account within a time period specified by state law, ashareholder’s shares in a Fund may be transferred to that state.
How to Buy Shares
Your Choices Important Information for You to KnowInitial Purchase Determine the amount of your
investmentThere is no minimum initial investment for any Employer-SponsoredRetirement Plans or any other investors other than InstitutionalInvestors.
For Institutional Investors, there is a $5 million minimum initialinvestment for all accounts.
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How to Buy Shares (continued)
Your Choices Important Information for You to Know
Initial Purchase(continued)
Have your FinancialIntermediary submit yourpurchase order
The price of your shares is based on the next calculation of the Fund’snet asset value after your order is placed. Any purchase orders placedprior to the close of business on the New York Stock Exchange (the“NYSE”) (generally 4:00 p.m. Eastern time) will be priced at the netasset value determined that day. Certain Financial Intermediaries,however, may require submission of orders prior to that time. Purchaseorders placed after that time will be priced at the net asset valuedetermined on the next business day. A broker-dealer or financialinstitution maintaining the account in which you hold shares maycharge a separate account, service or transaction fee on the purchaseor sale of Fund shares that would be in addition to the fees andexpenses shown in the Fund’s “Fees and Expenses” table.
The Fund may reject any order to buy shares and may suspend the saleof shares at any time. Certain Financial Intermediaries may charge aprocessing fee to confirm a purchase.
Or contact BlackRock (foraccounts held directly withBlackRock)
For investors not purchasing shares through an Employer-SponsoredRetirement Plan, to purchase shares directly from BlackRock,call (800) 537-4942 and request a new account application.
Add to YourInvestment
Purchase additional shares There is no minimum investment amount for additional purchases.
Have your FinancialIntermediary submit yourpurchase order for additionalshares
To purchase additional shares, you may contact your FinancialIntermediary or Employer-Sponsored Retirement Plan.
Or contact BlackRock (foraccounts held directly withBlackRock)
For investors not purchasing shares through an Employer-SponsoredRetirement Plan:
Purchase by Telephone: Call the Fund at (800) 537-4942 and speakwith one of our representatives. The Fund has the right to reject anytelephone request for any reason.
Purchase by Internet: You may purchase your shares, and view activityin your account, by logging onto the BlackRock website atwww.blackrock.com. Purchases made on the Internet using theAutomated Clearing House (“ACH”) will have a trade date that is theday after the purchase is made. Certain institutional clients’ purchaseorders placed by wire prior to the close of business on the NYSE will bepriced at the net asset value determined that day. Contact yourFinancial Intermediary or BlackRock for further information. Limits onamounts that may be purchased via Internet may vary. For additionalinformation call BlackRock at (800) 537-4942.
Please read the On-Line Services Disclosure Statement and UserAgreement, the Terms and Conditions page and the Consent toElectronic Delivery Agreement (if you consent to electronic delivery),before attempting to transact online.
The Fund employs reasonable procedures to confirm that transactionsentered over the Internet are genuine. By entering into the UserAgreement with the Fund in order to open an account through thewebsite, the shareholder waives any right to reclaim any losses fromthe Fund or any of its affiliates incurred through fraudulent activity.
All dividends and capital gains distributions are automaticallyreinvested without a sales charge. To make any changes to yourdividend and/or capital gains distributions options, please callBlackRock at (800) 537-4942 (for investors who are not purchasingshares through an Employer-Sponsored Retirement Plan) or contactyour Financial Intermediary.
How to Pay forShares
Making payment for purchases If you are purchasing shares through an Employer-SponsoredRetirement Plan, payment for an order must be made in Federal fundsor other immediately available funds by the time specified by yourFinancial Intermediary, but in no event later than 4:00 p.m. (Easterntime) on the first business day following the receipt of the order. Ifpayment is not received by this time, the order will be canceled and youand your Financial Intermediary will be responsible for any loss to theFund.
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How to Buy Shares (continued)
Your Choices Important Information for You to Know
How to Pay forShares (continued)
Making payment for purchases(continued)
If you are not purchasing shares through an Employer-SponsoredRetirement Plan, payment for shares must normally be made in Federalfunds or other immediately available funds by the time specified by yourFinancial Intermediary but in no event later than 4:00 p.m. (Easterntime) on the first business day following the receipt of the order.Payment may also, at the discretion of the Fund, be made in the formof securities that are permissible investments for the respective fund. Ifpayment is not received by this time, the order will be canceled and youand your Financial Intermediary will be responsible for any loss to theFund.
How to Sell Shares
Your Choices Important Information for You to Know
Full or PartialRedemption ofShares
Have your FinancialIntermediary submit your salesorder
If you purchased shares through an Employer-Sponsored RetirementPlan, you can make redemption requests through your FinancialIntermediary in accordance with the procedures applicable to youraccounts. These procedures may vary according to the type of accountand the Financial Intermediary involved, and customers should consulttheir Financial Intermediary in this regard. Financial Intermediaries areresponsible for transmitting redemption orders and crediting theircustomers’ accounts with redemption proceeds on a timely basis.Information relating to such redemption services and charges toprocess a redemption of shares, if any, should be obtained bycustomers from their Financial Intermediaries.
If you did not purchase your shares through an Employer-SponsoredRetirement Plan, you can make redemption requests through yourFinancial Intermediary.
The price of Class K Shares is based on the next calculation of theFund’s net asset value after your order is placed. For your redemptionrequest to be priced at the net asset value on the day of your request,you must submit your request to your Financial Intermediary prior tothat day’s close of business on the NYSE (generally 4:00 p.m. (Easterntime)). Certain Financial Intermediaries, however, may requiresubmission of orders prior to that time. Any redemption request placedafter that time will be priced at the net asset value at the close ofbusiness on the next business day.
Regardless of the method the Fund uses to make payment of yourredemption proceeds (check or wire), your redemption proceedstypically will be sent one to two business days after your request issubmitted, but in any event, within seven days.
Certain Financial Intermediaries may charge a fee to process aredemption of shares.
The Fund may reject an order to sell shares under certaincircumstances.
Selling shares held directly withBlackRock
Methods of Redeeming if You Did Not Purchase Your Shares Throughan Employer-Sponsored Retirement PlanRedeem by Telephone: You may sell shares held at BlackRock bytelephone request. Call (800) 537-4942 for details.
The Fund, its administrators and the Distributor will employ reasonableprocedures to confirm that instructions communicated by telephone aregenuine. The Fund and its service providers will not be liable for anyloss, liability, cost or expense for acting upon telephone instructionsthat are reasonably believed to be genuine in accordance with suchprocedures. The Fund may refuse a telephone redemption request if itbelieves it is advisable to do so.
During periods of substantial economic or market change, telephoneredemptions may be difficult to complete. Please find below alternativeredemption methods.
Redeem by Internet: You may redeem in your account, by logging ontothe BlackRock website at www.blackrock.com. Proceeds from Internetredemptions will be sent via wire to the bank account of record.
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How to Sell Shares (continued)
Your Choices Important Information for You to Know
Full or PartialRedemption ofShares (continued)
Selling shares held directly withBlackRock (continued)
Redeem in Writing: Redemption requests may be sent in proper form toBlackRock, P.O. Box 9819, Providence, Rhode Island 02940-8019 or forovernight delivery, 4400 Computer Drive, Westborough, Massachusetts01581. Under certain circumstances, a medallion signature guaranteewill be required.
Payment of Redemption ProceedsRedemption proceeds may be paid by check or, if the Fund has verifiedbanking information on file, by wire transfer.
Payment by Check: BlackRock will normally mail redemption proceedswithin three business days following receipt of a properly completedrequest, but in any event within seven days. Shares can be redeemed bytelephone and the proceeds sent by check to the shareholder at theaddress on record. Shareholders will pay $15 for redemption proceedssent by check via overnight mail. You are responsible for any additionalcharges imposed by your bank for this service.
The Fund reserves the right to reinvest any dividend or distributionamounts (e.g., income dividends or capital gains) which you haveelected to receive by check should your check be returned asundeliverable or remain uncashed for more than 6 months. No interestwill accrue on amounts represented by uncashed checks. Your check willbe reinvested in your account at the net asset value next calculated, onthe day of the investment. When reinvested, those amounts are subjectto the risk of loss like any fund investment. If you elect to receivedistributions in cash and a check remains undeliverable or uncashed formore than 6 months, your cash election may also be changedautomatically to reinvest and your future dividend and capital gainsdistributions will be reinvested in the Fund at the net asset value as ofthe date of payment of the distribution.
Payment by Wire Transfer: Payment for redeemed shares for which aredemption order is received before 4:00 p.m. (Eastern time) on abusiness day is normally made in Federal funds wired to the redeemingshareholder on the next business day, provided that the Fund’scustodian is also open for business. Payment for redemption ordersreceived after 4:00 p.m. (Eastern time) or on a day when the Fund’scustodian is closed is normally wired in Federal funds on the nextbusiness day following redemption on which the Fund’s custodian isopen for business. The Fund reserves the right to wire redemptionproceeds within seven days after receiving a redemption order if, in thejudgment of the Fund, an earlier payment could adversely affect theFund. Shares can be redeemed by Federal wire transfer to a singlepreviously designated bank account. No charge for wiring redemptionpayments with respect to Class K Shares is imposed by the Fund.You are responsible for any additional charges imposed by your bank forwire transfers.
The Fund is not responsible for the efficiency of the Federal wire systemor the shareholder’s firm or bank. To change the name of the single,designated bank account to receive wire redemption proceeds, it isnecessary to send a written request to the Fund at the address on theback cover of this prospectus.
* * *
If you make a redemption request before the Fund has collectedpayment for the purchase of shares, the Fund may delay mailing yourproceeds. This delay will usually not exceed ten days.
RedemptionProceeds
Under normal circumstances, each Fund expects to meet redemptionrequests by using cash or cash equivalents in its portfolio or by sellingportfolio assets to generate cash. During periods of stressed marketconditions, when a significant portion of the Fund’s portfolio may becomprised of less-liquid investments, the Fund may be more likely tolimit cash redemptions and may determine to pay redemption proceedsby (i) borrowing under a line of credit it has entered into with a group oflenders, (ii) borrowing from another BlackRock Fund pursuant to an
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How to Sell Shares (continued)
Your Choices Important Information for You to KnowRedemptionProceeds(continued)
interfund lending program, to the extent permitted by the Fund’sinvestment policies and restrictions as set forth in the SAI, and/or (iii)transferring portfolio securities in-kind to you. The SAI includes moreinformation about the Fund’s line of credit and interfund lendingprogram, to the extent applicable.
If the Fund pays redemption proceeds by transferring portfolio securitiesin-kind to you, you may pay transaction costs to dispose of thesecurities, and you may receive less for them than the price at whichthey were valued for purposes of redemption.
How to Exchange Shares or Transfer Your Account
Your Choices Important Information for You to Know
Exchange Privilege Selling shares of oneBlackRock Fund to purchaseshares of another BlackRockFund (“exchanging”)
Class K Shares of the Fund are generally exchangeable for shares of thesame class of another BlackRock Fund, to the extent such shares areoffered by your Financial Intermediary. Investors who currently ownClass K Shares of the Fund may make exchanges into Class K Shares ofother BlackRock Funds except for investors holding shares throughcertain client accounts at Financial Intermediaries that are omnibus withthe Fund and do not meet applicable minimums. There is no requiredminimum amount with respect to exchanges of Class K Shares. You mayonly exchange into Class K Shares of a BlackRock Fund that is open tonew investors or in which you have a current account, if the BlackRockFund is closed to new investors.
To exercise the exchange privilege, you may contact your FinancialIntermediary. Alternatively, if your account is held directly withBlackRock, you may: (i) call (800) 537-4942 and speak with one of ourrepresentatives, (ii) make the exchange via the Internet by accessingyour account online at www.blackrock.com, or (iii) send a written requestto the Fund at the address on the back cover of this prospectus. Pleasenote, if you indicated on your new account application that you did notwant the Telephone Exchange Privilege, you will not be able to placeexchanges via the telephone until you update this option either in writingor by calling (800) 537-4942. The Fund has the right to reject anytelephone request for any reason.
Although there is currently no limit on the number of exchanges that youcan make, the exchange privilege may be modified or terminated at anytime in the future. The Fund may suspend or terminate your exchangeprivilege at any time for any reason, including if the Fund believes, in itssole discretion, that you are engaging in market timing activities. See“Short Term Trading Policy” below. For U.S. federal income tax purposesa share exchange is a taxable event and a capital gain or loss may berealized. Please consult your tax adviser or other Financial Intermediarybefore making an exchange request.
Transfer Shares toAnother FinancialIntermediary
Transfer to a participatingFinancial Intermediary
You may transfer your Class K Shares of the Fund only to anotherFinancial Intermediary that has entered into an agreement with theDistributor. Certain shareholder services may not be available for thetransferred shares. All future trading of these assets must becoordinated by the receiving firm.
Please contact your Financial Intermediary to accomplish the transfer ofyour Class K Shares.
Transfer to a non-participatingFinancial Intermediary
You must either:• Transfer your Class K Shares to an account with the Fund; or• Sell your Class K Shares.
Please contact your Financial Intermediary to accomplish the transfer ofyour Class K Shares.
Additional Purchase and Redemption Information Applicable to the Funds if You Are Not Purchasing Shares Throughan Employer-Sponsored Retirement Plan
If you are not purchasing shares through an Employer-Sponsored Retirement Plan, the Fund may authorize one or morebanks, savings and loan associations and other financial institutions (each a “Service Organization”) to accept
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purchase and redemption orders on its behalf. Such Service Organizations may be authorized to designate otherintermediaries to accept purchase and redemption orders on the Fund’s behalf. If you purchase or redeem sharesthrough a Service Organization or its designee, that entity may have its own deadlines for the receipt of the purchaseor redemption order that may be earlier than those stated in the prospectus. The Fund will be deemed to have receiveda purchase or redemption order when a Service Organization or, if applicable, that Service Organization’s authorizeddesignee, accepts the order. These orders will be priced at the Fund’s net asset value per share next calculated afterthey are so accepted.
Funds’ Rights
Each Fund may:
■ Suspend the right of redemption if trading is halted or restricted on the NYSE or under other emergency conditionsdescribed in the Investment Company Act;
■ Postpone the date of payment upon redemption if trading is halted or restricted on the NYSE or under otheremergency conditions described in the Investment Company Act or if a redemption request is made before the Fundhas collected payment for the purchase of shares;
■ Redeem shares for property other than cash as may be permitted under the Investment Company Act; and
■ Redeem shares involuntarily in certain cases, such as when the value of a shareholder account falls below aspecified level.
Note on Low Balance Accounts. Because of the high cost of maintaining smaller shareholder accounts, BlackRockhas set a minimum balance of $500 in each Fund position you hold within your account (“Fund Minimum”), and mayredeem the shares in your account if the net asset value of those shares in your account falls below $500 for anyreason, including market fluctuation.
You will be notified that the value of your account is less than the Fund Minimum before the Fund makes anyinvoluntary redemption. This notification will provide you with a 90 calendar day period to make an additionalinvestment in order to bring the value of your account to at least $500 before the Fund makes an involuntaryredemption. This involuntary redemption will not charge any deferred sales charge, and may not apply to accounts ofcertain employer-sponsored retirement plans (not including IRAs), qualified state tuition plan (529 Plan) accounts, andselect fee-based programs at your Financial Intermediary.
Short-Term Trading Policy
The Board of Trustees (the “Board”) has determined that the interests of long-term shareholders and a Fund’s abilityto manage its investments may be adversely affected when shares are repeatedly bought, sold or exchanged inresponse to short-term market fluctuations — also known as “market timing.” The Funds are not designed for markettiming organizations or other entities using programmed or frequent purchases and sales or exchanges. The exchangeprivilege is not intended as a vehicle for short-term trading. Excessive purchase and sale or exchange activity mayinterfere with portfolio management, increase expenses and taxes and may have an adverse effect on the performanceof a Fund and its returns to shareholders. For example, large flows of cash into and out of a Fund may require themanagement team to allocate a significant amount of assets to cash or other short-term investments or sellsecurities, rather than maintaining such assets in securities selected to achieve the Fund’s investment objective.Frequent trading may cause a Fund to sell securities at less favorable prices, and transaction costs, such asbrokerage commissions, can reduce a Fund’s performance.
A fund’s investment in non-U.S. securities is subject to the risk that an investor may seek to take advantage of a delaybetween the change in value of a fund’s portfolio securities and the determination of the fund’s net asset value as aresult of different closing times of U.S. and non-U.S. markets by buying or selling fund shares at a price that does notreflect their true value. A similar risk exists for funds that invest in securities of small capitalization companies,securities of issuers located in emerging markets or high yield securities (junk bonds) that are thinly traded andtherefore may have actual values that differ from their market prices. This short-term arbitrage activity can reduce thereturn received by long-term shareholders. Each Fund will seek to eliminate these opportunities by using fair valuepricing, as described in “Management of the Funds — Valuation of Fund Investments” below.
Each Fund discourages market timing and seeks to prevent frequent purchases and sales or exchanges of Fundshares that it determines may be detrimental to a Fund or long-term shareholders. The Board has approved thepolicies discussed below to seek to deter market timing activity. The Board has not adopted any specific numericalrestrictions on purchases, sales and exchanges of Fund shares because certain legitimate strategies will not result inharm to a Fund or its shareholders.
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If as a result of its own investigation, information provided by a Financial Intermediary or other third party, or otherwise,a Fund believes, in its sole discretion, that your short-term trading is excessive or that you are engaging in markettiming activity, it reserves the right to reject any specific purchase or exchange order. If a Fund rejects your purchase orexchange order, you will not be able to execute that transaction, and the Fund will not be responsible for any lossesyou therefore may suffer. For transactions placed directly with a Fund, the Fund may consider the trading history ofaccounts under common ownership or control for the purpose of enforcing these policies. Transactions placed throughthe same Financial Intermediary on an omnibus basis may be deemed part of a group for the purpose of this policy andmay be rejected in whole or in part by a Fund. Certain accounts, such as omnibus accounts and accounts at FinancialIntermediaries, however, include multiple investors and such accounts typically provide the Fund with net purchase orredemption and exchange requests on any given day where purchases, redemptions and exchanges of shares arenetted against one another and the identity of individual purchasers, redeemers and exchangers whose orders areaggregated may not be known by a Fund. While the Funds monitor for market timing activity, the Funds may be unableto identify such activities because the netting effect in omnibus accounts often makes it more difficult to locate andeliminate market timers from the Funds. The Distributor has entered into agreements with respect to FinancialIntermediaries that maintain omnibus accounts with the Transfer Agent pursuant to which such FinancialIntermediaries undertake to cooperate with the Distributor in monitoring purchase, exchange and redemption orders bytheir customers in order to detect and prevent short-term or excessive trading in a Fund’s shares through suchaccounts. Identification of market timers may also be limited by operational systems and technical limitations. In theevent that a Financial Intermediary is determined by a Fund to be engaged in market timing or other improper tradingactivity, the Distributor may terminate such Financial Intermediary’s agreement with the Distributor, suspend suchFinancial Intermediary’s trading privileges or take other appropriate actions.
There is no assurance that the methods described above will prevent market timing or other trading that may bedeemed abusive.
A Fund may from time to time use other methods that it believes are appropriate to deter market timing or othertrading activity that may be detrimental to the Fund or long-term shareholders.
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Management of the Funds
BlackRock
BlackRock, each Fund’s investment adviser, manages each Fund’s investments and its business operations subject tothe oversight of the Board of the Trust. While BlackRock is ultimately responsible for the management of the Funds, itis able to draw upon the trading, research and expertise of its asset management affiliates for portfolio decisions andmanagement with respect to certain portfolio securities. BlackRock is an indirect, wholly-owned subsidiary ofBlackRock, Inc.
BlackRock, a registered investment adviser, was organized in 1994 to perform advisory services for investmentcompanies. BlackRock and its affiliates had approximately $7.429 trillion in investment company and other portfolioassets under management as of December 31, 2019.
BlackRock does not receive any management fees from the Funds for its investment advisory services.
BlackRock has agreed to cap net expenses (excluding (i) interest, taxes, dividends tied to short sales, brokeragecommissions, and other expenditures which are capitalized in accordance with generally accepted accountingprinciples; (ii) expenses incurred directly or indirectly by a Fund as a result of investments in other investmentcompanies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, a Fund’sinvestments; and (iv) extraordinary expenses (including litigation expenses) not incurred in the ordinary course of aFund’s business, if any) of Class K Shares of certain Funds at the levels shown below and in a Fund’s fees andexpenses table in the “Fund Overview” section of this prospectus. Items (i), (ii), (iii) and (iv) in the preceding sentenceare referred to in this prospectus as “Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses andcertain other Fund expenses.” To achieve these expense caps, BlackRock has agreed to waive and/or reimburse feesor expenses if these operating expenses exceed a certain limit.
With respect to the Funds, BlackRock has contractually (fixed-term and perpetually) agreed to waive and/or reimbursefees or expenses in order to limit Total Annual Fund Operating Expenses to the amounts noted in the table below.
Caps on Total Annual Fund OperatingExpenses* (excluding Dividend Expense,Interest Expense, Acquired Fund Fees and
Expenses and certain other Fund expenses)
Fixed-TermContractual Caps1
PerpetualContractual Caps2
LifePath Smart Beta Retirement Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2025 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2030 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2035 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2040 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2045 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2050 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2055 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2060 Fund
Class K 0.00% 1.00%
LifePath Smart Beta 2065 Fund
Class K 0.00% 1.00%
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* As a percentage of average daily net assets.1 The contractual caps are in effect through February 28, 2021. The contractual agreement may
be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust orby a vote of a majority of the outstanding voting securities of a Fund.
2 The contractual caps are in effect through February 28, 2030. The contractual agreement maybe terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust orby a vote of a majority of the outstanding voting securities of a Fund.
With respect to the LifePath Smart Beta 2060 Fund and the LifePath Smart Beta 2065 Fund, with respect to thecontractual agreements to cap net expenses described above, if during a Fund’s fiscal year the operating expenses of ashare class, that at any time during the prior two fiscal years received a waiver and/or reimbursement from BlackRock,are less than the current expense limit for that share class, the share class is required to repay BlackRock up to thelesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreementand (b) an amount not to exceed either (x) the current expense limit of that share class or (y) the expense limit of theshare class in effect at the time that the share class received the applicable waiver and/or reimbursement, provided that:(1) the Fund of which the share class is a part has more than $50 million in assets and (2) BlackRock or an affiliateserves as the Fund’s manager or administrator. This repayment arrangement will terminate on May 31, 2024 with respectto the LifePath Smart Beta 2060 Fund and on November 4, 2026 with respect to the LifePath Smart Beta 2065 Fund,and applies only to the contractual caps on net expenses and does not apply to any voluntary waivers that may be ineffect from time to time.
As stated above, the waivers and reimbursements made pursuant to the contractual expense caps and described inthe table above do not include Interest Expense. A Fund’s Interest Expense is required to be reported as part ofoperating expenses in such Fund’s expense table for accounting purposes. The Funds incur Interest Expense whenmaking certain investments (e.g., tender option bonds) to seek to enhance the yield and total return of their portfolios.The amount of Interest Expense (if any) will fluctuate with a Fund’s use of those investments.
A discussion of the basis for the Board’s approval of the Management Agreement with BlackRock with respect to eachFund other than the LifePath Smart Beta 2065 Fund is included in the Funds’ annual shareholder report for the fiscalyear ended October 31, 2019. A discussion of the basis for the Board’s approval of the Management Agreement withBlackRock with respect to the LifePath Smart Beta 2065 Fund will be included in the Fund’s semi-annual shareholderreport for the period ending April 30, 2020.
From time to time, a manager, analyst, or other employee of BlackRock or its affiliates may express views regarding aparticular asset class, company, security, industry, or market sector. The views expressed by any such person are theviews of only that individual as of the time expressed and do not necessarily represent the views of BlackRock or anyother person within the BlackRock organization. Any such views are subject to change at any time based upon marketor other conditions and BlackRock disclaims any responsibility to update such views. These views may not be relied onas investment advice and, because investment decisions for each Fund are based on numerous factors, may not berelied on as an indication of trading intent on behalf of a Fund.
Legal Proceedings. On May 27, 2014, certain investors in the BlackRock Global Allocation Fund, Inc. (“GlobalAllocation”) and the BlackRock Equity Dividend Fund (“Equity Dividend”) filed a consolidated complaint in theUnited States District Court for the District of New Jersey against BlackRock Advisors, LLC, BlackRock InvestmentManagement, LLC and BlackRock International Limited (collectively, the “Defendants”) under the caption In reBlackRock Mutual Funds Advisory Fee Litigation. In the lawsuit, which purports to be brought derivatively on behalf ofGlobal Allocation and Equity Dividend, the plaintiffs allege that the Defendants violated Section 36(b) of the InvestmentCompany Act by receiving allegedly excessive investment advisory fees from Global Allocation and Equity Dividend. OnJune 13, 2018, the court granted in part and denied in part the Defendants’ motion for summary judgment. On July 25,2018, the plaintiffs served a pleading that supplemented the time period of their alleged damages to run through thedate of trial. The lawsuit seeks, among other things, to recover on behalf of Global Allocation and Equity Dividend allallegedly excessive advisory fees received by the Defendants beginning twelve months preceding the start of thelawsuit with respect to each of Global Allocation and Equity Dividend and ending on the date of judgment, along withpurported lost investment returns on those amounts, plus interest. The Defendants believe the claims in the lawsuitare without merit. The trial on the remaining issues was completed on August 29, 2018. On February 8, 2019, thecourt issued an order dismissing the claims in their entirety. On March 8, 2019, the plaintiffs provided notice that theyare appealing both the February 8, 2019 post-trial order and the June 13, 2018 order partially granting Defendants’motion for summary judgment.
Portfolio Manager Information
Information regarding the portfolio managers of the Funds is set forth below. Further information regarding the portfoliomanagers, including other accounts managed, compensation, ownership of Fund shares, and possible conflicts ofinterest, is available in the Funds’ SAI.
Each Fund is managed by a team of financial professionals. Matthew O’Hara, PhD, CFA, Ked Hogan, PhD and AndrewAng, PhD, are jointly and primarily responsible for the day-to-day management of each Fund.
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Portfolio Manager Primary Role Since1 Title and Recent Biography
Matthew O’Hara, PhD, CFA Jointly and primarily responsible forthe day-to-day management of theFunds’ portfolio, including settingeach Fund’s overall investmentstrategy and overseeing themanagement of the Funds.
2016 Managing Director of BlackRock, Inc. since2013; Director of BlackRock, Inc. from 2009 to2012.
Ked Hogan, PhD Jointly and primarily responsible forthe day-to-day management of theFunds’ portfolio, including settingeach Fund’s overall investmentstrategy and overseeing themanagement of the Funds.
2016 Managing Director of BlackRock, Inc. since2009; Chief Investment Officer of the FactorBased Strategies Group and former member ofGlobal Market Strategies Group and ScientificActive Equity Group; various positions withBarclays Global Investors from 1997 to 2009.
Andrew Ang, PhD Jointly and primarily responsible forthe day-to-day management of theFunds’ portfolio, including settingeach Fund’s overall investmentstrategy and overseeing themanagement of the Funds.
2016 Managing Director of BlackRock, Inc. since2015; Professor of Finance at ColumbiaBusiness School from 1999 to 2015.
1 Each portfolio manager has been managing the LifePath Smart Beta 2060 Fund since its inception in 2017 and the LifePath Smart Beta 2065Fund since its inception in 2019.
Conflicts of Interest
The investment activities of BlackRock and its affiliates (including BlackRock, Inc. and its subsidiaries (collectively, the“Affiliates”)), The PNC Financial Services Group, Inc. (which, through a subsidiary, has a significant economic interestin BlackRock, Inc.) and its subsidiaries (each with The PNC Financial Services Group, Inc., an “Entity” and collectively,the “Entities”), and their respective directors, officers or employees, in the management of, or their interest in, theirown accounts and other accounts they manage, may present conflicts of interest that could disadvantage the Fundsand their shareholders.
BlackRock, its Affiliates and the Entities provide investment management services to other funds and discretionarymanaged accounts that may follow investment programs similar to that of the Funds. BlackRock, its Affiliates and theEntities are involved worldwide with a broad spectrum of financial services and asset management activities and mayengage in the ordinary course of business in activities in which their interests or the interests of their clients mayconflict with those of the Funds. BlackRock or one or more Affiliates or Entities act or may act as an investor,investment banker, research provider, investment manager, commodity pool operator, commodity trading advisor,financier, underwriter, adviser, market maker, trader, prime broker, lender, index provider, agent and/or principal, andhave other direct and indirect interests in securities, currencies, commodities, derivatives and other instruments inwhich the Funds may directly or indirectly invest. Thus, it is likely that the Funds will have multiple businessrelationships with and will invest in, engage in transactions with, make voting decisions with respect to, or obtainservices from, entities for which an Affiliate or an Entity performs or seeks to perform investment banking or otherservices. Specifically, the Funds may invest in securities of, or engage in other transactions with, companies withwhich an Affiliate or an Entity has developed or is trying to develop investment banking relationships or in which anAffiliate or an Entity has significant debt or equity investments or other interests. The Funds may also invest inissuances (such as structured notes) by entities for which an Affiliate or an Entity provides and is compensated forcash management services relating to the proceeds from the sale of such issuances. The Funds also may invest insecurities of, or engage in other transactions with, companies for which an Affiliate or an Entity provides or may in thefuture provide research coverage. An Affiliate or Entity may have business relationships with, and purchase, ordistribute or sell services or products from or to, distributors, consultants or others who recommend the Funds or whoengage in transactions with or for the Funds, and may receive compensation for such services. The Funds may alsomake brokerage and other payments to Entities in connection with the Funds’ portfolio investment transactions.BlackRock or one or more Affiliates or Entities may engage in proprietary trading and advise accounts and funds thathave investment objectives similar to those of the Funds and/or that engage in and compete for transactions in thesame types of securities, currencies and other instruments as the Funds. This may include transactions in securitiesissued by other open-end and closed-end investment companies (which may include investment companies that areaffiliated with the Funds and BlackRock, to the extent permitted under the Investment Company Act). The tradingactivities of BlackRock and these Affiliates or Entities are carried out without reference to positions held directly orindirectly by the Funds and may result in BlackRock or an Affiliate or an Entity having positions in certain securities thatare senior or junior to, or have interests different from or adverse to, the securities that are owned by the Funds.
Neither BlackRock nor any Affiliate is under any obligation to share any investment opportunity, idea or strategy withthe Funds. As a result, an Affiliate may compete with the Funds for appropriate investment opportunities. The results
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of a Fund’s investment activities, therefore, may differ from those of an Affiliate and of other accounts managed by anAffiliate, and it is possible that a Fund could sustain losses during periods in which one or more Affiliates and otheraccounts achieve profits on their trading for proprietary or other accounts. The opposite result is also possible.
In addition, the Funds may, from time to time, enter into transactions in which BlackRock or an Affiliate or an Entity ortheir directors, officers or employees or other clients have an adverse interest. Furthermore, transactions undertakenby clients advised or managed by BlackRock, its Affiliates or Entities may adversely impact the Funds. Transactions byone or more clients or BlackRock, its Affiliates or Entities or their directors, officers or employees, may have the effectof diluting or otherwise disadvantaging the values, prices or investment strategies of the Funds. The Funds’ activitiesmay be limited because of regulatory restrictions applicable to BlackRock, one or more Affiliates or Entities and/ortheir internal policies designed to comply with such restrictions.
Under a securities lending program approved by the Board, the Trust, on behalf of each Fund, has retained BlackRockInvestment Management, LLC, an Affiliate of BlackRock, to serve as the securities lending agent for the Funds to theextent that the Funds participate in the securities lending program. For these services, the securities lending agent willreceive a fee from the Funds, including a fee based on the returns earned on the Funds’ investment of the cashreceived as collateral for the loaned securities. In addition, one or more Affiliates or Entities may be among the entitiesto which the Funds may lend their portfolio securities under the securities lending program.
The activities of BlackRock, its Affiliates and Entities and their respective directors, officers or employees, may giverise to other conflicts of interest that could disadvantage the Funds and their shareholders. BlackRock has adoptedpolicies and procedures designed to address these potential conflicts of interest. See the SAI for further information.
Valuation of Fund Investments
When you buy shares, you pay the net asset value. This is the offering price. Shares are also redeemed at their netasset value. Each Fund calculates the net asset value of each class of its shares each day the NYSE is open, generallyas of the close of regular trading hours on the NYSE, based on prices at the time of closing. The NYSE generally closesat 4:00 p.m. (Eastern time). The net asset value used in determining your share price is the next one calculated afteryour purchase or redemption order is received.
Equity securities and other instruments for which market quotations are readily available are valued at market value,which is generally determined using the last reported closing price, or, if a reported closing price is not available, thelast traded price on the exchange or market on which the security or instrument is primarily traded at the time ofvaluation. Each Fund values fixed-income portfolio securities and non-exchange traded derivatives using last availablebid prices or current market quotations provided by dealers or prices (including evaluated prices) supplied by theFund’s approved independent third-party pricing services, each in accordance with valuation procedures approved bythe Board. Pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions toderive values. Pricing services generally value fixed-income securities assuming orderly transactions of institutionalround lot size, but the Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade atlower prices than institutional round lots. Short-term debt securities with remaining maturities of 60 days or less maybe valued on the basis of amortized cost.
Foreign currency exchange rates are generally determined as of the close of business on the NYSE. Foreign securitiesowned by a Fund may trade on weekends or other days when the Fund does not price its shares. As a result, a Fund’snet asset value may change on days when you will not be able to purchase or redeem the Fund’s shares. Shares ofunderlying open-end funds are valued at net asset value.
Generally, trading in foreign securities, U.S. Government securities, money market instruments and certainfixed-income securities is substantially completed each day at various times prior to the close of business on theNYSE. The values of such securities used in computing the net asset value of a Fund’s shares are determined as ofsuch times.
When market quotations are not readily available or are not believed by BlackRock to be reliable, a Fund’s investmentsare valued at fair value. Fair value determinations are made by BlackRock in accordance with procedures approved bythe Board. BlackRock may conclude that a market quotation is not readily available or is unreliable if a security orother asset or liability does not have a price source due to its lack of liquidity, if BlackRock believes a marketquotation from a broker-dealer or other source is unreliable, where the security or other asset or other liability is thinlytraded (e.g., municipal securities, certain small cap and emerging growth companies, and certain non-U.S. securities)or where there is a significant event subsequent to the most recent market quotation. For this purpose, a “significantevent” is deemed to occur if BlackRock determines, in its business judgment prior to or at the time of pricing a Fund’sassets or liabilities, that it is likely that the event will cause a material change to the last closing market price of oneor more assets or liabilities held by the Fund. For instance, significant events may occur between the foreign marketclose and the close of business on the NYSE that may not be reflected in the computation of a Fund’s net assets. Ifsuch event occurs, those instruments may be fair valued. Similarly, foreign securities whose values are affected byvolatility that occurs in U.S. markets on a trading day after the close of foreign securities markets may be fair valued.
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For certain foreign securities, a third-party vendor supplies evaluated, systematic fair value pricing based upon themovement of a proprietary multi-factor model after the relevant foreign markets have closed. This systematic fair valuepricing methodology is designed to correlate the prices of foreign securities following the close of the local markets tothe price that might have prevailed as of a Fund’s pricing time.
Fair value represents a good faith approximation of the value of a security. The fair value of one or more securities maynot, in retrospect, be the price at which those assets could have been sold during the period in which the particular fairvalues were used in determining a Fund’s net asset value.
A Fund may accept orders from certain authorized Financial Intermediaries or their designees. A Fund will be deemedto receive an order when accepted by the Financial Intermediary or designee and the order will receive the net assetvalue next computed by the Fund after such acceptance. If the payment for a purchase order is not made by adesignated later time, the order will be canceled and the Financial Intermediary could be held liable for any losses.
Dividends, Distributions and Taxes
BUYING A DIVIDEND
Unless your investment is in a tax-deferred account, you may want to avoid buying shares shortly before a Fundpays a dividend. The reason? If you buy shares when a Fund has declared but not yet distributed ordinary incomeor capital gains, you will pay the full price for the shares and then receive a portion of the price back in the form ofa taxable dividend. Before investing you may want to consult your tax adviser.
Each Fund will distribute net investment income, if any, and net realized capital gain, if any, at least annually. EachFund may also pay a special distribution at the end of the calendar year to comply with federal tax requirements.Dividends may be reinvested automatically in shares of a Fund at net asset value or may be taken in cash. If you wouldlike to receive dividends in cash, contact your Financial Intermediary or the Fund.
Your tax consequences from an investment in the Funds will depend on whether you have invested through a qualifiedtax-exempt plan described in section 401(a) of the Internal Revenue Code (a “Qualified Plan”).
Investments Through a Qualified Plan
Special tax rules apply to investments made through Qualified Plans. If you are invested through a Qualified Plan (andFund shares are not “debt-financed property” to the plan), then you will not be subject to U.S. federal income tax onthe dividends paid by the Funds or the gain realized from a redemption or exchange of Fund shares until you withdrawor receive distributions from the plan. Distributions you receive from the Qualified Plan may be subject to U.S. federalwithholding tax depending on the kind of payment you receive.
Investments Not Made Through Qualified Plans
If you are not invested through a Qualified Plan, you will generally pay tax on dividends from the Funds whether youreceive them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund,you generally will be treated as having sold your shares and any gain on the transaction may be subject to tax. Funddistributions derived from qualified dividend income, which consists of dividends received from U.S. corporations andqualifying foreign corporations, and long-term capital gains, are eligible for taxation at a maximum rate of 15% or 20%for individuals, depending on whether their income exceeds certain threshold amounts, which are adjusted annually forinflation.
A 3.8% Medicare tax is imposed on the net investment income (which includes, but is not limited to, interest,dividends and net gain from investments) of U.S. individuals with income exceeding $200,000, or $250,000 if marriedfiling jointly, and of trusts and estates.
Your dividends and redemption proceeds will be subject to backup withholding tax if you have not provided a taxpayeridentification number or social security number or the number you have provided is incorrect.
Special Considerations for Non-U.S. Persons
If you are not invested through a Qualified Plan and you are neither a tax resident nor a citizen of the United States orif you are a foreign entity (other than a pass-through entity to the extent owned by U.S. persons), a Fund’s ordinaryincome dividends will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies. However,certain distributions paid to a foreign shareholder and reported by a Fund as capital gain dividends, interest-relateddividends or short-term capital gain dividends may be eligible for an exemption from U.S. withholding tax.
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Separately, a 30% withholding tax is currently imposed on U.S.-source dividends, interest and other income items paidto (i) certain foreign financial institutions and investment funds, and (ii) certain other foreign entities. To avoidwithholding, foreign financial institutions and investment funds will generally either need to (a) collect and report to theIRS detailed information identifying their U.S. accounts and U.S. account holders, comply with due diligenceprocedures for identifying U.S. accounts and withhold tax on certain payments made to noncomplying foreign entitiesand account holders or (b) if an intergovernmental agreement is entered into and implementing legislation is adopted,comply with the agreement and legislation. Other foreign entities will generally either need to provide detailedinformation identifying each substantial U.S. owner or certify there are no such owners.
This section summarizes some of the consequences under current federal tax law of an investment in the Funds. It isnot a substitute for individualized tax advice. Consult your tax adviser about the potential tax consequences of aninvestment in the Funds under all applicable tax laws.
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Financial Highlights
The Financial Highlights tables are intended to help you understand each Fund’s financial performance for the periodsshown. Certain information reflects the financial results for a single Fund share. The total returns in the tablesrepresent the rate that an investor would have earned or lost on an investment in a Fund (assuming reinvestment of alldividends and/or distributions). The information has been audited by PricewaterhouseCoopers LLP, whose report,along with each Fund’s financial statements, is included in the Funds’ Annual Report, which is available upon request.
The LifePath Smart Beta 2065 Fund had not commenced operations as of October 31, 2019. As a result, no historicalfinancial performance information for the LifePath Smart Beta 2065 Fund is available.
BlackRock LifePath®Smart Beta Retirement Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $10.46 $10.80 $ 9.99 $10.35 $11.34
Net investment income(a) 0.32 0.24 0.26 0.21 0.19
Net realized and unrealized gain (loss) 0.84 (0.34) 0.79 0.15 (0.20)
Net increase (decrease) from investment operations 1.16 (0.10) 1.05 0.36 (0.01)
Distributions(b)
From net investment income (0.34) (0.22) (0.24) (0.30) (0.40)From net realized gain (0.56) (0.02) — (0.42) (0.58)
Total distributions (0.90) (0.24) (0.24) (0.72) (0.98)
Net asset value, end of year $10.72 $10.46 $10.80 $ 9.99 $10.35
Total Return(c)
Based on net asset value 12.37% (0.98)% 10.73% 3.81% (0.13)%
Ratios to Average Net Assets
Total expenses(d) 1.98% 1.68% 1.52% 1.28% 1.29%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.01% 0.01% 0.09% 0.07%
Net investment income(d) 3.11% 2.25% 2.55% 2.15% 1.75%
Supplemental Data
Net assets, end of year (000) $ 537 $ 481 $ 726 $ 806 $ 752
Portfolio turnover rate 82% 103% 125% 34% 41%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.22% 0.23% 0.22% 0.60% 0.54%
(e) Amount is less than 0.005%.
149
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2025 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $10.81 $11.18 $ 9.96 $10.59 $11.53
Net investment income(a) 0.32 0.26 0.28 0.16 0.15
Net realized and unrealized gain (loss) 0.85 (0.32) 1.24 0.14 (0.15)
Net increase (decrease) from investment operations 1.17 (0.06) 1.52 0.30 0.00
Distributions(b)
From net investment income (0.29) (0.29) (0.20) (0.20) (0.33)From net realized gain (0.62) (0.02) (0.10) (0.73) (0.61)
Total distributions (0.91) (0.31) (0.30) (0.93) (0.94)
Net asset value, end of year $11.07 $10.81 $11.18 $ 9.96 $10.59
Total Return(c)
Based on net asset value 12.09% (0.55)% 15.67% 3.16% (0.06)%
Ratios to Average Net Assets
Total expenses(d) 0.84% 0.85% 0.88% 0.97% 0.84%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.01% 0.01% 0.09% 0.07%
Net investment income(d) 3.03% 2.32% 2.63% 1.63% 1.36%
Supplemental Data
Net assets, end of year (000) $3,217 $2,466 $2,444 $2,651 $1,860
Portfolio turnover rate 77% 106% 130% 36% 57%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.22% 0.23% 0.23% 0.61% 0.59%
(e) Amount is less than 0.005%.
150
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2030 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $10.33 $10.75 $ 9.45 $10.18 $11.05
Net investment income(a) 0.31 0.25 0.28 0.14 0.14
Net realized and unrealized gain (loss) 0.78 (0.29) 1.34 0.10 (0.13)
Net increase (decrease) from investment operations 1.09 (0.04) 1.62 0.24 0.01
Distributions(b)
From net investment income (0.28) (0.27) (0.20) (0.20) (0.26)From net realized gain (0.51) (0.11) (0.12) (0.77) (0.62)
Total distributions (0.79) (0.38) (0.32) (0.97) (0.88)
Net asset value, end of year $10.63 $10.33 $10.75 $ 9.45 $10.18
Total Return(c)
Based on net asset value 11.83% (0.50)% 17.52% 2.71% 0.07%
Ratios to Average Net Assets
Total expenses(d) 0.85% 0.92% 0.92% 1.03% 0.85%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.01% 0.00%(e) 0.08% 0.07%
Net investment income(d) 3.09% 2.33% 2.84% 1.48% 1.37%
Supplemental Data
Net assets, end of year (000) $1,936 $1,566 $1,587 $2,492 $1,751
Portfolio turnover rate 86% 97% 128% 34% 67%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.22% 0.23% 0.24% 0.65% 0.61%
(e) Amount is less than 0.005%.
151
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2035 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $11.11 $11.48 $ 9.97 $10.49 $11.27
Net investment income(a) 0.33 0.27 0.27 0.12 0.14
Net realized and unrealized gain (loss) 0.82 (0.31) 1.59 0.12 (0.22)
Net increase (decrease) from investment operations 1.15 (0.04) 1.86 0.24 (0.08)
Distributions(b)
From net investment income (0.28) (0.28) (0.18) (0.19) (0.21)From net realized gain (0.65) (0.05) (0.17) (0.57) (0.49)
Total distributions (0.93) (0.33) (0.35) (0.76) (0.70)
Net asset value, end of year $11.33 $11.11 $11.48 $ 9.97 $10.49
Total Return(c)
Based on net asset value 11.69% (0.46)% 19.20% 2.60% (0.80)%
Ratios to Average Net Assets
Total expenses(d) 1.09% 1.26% 1.23% 1.11% 0.99%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.01% 0.00%(e) 0.08% 0.07%
Net investment income(d) 3.09% 2.33% 2.51% 1.21% 1.29%
Supplemental Data
Net assets, end of year (000) $2,619 $2,541 $1,989 $2,739 $1,327
Portfolio turnover rate 91% 96% 128% 37% 75%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.23% 0.23% 0.24% 0.68% 0.64%
(e) Amount is less than 0.005%.
152
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2040 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $10.78 $11.18 $ 9.70 $10.45 $11.53
Net investment income(a) 0.32 0.25 0.25 0.11 0.14
Net realized and unrealized gain (loss) 0.77 (0.32) 1.61 0.10 (0.18)
Net increase (decrease) from investment operations 1.09 (0.07) 1.86 0.21 (0.04)
Distributions(b)
From net investment income (0.31) (0.26) (0.16) (0.20) (0.24)From net realized gain (0.38) (0.07) (0.22) (0.76) (0.80)
Total distributions (0.69) (0.33) (0.38) (0.96) (1.04)
Net asset value, end of year $11.18 $10.78 $11.18 $ 9.70 $10.45
Total Return(c)
Based on net asset value 11.09% (0.67)% 19.77% 2.34% (0.51)%
Ratios to Average Net Assets
Total expenses(d) 1.20% 1.29% 1.44% 1.21% 0.97%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.01% 0.00%(e) 0.07% 0.07%
Net investment income(d) 3.04% 2.20% 2.42% 1.15% 1.33%
Supplemental Data
Net assets, end of year (000) $2,350 $1,998 $1,261 $1,850 $1,162
Portfolio turnover rate 100% 59% 136% 35% 93%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.22% 0.23% 0.24% 0.73% 0.69%
(e) Amount is less than 0.005%.
153
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2045 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $12.09 $12.46 $10.66 $11.37 $12.27
Net investment income(a) 0.35 0.29 0.25 0.11 0.17
Net realized and unrealized gain (loss) 0.79 (0.36) 1.93 0.11 (0.23)
Net increase (decrease) from investment operations 1.14 (0.07) 2.18 0.22 (0.06)
Distributions(b)
From net investment income (0.31) (0.30) (0.15) (0.20) (0.23)From net realized gain (0.63) — (0.23) (0.73) (0.61)
Total distributions (0.94) (0.30) (0.38) (0.93) (0.84)
Net asset value, end of year $12.29 $12.09 $12.46 $10.66 $11.37
Total Return(c)
Based on net asset value 10.78% (0.65)% 21.11% 2.19% (0.57)%
Ratios to Average Net Assets
Total expenses(d) 1.63% 1.78% 1.73% 1.53% 1.38%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.02% 0.00%(e) 0.07% 0.07%
Net investment income(d) 2.99% 2.26% 2.19% 1.06% 1.48%
Supplemental Data
Net assets, end of year (000) $1,972 $1,583 $ 754 $1,558 $ 691
Portfolio turnover rate 104% 81% 131% 32% 80%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.23% 0.23% 0.26% 0.70% 0.67%
(e) Amount is less than 0.005%.
154
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2050 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $11.25 $11.63 $ 9.94 $10.54 $11.32
Net investment income(a) 0.33 0.29 0.26 0.11 0.16
Net realized and unrealized gain (loss) 0.69 (0.39) 1.79 0.08 (0.20)
Net increase (decrease) from investment operations 1.02 (0.10) 2.05 0.19 (0.04)
Distributions(b)
From net investment income (0.32) (0.28) (0.15) (0.17) (0.20)From net realized gain (0.47) — (0.21) (0.62) (0.54)
Total distributions (0.79) (0.28) (0.36) (0.79) (0.74)
Net asset value, end of year $11.48 $11.25 $11.63 $ 9.94 $10.54
Total Return(c)
Based on net asset value 10.24% (0.97)% 21.21% 2.02% (0.44)%
Ratios to Average Net Assets
Total expenses(d) 1.56% 1.60% 1.58% 1.59% 1.40%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.02% 0.00%(e) 0.07% 0.07%
Net investment income(d) 3.01% 2.42% 2.47% 1.08% 1.44%
Supplemental Data
Net assets, end of year (000) $1,198 $ 855 $ 437 $ 996 $ 669
Portfolio turnover rate 121% 62% 122% 36% 77%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.23% 0.23% 0.26% 0.71% 0.66%
(e) Amount is less than 0.005%.
155
Financial Highlights (continued)
BlackRock LifePath®Smart Beta 2055 Fund
Class K
Year Ended October 31,
(For a share outstanding throughout each period) 2019 2018 2017 2016 2015
Net asset value, beginning of year $11.77 $12.15 $10.36 $11.10 $12.12
Net investment income(a) 0.37 0.31 0.26 0.12 0.16
Net realized and unrealized gain (loss) 0.68 (0.38) 1.85 0.09 (0.17)
Net increase (decrease) from investment operations 1.05 (0.07) 2.11 0.21 (0.01)
Distributions(b)
From net investment income (0.28) (0.31) (0.14) (0.15) (0.20)From net realized gain (0.35) — (0.18) (0.80) (0.81)
Total distributions (0.63) (0.31) (0.32) (0.95) (1.01)
Net asset value, end of year $12.19 $11.77 $12.15 $10.36 $11.10
Total Return(c)
Based on net asset value 9.83% (0.69)% 20.90% 2.17% (0.20)%
Ratios to Average Net Assets
Total expenses(d) 2.33% 4.58% 4.48% 4.95% 5.40%
Total expenses after fees waived and/or reimbursed(d) 0.00%(e) 0.00%(e) 0.00%(e) 0.06% 0.07%
Net investment income(d) 3.13% 2.53% 2.35% 1.17% 1.41%
Supplemental Data
Net assets, end of year (000) $3,319 $2,926 $2,817 $2,289 $2,243
Portfolio turnover rate 124% 60% 97% 38% 68%
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
2019 2018 2017 2016 2015
Investments in underlying funds 0.23% 0.23% 0.25% 0.67% 0.64%
(e) Amount is less than 0.005%.
156
Financial Highlights (concluded)
BlackRock LifePath®Smart Beta 2060 Fund
Class K
Year Ended October 31,
Period from05/31/2017(a)
to10/31/2017(For a share outstanding throughout each period) 2019 2018
Net asset value, beginning of period $10.29 $10.72 $10.00
Net investment income(b) 0.34 0.30 0.13
Net realized and unrealized gain (loss) 0.60 (0.46) 0.59
Net increase (decrease) from investment operations 0.94 (0.16) 0.72
Distributions(c)
From net investment income (0.34) (0.27) —From net realized gain (0.04) — —
Total distributions (0.38) (0.27) —
Net asset value, end of period $10.85 $10.29 $10.72
Total Return(d)
Based on net asset value 9.79% (1.66)% 7.20%(e)
Ratios to Average Net Assets
Total expenses(f) 13.65%(g) 20.08% 29.00%(h)(i)
Total expenses after fees waived and/or reimbursed(f) 0.00%(j) 0.01% 0.00%(i)(j)
Net investment income(f) 3.32% 2.74% 3.05%(i)
Supplemental Data
Net assets, end of period (000) $1,023 $ 967 $1,008
Portfolio turnover rate 126% 36% 9%
(a) Commencement of operations.(b) Based on average shares outstanding.(c) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(d) Where applicable, assumes the reinvestment of distributions.(e) Aggregate total return.(f) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
Year Ended October 31,
Period from05/31/2017(a)
to10/31/20172019 2018
Investments in underlying funds 0.24% 0.25% 0.25%
(g) Includes non-recurring expenses of board realignment and consolidation costs. Without these costs, total expenses would have been 13.62%.(h) Organization, offering and audit costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total
expense would have been 48.34%.(i) Annualized.(j) Amount is less than 0.005%.
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General Information
Shareholder Documents
Electronic Access to Annual Reports, Semi-Annual Reports and ProspectusesElectronic copies of most financial reports and prospectuses are available on BlackRock’s website. Shareholders cansign up for e-mail notifications of annual and semi-annual reports and prospectuses by enrolling in the Fund’selectronic delivery program. To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages: Please contact yourFinancial Intermediary. Please note that not all investment advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly With BlackRock:■ Access the BlackRock website at http://www.blackrock.com/edelivery; and
■ Log into your account.
Delivery of Shareholder DocumentsThe Funds deliver only one copy of shareholder documents, including prospectuses, shareholder reports and proxystatements, to shareholders with multiple accounts at the same address. This practice is known as “householding”and is intended to eliminate duplicate mailings and reduce expenses. Mailings of your shareholder documents may behouseholded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to becombined with those for other members of your household, please contact the Fund at (800) 537-4942.
Certain Fund Policies
Anti-Money Laundering RequirementsEach Fund is subject to the USA PATRIOT Act (the “Patriot Act”). The Patriot Act is intended to prevent the use of theU.S. financial system in furtherance of money laundering, terrorism or other illicit activities. Pursuant to requirementsunder the Patriot Act, each Fund is required to obtain sufficient information from shareholders to enable it to form areasonable belief that it knows the true identity of its shareholders. This information will be used to verify the identityof investors or, in some cases, the status of Financial Intermediaries. Such information may be verified usingthird-party sources. This information will be used only for compliance with the Patriot Act or other applicable laws,regulations and rules in connection with money laundering, terrorism, or economic sanctions.
Each Fund reserves the right to reject purchase orders from persons who have not submitted information sufficient toallow the Fund to verify their identity. Each Fund also reserves the right to redeem any amounts in the Fund frompersons whose identity it is unable to verify on a timely basis. It is each Fund’s policy to cooperate fully withappropriate regulators in any investigations conducted with respect to potential money laundering, terrorism or otherillicit activities.
BlackRock Privacy PrinciplesBlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients(collectively, “Clients”) and to safeguarding their non-public personal information. The following information is providedto help you understand what personal information BlackRock collects, how we protect that information and why incertain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you withadditional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with thosespecific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including thefollowing: (i) information we receive from you or, if applicable, your Financial Intermediary, on applications, forms orother documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receivefrom a consumer reporting agency; and (iv) from visits to our website.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients,except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. Thesenon-affiliated third parties are required to protect the confidentiality and security of this information and to use it onlyfor its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about otherBlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public
158
personal information about its Clients to those BlackRock employees with a legitimate business need for theinformation. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect thenon-public personal information of its Clients, including procedures relating to the proper storage and disposal of suchinformation.
Statement of Additional Information
If you would like further information about the Funds, including how each Fund invests, please see the SAI.
For a discussion of each Fund’s policies and procedures regarding the selective disclosure of its portfolio holdings,please see the SAI. The Funds make their top ten holdings available on a monthly basis at www.blackrock.comgenerally within 5 business days after the end of the month to which the information applies.
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GlossaryThis glossary contains an explanation of some of the common terms used in this prospectus. For additionalinformation about a Fund, please see the SAI.
Acquired Fund Fees and Expenses — fees and expenses charged by other investment companies and pooledinvestment vehicles in which a Fund invests a portion of its assets.
Annual Fund Operating Expenses — expenses that cover the costs of operating a Fund.
Bloomberg Barclays U.S. Aggregate Bond Index — A widely recognized unmanaged market-weighted index, comprisedof investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agencyissues with at least one year to maturity.
Distribution Fees — fees used to support a Fund’s marketing and distribution efforts, such as compensating FinancialIntermediaries, advertising and promotion.
LifePath Smart Beta Fund Custom Benchmark — a customized weighted index comprised of different indexes whichare representative of the asset classes in which a Fund invests according to their weightings as of the most recentquarter end.
Management Fee — a fee paid to BlackRock for managing a Fund.
Other Expenses — include accounting, transfer agency, custody, professional fees and registration fees.
Russell 1000® Index — an index that measures the performance of the large-cap segment of the U.S. equity universe.It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on acombination of their market capitalization and current index membership. The Russell 1000® Index representsapproximately 93% of the total market capitalization of the Russell 3000® Index.
Service Fees — fees used to compensate Financial Intermediaries for certain shareholder servicing activities.
Shareholder Fees — fees paid directly by a shareholder, including sales charges that you may pay when you buy or sellshares of a Fund.
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