AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY
27, 2024 .
No. 333-138490
No. 811-21977
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
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THE
SECURITIES ACT OF 1933 |
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Pre-Effective
Amendment No. |
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Post-Effective
Amendment No. 839 |
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and/or
REGISTRATION STATEMENT
UNDER
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THE
INVESTMENT COMPANY ACT OF 1940 |
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Amendment
No. 840 |
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(Exact
Name of Registrant as Specified in Charter)
3500 Lacey Road, Suite
700, Downers Grove, Illinois 60515
(Address
of Principal Executive Office)
Registrant’s
Telephone Number, including Area Code: (800) 983-0903
Adam Henkel, Esquire
3500 Lacey Road, Suite 700, Downers Grove, Illinois 60515
3500 Lacey Road, Suite 700, Downers Grove, Illinois 60515
With
Copies to:
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Alan
P. Goldberg
Stradley
Ronon Stevens & Young LLP
191
North Wacker Drive, Suite 1601
Chicago,
Illinois 60606 |
Eric
S. Purple
Stradley
Ronon Stevens & Young LLP
2000
K Street, NW, Suite 700
Washington,
DC 20006 |
APPROXIMATE DATE OF
PROPOSED PUBLIC OFFERING:
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It
is proposed that this filing will become effective (check appropriate box) | |
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immediately
upon filing pursuant to paragraph (b) |
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on
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60
days after filing pursuant to paragraph (a) |
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on
(date) pursuant to paragraph (a) |
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75
days after filing pursuant to paragraph (a)(2) |
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on
(date) pursuant to paragraph (a)(2) of rule 485 |
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If
appropriate, check the following box: | |
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This
post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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Prospectus
Invesco
Exchange-Traded Fund Trust II
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Invesco
0-5 Yr US TIPS ETF (formerly,
Invesco PureBetaSM
0-5 Yr US TIPS ETF) |
Cboe
BZX Exchange, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco 0-5 Yr US TIPS ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the ICE BofA 0-5
Year US Inflation-Linked Treasury Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
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Management
Fees |
% |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
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1
Year |
3
Years |
5
Years |
10
Years |
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$
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$
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$
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$
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The
Fund generally will invest at least 80% of its total assets in the components that comprise the Underlying Index. Strictly in accordance
with its guidelines and mandated procedures, ICE Data Indices, LLC (the “Index Provider” or “ICE Data”) compiles,
maintains and calculates the Underlying Index, which is designed to measure the performance of the shorter maturity subset of the U.S.
Treasury Inflation-Protected Securities (“TIPS”) market, represented by TIPS with a remaining maturity of at least one month
and less than five years.
TIPS
are U.S. dollar-denominated, U.S. government debt securities that are
publicly offered for sale in the United States. TIPS are “inflation-linked,” meaning that their principal and interest payments
are tied to inflation (as measured by the Consumer Price Index). TIPS are issued by the U.S. Treasury, and their payments are supported
by the full faith and credit of the United States.
To
qualify for inclusion in the Underlying Index, securities must:
(i) have at
least one month but less than five years remaining term to final maturity; (ii) have
at least 18 months to maturity when issued; (iii) have
a minimum amount outstanding of $1 billion; and (iv) meet certain
additional inclusion criteria detailed below. Original issue zero coupon bonds may be included in the Underlying Index, and the amounts
outstanding of qualifying coupon
securities are not reduced
by any portions that have been stripped. Underlying Index constituents are market capitalization weighted.
As
of December 31, 2023,
the Underlying Index was comprised of 24 constituents.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising its Underlying Index in proportion to their
weightings in the Underlying Index.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
more than 25% of the value of its net assets) in securities of issuers in any one industry or group of industries only to the extent that
the Underlying Index reflects a concentration in that industry or group of industries. The Fund will not otherwise concentrate its investments
in securities of issuers in any one industry or group of industries.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance
and
an additional index with characteristics relevant to the Fund .
The Fund's performance reflects fee waivers, if any, absent which
performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
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Period
Ended |
Returns
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-
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Average Annual Total Returns (for the periods ended December 31, 2023)
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Inception
Date
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1
Year
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5
Years
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Since
Inception
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Return
Before Taxes |
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% |
% |
% |
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Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale of
Fund
Shares |
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ICE
BofA 0-5 Year US Inflation-Linked Treasury
Index
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Bloomberg
U.S. Aggregate Bond Index (reflects
no
deduction for fees, expenses or taxes)2
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1
2
returns shown are not
relevant to investors who hold Shares through tax-advantaged arrangements, such as 401(k) plans or individual retirement accounts.
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
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Name
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Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
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Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
September
2017 |
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Richard
Ose |
Senior
Portfolio Manager of the
Adviser
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September 2017
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Tom
Boksa |
Portfolio
Manager of the Adviser |
February 2022
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Gary
Jones |
Portfolio
Manager of the Adviser |
September
2017 |
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 10,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
3
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in components that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index. Moreover, as an index fund, the Fund does not take temporary defensive positions during periods of adverse market, economic or
other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include duration, maturity, credit quality, yield and coupon. When employing a sampling methodology, the Adviser bases the quantity of
holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the Fund to hold less than the total
number of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund in as many securities as it believes
necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling methodology,
it may have a larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
ICE BofA 0-5 Year US Inflation-Linked
Treasury Index
The
Underlying Index tracks the performance of short-maturity U.S. dollar-denominated inflation-linked sovereign debt securities that are
issued by the U.S. government and publicly offered for sale in the United States. Qualifying securities must have at least one month but
less than five years remaining term to
final maturity, at least 18 months to maturity when issued, interest and principal payments tied to inflation and a minimum amount outstanding
of $1 billion. Separate Trading of Registered Interest and Principal of Securities (“STRIPS”) are excluded from the Underlying
Index, but original issue zero coupon bonds may be
included in the
Underlying Index and
the amounts outstanding of qualifying coupon securities are not reduced by any portions that have been stripped. Securities issued or
marketed primarily to retail investors do not qualify for inclusion in the Underlying Index.
Constituents
in the Underlying Index are market capitalization weighted. Accrued
interest is calculated assuming next-day settlement. Cash flows from bond payments that are received during the month are retained in
the Underlying Index until the end of the month and then are removed as part of the rebalancing. Cash does not earn any reinvestment income
while it is held in the Underlying Index. The Index Provider rebalances the Underlying Index on the last calendar day of the month, based
on information available up to and including the third business day before the last business day of the month. The Index Provider includes
issues that meet the qualifying criteria in the Underlying Index for the following month. Issues that no longer meet the criteria during
the course of the month remain in the Index until the next month-end rebalancing, at which point the Index Provider removes them from
the Underlying Index. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund
4
rebalances its portfolio
in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s rebalance schedule will result in
corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed fund, the Adviser does not use
techniques or defensive strategies designed to lessen the impact of periods of market volatility or market decline. This means that, based
on certain market and economic conditions, the Fund’s performance could be lower than other types of funds with investment advisers
that actively manage their portfolio assets to take advantage of market opportunities or defend against market events.
U.S.
Government Obligations Risk. The Fund may invest in U.S. government
obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities, including bills, notes and bonds issued by the U.S. Treasury. U.S. government
securities include securities that are issued or guaranteed by the U.S.
Treasury, by various agencies of the U.S. government,
or by various instrumentalities which have been established or sponsored by the U.S. government.
U.S. Treasury securities are backed by the “full faith and credit” of the United States, which may be negatively affected
by an actual or threatened failure of the U.S. government
to pay its obligations. Securities issued or guaranteed by federal agencies and U.S. government-sponsored
instrumentalities may or may not be backed by the full faith and credit of the United States. In the case of those U.S. government
securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the security for ultimate repayment, and may not be able to assert a claim against the United States itself in
the event that the agency or instrumentality does not meet its commitment. The U.S. government,
its agencies and instrumentalities do not guarantee the market value of their securities, and consequently, the value of such securities
may fluctuate.
Financial
Markets Regulatory Risk. Policy changes by the U.S. government
or its regulatory agencies and other governmental actions and political events within the U.S. and abroad, changes to the monetary policy
by the Federal Reserve or other regulatory actions, the U.S. government’s inability at times to agree on a long-term budget and
deficit reduction plan or other legislation aimed at addressing financial or economic conditions, the threat of a federal government shutdown,
and threats not to increase or suspend the federal government’s debt limit, may affect investor and consumer confidence, increase
volatility in the financial markets, perhaps suddenly and to a significant degree, result in higher interest rates, and even raise concerns
about the U.S. government’s credit rating and ability service its debt. Such changes and events may adversely impact the Fund, including
by adversely impacting the Fund’s operations and return potential.
Inflation-Linked
Security Risk. The value of inflation-linked securities generally
will fluctuate in response to changes in real interest rates, generally decreasing when real interest rates rise and increasing when real
interest rates fall. Real interest rates represent nominal (or stated) interest rates reduced by the expected impact of inflation. In
addition, interest payments on inflation-indexed securities will generally vary up or down along with the rate of inflation.
Fixed-Income
Securities Risk. The Fund invests in fixed-income securities, which
are subject to interest rate risk and credit risk. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. Fixed-income
securities with longer maturities typically are more sensitive to changes in interest rates, making them more volatile than securities
with shorter maturities. Credit risk refers to the possibility that the issuer of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt. Debt instruments are subject to varying degrees of credit risk, which may be
reflected in credit ratings. There is a possibility that the credit rating of a fixed-income security may be downgraded after purchase,
which may occur
quickly
and without advance warning following sudden market downturns or unexpected developments involving an issuer, and which may adversely
affect the liquidity and value of the security. Securities issued by the U.S. government
historically have been subject to limited credit risk; however, the actual or threatened failure of the U.S. government
to pay its obligations will increase credit risks and securities issued by U.S. government
agencies are not necessarily backed by the full faith and credit of the U.S. government.
Due to recent events in the fixed-income markets, including the Federal Reserve Board (“FRB”) ending its quantitative easing
program, the Fund is subject to heightened interest rate risk as a result of a rise in interest rates. In addition, the Fund is subject
to the risk that interest rates may exhibit increased volatility, which could cause the Fund’s NAV to fluctuate more. A decrease
in fixed-income market maker capacity may act to decrease liquidity in the fixed-income markets and act to further increase volatility,
affecting the Fund’s returns.
Short-Term
and Intermediate-Term Bond Risk. The Fund may invest in bonds with
a short term (i.e., three years or less) or intermediate term (i.e., five years or less) until maturity. The amount of time until a fixed-income
security matures can lead to various risks, including changes in interest rates over the life of a bond. Short- and intermediate-term
fixed-income securities generally provide lower returns than longer-term fixed-income securities. The average maturity of the Fund’s
investments will affect the volatility of the Fund’s share price.
Changing
Fixed-Income Market Conditions Risk. Increases in the federal funds
and equivalent foreign interest rates or other changes to monetary policy or regulatory actions may expose fixed-income markets to heightened
volatility and reduced liquidity for certain fixed-income investments, particularly those with longer maturities. It is difficult to predict
the impact of interest rate changes on various markets. In addition, decreases in fixed-income dealer market-making capacity may also
potentially lead to heightened volatility and reduced liquidity in the fixed-income markets. As a result, the value of the Fund's investments
and share price may decline. Changes in central bank policies could also result in higher than normal redemptions by APs (as defined herein),
which could potentially increase the Fund's portfolio turnover rate and transaction costs and potentially lower the Fund’s performance
returns.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Call
Risk.
If interest rates fall, it is possible that issuers of callable
securities with high interest coupons will “call” (or prepay) their bonds before their maturity date. If an issuer exercises
such a call during a period of declining interest rates, the Fund may have to replace such called security with a lower yielding security.
If that were to happen, the Fund’s net investment income could fall.
5
Liquidity
Risk. Liquidity risk exists when a particular investment is difficult
to purchase or sell. If the Fund invests in illiquid securities or current portfolio securities become illiquid, it may reduce the returns
of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. In the event that the Fund
voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those
assets.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or
business restrictions.
As a result, the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s
affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result,
6
the trading prices of
the Shares may deviate from the Fund’s NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT
TO NAV. The Adviser cannot predict whether the Shares will trade below, at or above the Fund’s NAV. Exchange prices are not expected
to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions
to creations and redemptions, including disruptions at market makers, APs, or other market participants, or periods of significant market
volatility or stress, may result in trading prices for the Shares that differ significantly from the value of the Fund’s underlying
holdings, with the result that investors may pay significantly more or receive significantly less than the underlying value of the Shares
bought or sold. This can be reflected as a spread between the bid and ask prices for the Fund quoted during the day or a premium or discount
in the closing price from the Fund’s NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack
of an active market for such Shares or the Fund’s underlying investments, which may contribute to the Shares trading at a premium
or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in the components that comprise the Underlying Index, may invest its remaining
assets in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase
agreements and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations
under the Investment Company Act of 1940, as amended (the “1940 Act”), or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index,
and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those components that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 80% of its total assets in the components that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid
collateral equal to at
least 102% (105% for international securities) of the value of the loaned portfolio securities. This collateral is marked-to-market on
a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
7
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which
may negatively impact
the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate the realization of taxable income
and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to meet a large redemption, in which
case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price. To the extent the Fund permits
cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent that the Fund is delayed in
investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent these large shareholders
transact in shares on the secondary market, such transactions may account for a large percentage of the trading volume on the Fund’s
exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To the extent the Fund permits
redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation of large redemptions, diluting
its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an
8
agreed date. Repurchase
agreements may be characterized as loans secured by the underlying securities. If the seller of securities under a repurchase agreement
defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Fund will seek to
dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities may be restricted. If the
seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of the underlying securities
are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Depending on the factors used, changes in interest rates and movement of such factors
may cause significant price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the
reference factor underlying the note. This means that the Fund may lose money if the issuer
of the note defaults,
as the Fund may not be able to readily close out its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the Cboe BZX Exchange, Inc. (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing
9
the Fund’s business
affairs, and providing certain clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Richard Ose, Tom Boksa
and Gary Jones (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since September 2017. He has been responsible for the management of certain funds in the Invesco family of
ETFs since June 2007 and has been associated with the Adviser since 2005.
■
Richard
Ose, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since September 2017. He has been
responsible for the management of certain funds in the Invesco family of ETFs since October 2013 and has been associated with the Adviser
since 2011.
■
Tom
Boksa, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2022. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2019 and has been associated with the Adviser since 2013.
■
Gary
Jones, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since September 2017. He has been responsible
for the management of certain funds in the Invesco family of ETFs since January 2012 and has been associated with the Adviser since 2010.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.07% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an
affiliate
of the Adviser that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived.
This waiver does not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through
at least August 31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PBTP.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner
10
of Shares, you are not
entitled to receive physical delivery of stock certificates or to have Shares registered in your name, and you are not considered a registered
owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any other stocks that you hold in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received
during the prior calendar
year. In addition, investors in taxable accounts should be aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital
11
gains,
or proceeds from the sale of your Shares. The Fund also must withhold if the IRS instructs it to do so. When withholding is required,
the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes
on Purchase and Redemption of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
12
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
13
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$24.57
|
$26.68
|
$25.74
|
$24.89
|
$24.40
|
|
Net
investment income(a)
|
0.61
|
1.58
|
1.12
|
0.35
|
0.59
|
|
Net
realized and unrealized gain (loss) on investments |
0.04
|
(2.29)
|
0.53
|
0.71
|
0.39
|
|
Total
from investment operations |
0.65
|
(0.71)
|
1.65
|
1.06
|
0.98
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.71)
|
(1.39)
|
(0.69)
|
(0.21)
|
(0.49)
|
|
Net
realized gains |
(0.01)
|
(0.01)
|
(0.02)
|
-
|
-
|
|
Total
distributions |
(0.72)
|
(1.40)
|
(0.71)
|
(0.21)
|
(0.49)
|
|
Net
asset value at end of year |
$24.50
|
$24.57
|
$26.68
|
$25.74
|
$24.89
|
|
Market
price at end of year(b)
|
$24.51
|
$24.59
|
$26.70
|
$25.75
|
$24.90
|
|
Net
Asset Value Total Return(c)
|
2.66%
|
(2.79)%
|
6.46%
|
4.28%
|
4.04%
|
|
Market
Price Total Return(c)
|
2.62%
|
(2.78)%
|
6.50%
|
4.28%
|
4.07%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$69,094
|
$121,635
|
$52,826
|
$12,870
|
$7,467
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.07%
|
0.07%
|
0.07%
|
0.07%
|
0.20%(d)
|
|
Net
investment income |
2.47%
|
6.14%
|
4.26%
|
1.40%
|
2.39%(d)
|
|
Portfolio
turnover rate(e)
|
33%
|
27%
|
28%
|
29%
|
30%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.13%. |
|
(e)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
14
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
ICE Data Indices, LLC, is used with permission.
ICE®
is a trademark of ICE Data Indices, LLC or its affiliates and BofA®
is a registered trademark of Bank of America Corporation licensed by Bank of America Corporation and its affiliates (“BofA”)
and may not be used without BofA’s prior written approval. These trademarks have been licensed, along with the Underlying Index
for use by the Adviser in connection with the Fund. Neither the Adviser nor the Fund is sponsored, endorsed, sold or promoted by ICE Data
Indices, LLC, its affiliates or its Third Party Suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make
no representations or warranties regarding the advisability of investing in securities generally, in the Fund particularly or the ability
of the Underlying Index to track general market performance. ICE Data’s only relationship to the Adviser is the licensing of certain
trademarks and trade names and the Underlying Index or components thereof. The Underlying Index is determined, composed and calculated
by ICE Data without regard to the Adviser or the Fund or its holders. ICE Data has no obligation to take the needs of the Adviser or the
holders of the Product into consideration in determining, composing or calculating the Underlying Index. ICE Data is not responsible for
and has not participated in the determination of the timing of, prices of, or quantities of the Fund to be issued or in the determination
or calculation of the equation by which the Fund is to be priced, sold, purchased, or redeemed. Except for certain custom index calculation
services, all information provided by ICE Data is general in nature and not tailored to the needs of the Adviser or any other person,
entity or group of persons. ICE Data has no obligation or liability in connection with the administration, marketing, or trading of the
Fund. ICE Data is not an investment advisor. Inclusion of a security within an index is not a recommendation by ICE Data to buy, sell,
or hold such security, nor is it considered to be investment advice.
ICE
DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS,
EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES,
INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX
DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly
disclaims all warranties
of merchantability or fitness for a particular purpose or use with respect to the Underlying Index or any data included therein. Without
limiting any of the foregoing, in no event shall the Adviser have any liability for any special, punitive, direct, indirect or consequential
damages (including lost profits) arising out of matters relating to the use of the Underlying Index, even if notified of the possibility
of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents
15
can be delivered to investors
who share the same address, even if their accounts are registered under different names. Householding for the Fund is available through
certain broker-dealers. If you are interested in enrolling in householding and receiving a single copy of the prospectus and other shareholder
documents, please contact your broker-dealer. If you currently are enrolled in householding and wish to change your householding status,
please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
16
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Alerian Galaxy Blockchain Users and Decentralized Commerce ETF |
Cboe
BZX Exchange, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (the “Fund”) seeks to track the investment results
(before fees and expenses) of the Alerian Galaxy Global Blockchain Equity, Trusts and ETPs Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 80% of its total assets in the securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, VettaFi
LLC (the “Index Provider”) maintains the Underlying Index, which is comprised of two different components: (i) stocks of companies
that are materially engaged in the research and development of blockchain technology, cryptocurrency mining, cryptocurrency buying, or
cryptocurrency enabling technologies (the “Equity Component”); and (ii) exchange-traded products (“ETPs”) and
U.S.-listed private
investment trusts that invest at least 75% of their assets in Bitcoin (the “ETP and Trust Component”). However,
the Fund will not invest directly in cryptocurrencies such as Bitcoin, or in crypto assets. The Fund also will not invest in initial coin
offerings or futures contracts on cryptocurrencies.
The
term “blockchain” refers to a type of peer-to-peer distributed ledger,
or decentralized database, that keeps continuously updated digital records of who owns a particular asset (e.g., cryptocurrency). Blockchain
is secured using cryptography and facilitates the process of recording transactions and tracking assets in a business network. Blockchain
derives its name from the way it stores transaction data — as unchangeable,
digitally recorded data
in packages called “blocks” that are linked together to form a chain. Blocks record and confirm the time and sequence of transactions,
which are then logged into the blockchain network. Each block in the chain is cryptographically connected to the previous block in the
chain, ensuring all data in the overall “blockchain” has not been tampered with. Blockchain networks can be private with restricted
membership similar to an intranet, or public like the Internet, and are governed by rules agreed on by the network participants.
Blockchain
technology can be used in a wide variety of data sharing applications,
and track intangible and digital assets and companies across business sectors without a need for a third-party record keeper, payments
processor, or central clearing authority. Blockchain technology has the potential to streamline transactions, increase confidence of commercial
market participants, and increase efficiency for various business processes, including recordkeeping, payment processing and inventory
management among others.
“Decentralized
Commerce” refers to commerce that relies on decentralized
technologies such as blockchain. Therefore, “Decentralized Commerce” reflects the commercial interaction of companies at the
forefront of such innovation that seek to leverage blockchain and similar technologies or platforms to increase operational efficiency
in business to business or business to consumer transactions to their competitive advantage.
Cryptocurrency
assets, such as Bitcoin and Ethereum, are examples of specific
applications of public blockchains. Cryptocurrencies are digital assets designed to work as a medium of exchange that are stored electronically
in a blockchain. They use encryption techniques to secure transactions, to control the creation of additional monetary units, and to verify
the transfer of assets. Unlike traditional currencies, decentralized virtual currencies (or cryptocurrencies) are digital assets and are
not issued or backed by any government, agency, bank, organization or single administrator. There are thousands of cryptocurrencies, the
most well-known of which is Bitcoin, and while the design and maintenance of each type of cryptocurrency differs, cryptocurrencies are
typically based on the decentralized, open source protocol of a peer-to-peer computer network. The transactions of such currencies on
a blockchain are verified by cryptocurrency “miners.” Crypto-mining involves using computers to solve mathematical equations.
Generally, when a successful validation occurs, a miner receives rewards paid in the form of tokens. As a result, miners are incentivized
to validate transactions and to secure the network to earn rewards.
The
Equity Component of the Underlying Index is primarily comprised of exchange-listed
equity securities of companies that are principally or materially engaged in one of the following four business activities (each, a “Business
Segment”):
■
Cryptocurrency
Miners: Companies that mine cryptocurrency assets.
■
Cryptocurrency
Enabling Technologies: Companies that (i) facilitate the buying, selling and transfer of cryptocurrency assets, (ii) provide custody for
cryptocurrency assets, (iii) supply semiconductors used in cryptocurrency mining, or (iv) supply cryptocurrency mining machines.
■
Cryptocurrency
Buyers: Companies that report cryptocurrency assets on their balance sheets.
■
Blockchain
Users: Operating companies that are engaged in the research and development of blockchain technologies for non-cryptocurrency-related
purposes.
To
be eligible for inclusion in the Equity Component of the Underlying Index,
a company’s stock must be listed on an approved and globally recognized exchange and such company must have: (i) a minimum full
1
market capitalization
value of $50 million, (ii) a minimum free float factor of 20%, and (iii) a minimum average daily trading value (“ADTV”) for
the previous three months of $1 million. Companies may be located in the United States or in foreign jurisdictions, including in emerging
markets, and may be represented by depositary receipts such as American depositary receipts (“ADRs”) or global depositary
receipts (“GDRs”).
In
addition to stocks of companies engaged in the Business Segments above,
the Underlying Index also includes the ETP and Trust Component which is represented by exchange-traded products and open-ended private
investment trusts that trade on an approved U.S. exchange (in accordance with the Index Provider's methodology) and invest at least 75%
of their assets in Bitcoin (“BTC”).
To
be eligible for inclusion in the ETP and Trust Component of the Underlying
Index, an ETP or private investment trust
must also: (i) have a minimum full market capitalization of $1 billion ($500 million for current Underlying Index constituents), (ii)
have a minimum ADTV for the previous three months of $15 million ($7.5 million for current Underlying Index constituents), and (iii) be
open-ended.
Because
the Fund will not invest directly in any cryptocurrency, it will not
track price movements of any cryptocurrency. The Fund may, however, have indirect exposure to crypto assets by virtue of (i) its investments
in companies that use one or more crypto assets as part of their business activities or that hold crypto assets as proprietary investments
and (ii) its investments in the ETP and Trust Component.
The
Underlying Index is rebalanced monthly. At each rebalance, the ETP and
Trust Component is allocated a 15% Underlying Index weight, and the Equity Component is allocated the remaining 85% Underlying Index weight.
All of the companies in the Equity Component are weighted equally to one another.
As
of December 31, 2023,
the Underlying Index was comprised of 58
stocks with market capitalizations ranging from $383.9
million to $2.8
trillion.
The
Fund generally employs a “full replication” methodology
in seeking to track the Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying
Index in proportion to their weightings in the Underlying
Index. However, due to the practical difficulties and expense of,
purchasing all of the securities in the Underlying Index, the Fund may
also utilize a sampling methodology from time to time. A “sampling” methodology means that the Fund does not purchase all
the components of the Underlying Index. Rather, the Adviser uses quantitative analysis to select a representative sample of assets that
have, in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance attributes
and other characteristics.
The
Fund may obtain exposure to certain securities in the ETP and Trust Component
indirectly through a wholly-owned subsidiary organized under Cayman Islands law (the “Subsidiary”). The Fund’s investment
in the Subsidiary is expected to provide the Fund with exposure to such assets in accordance with the limits of the federal tax laws,
which may limit the ability of investment companies like the Fund to invest directly in such investments. The Fund’s investment
in the Subsidiary may not exceed 25% of the Fund’s total assets at each quarter-end of the Fund’s fiscal year. The Subsidiary
is wholly-owned and controlled by the Fund and advised by Invesco Capital Management LLC (the “Adviser”). The Subsidiary's
investment objective is to seek to track the performance of a subset of the securities in the Underlying Index. The Subsidiary will follow
the same general investment policies and restrictions as the Fund, except that unlike the Fund, it may invest to a greater extent in cryptocurrency-related
investments. The Subsidiary’s investments also will be subject to limits on leverage imposed by the Investment
Company Act of 1940,
as amended (the “1940 Act”).
Except as noted, for purposes of this Prospectus, references to the Fund’s investment strategies and risks include those of its
Subsidiary.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the 1940 Act.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
more than 25%
of the value of its net
assets) in securities of issuers in any one industry or group of industries only to the extent that the Underlying Index reflects a concentration
in that industry or group of industries. The Fund will not otherwise concentrate its investments in securities of issuers in any one industry
or group of industries. As of October 31, 2023,
the Fund had significant exposure to the information technology sector. The Fund's portfolio holdings, and the extent to which it
concentrates its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
2
3
4
5
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total
returns have varied from year to year and by showing how the Fund’s average
annual total returns compared with a broad measure of market performance and an additional index with characteristics relevant to
the Fund.
The Fund's
performance reflects fee waivers, if any, absent which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the period ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
Since
Inception
|
|
Return
Before Taxes |
|
% |
-
|
|
Return
After Taxes on Distributions |
|
|
-
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
-
|
|
| |||
|
Alerian
Galaxy Global Blockchain Equity, Trusts & ETPs
Index
(Net) (reflects reinvested dividends net of
withholding
taxes, but reflects no deduction for fees,
expenses
or other taxes) |
|
|
-
|
|
| |||
|
MSCI
ACWI (Net) withholding
taxes but reflects no deduction for fees,
expenses
or other taxes) |
|
|
|
|
| |||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio
Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
September
2021 |
|
| ||
|
David
Hemming |
Head
of Alternatives Portfolio
Management
of the Adviser |
September
2021 |
|
| ||
|
Theodore
Samulowitz |
Senior
Portfolio Manager of the
Adviser
|
September
2021 |
|
| ||
|
Dave
Sahota, CFA |
Portfolio
Manager of the Adviser |
February
2024 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for cash and/or the deposit or delivery
of a basket of securities. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance
6
of the Underlying Index
as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying Index and to minimize “tracking
error” between the two). Tracking error means the variation between the Fund’s annual return and the return of the Underlying
Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments, while the Fund is an actual
investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance of the Underlying Index.
For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index. Moreover, as an index fund,
the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund generally employs a “full replication” methodology in seeking to
track the Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying
Index in proportion to their weightings in the Underlying
Index. However, due to the practical difficulties and expense of,
purchasing all of the securities in the Underlying Index, the Fund may
also utilize a sampling methodology from time to time.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index, in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund's investment objective.
To the extent the Fund uses a sampling strategy, it may have larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Fund’s Underlying Index
is set forth below.
The Alerian Galaxy Global
Blockchain Equity, Trusts and ETPs Index
The
Index Provider compiles, maintains and calculates the Underlying Index, which is primarily comprised of two different components: the
Equity Component and the ETP and Trust Component.
The
Equity Component of the Underlying Index is primarily comprised of exchange-listed
equity securities of companies that are principally or materially engaged in one of the following four Business Segments:
■
Cryptocurrency
Miners: Companies that mine cryptocurrency assets.
■
Cryptocurrency
Enabling Technologies: Companies that (i) facilitate the buying, selling and transfer of cryptocurrency assets, (ii) provide custody for
cryptocurrency assets, (iii) supply semiconductors used in cryptocurrency mining, or (iv) supply cryptocurrency mining machines.
■
Cryptocurrency
Buyers: Companies that report cryptocurrency assets on their balance sheets.
■
Blockchain
Users: Operating companies that are engaged in the research and development of blockchain technologies for non-cryptocurrency-related
purposes.
To
be eligible for inclusion in the Equity Component of the Underlying Index,
a company’s stock must be listed on an approved and globally recognized exchange and such company must have: (i) a minimum full
market capitalization value of $50 million, (ii) a minimum free float factor of 20%, and (iii) a minimum ADTV for the previous three months
(or, if fewer than three months but at least 22 trading days, the ADTV for its entire trading history shall be used) of $1 million. Companies
may be located in the United States or in foreign jurisdictions, including in emerging markets, and may be represented by depositary receipts
such as ADRs and GDRs.
Additionally,
a company in any of the Cryptocurrency Enabling Technologies, Cryptocurrency
Miners or Blockchain Users Business Segments shall be considered principally engaged or materially engaged if it derives at least 50%
of its revenues from business activities described for its Business Segment. A company in the Cryptocurrency Buyers Business Segment shall
be considered principally or materially engaged if it reports cryptocurrency assets on its balance sheet amounting to at least 50% of
its market capitalization.
Certain
companies that are not principally engaged in one of the Business
Segments, but that derive significant revenues from businesses in that Segment (“Diversified Companies”) may also be included
in the Underlying Index, provided that the Index Provider determines that:
■
such
revenues represent more than 20% of the company’s total revenues and such revenues are independently reported in the company’s
financial reports;
■
applicable
revenues are likely to have a material impact on the company’s overall share price performance;
■
research
and development investments in the technology are at the forefront of the company’s future initiatives; or
■
the
company’s applicable business is likely to have a significant impact on the sector as a whole.
Within
each Business Segment, the top 20 eligible principally engaged companies
are selected for inclusion in the Underlying Index based on an average rank of full market capitalization and three-month ADTV. In the
event that there are fewer than 20 eligible companies that are principally engaged in a Business Segment, then stocks of Diversified Companies
are additionally selected in accordance with the above methodology until the fixed count of 20 securities is met or all eligible companies
in the Business Segment have been selected.
In
addition to stocks of companies engaged in the Business Segments above,
the Underlying Index also includes the ETP and Trust Component, which is represented by ETPs and [private] investment trusts that trade
on an approved U.S. exchange (in accordance with the Index Provider's methodology) and invest at least 75% of their assets in BTC. To
be eligible for inclusion in the ETP and Trust Component of the Underlying Index, an ETP or private trust must also: (i) have a minimum
full market capitalization of $1 billion ($500 million for current Underlying Index constituents), (ii) have a minimum ADTV for the previous
three months of $15 million ($7.5 million for current Underlying Index constituents), and (iii) be open-ended.
The
Underlying Index is rebalanced monthly. At each rebalance, the ETP and
Trust Component is allocated a 15% Underlying Index weight, with its constituents weighted relative to one another based on market capitalization,
subject to a minimum Underlying Index weight of 0.5%. The Equity Component is allocated the remaining 85% Underlying Index weight, with
all companies weighted equally to one another.
The
Underlying Index is rebalanced monthly at the open of trading on the
Monday following the third Friday of the month or the next trade date in the event of a market holiday (the “Effective Date”).
Changes to the Underlying Index take place at each rebalancing Effective Date, except in the event of certain intramonth corporate actions,
such as mergers, acquisitions, and delistings. In such cases, the change is applied on the effective date of the action, unless otherwise
determined by the Index Provider.
The
Fund is rebalanced in accordance with the Underlying Index.
7
Principal
Risks of Investing in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Blockchain
Company Investments Risk. Companies engaged in the development,
enablement and acquisition of blockchain technologies are subject to a number of risks. Blockchain technology is new and many of its uses
may be untested. The mechanics of using distributed ledger technology to transact in other types of assets, such as securities or derivatives,
is less clear. There is no assurance that widespread adoption will occur. Furthermore, the development and acceptance of competing platforms
or technologies may cause consumers or investors to use an alternative to blockchains. A lack of expansion in the usage of blockchain
technology could adversely
affect the underlying holdings of the Fund. Moreover, the extent to which companies held by the Fund utilize blockchain technology may
vary, and it is possible that even widespread adoption of blockchain technology may not result in a material impact on the stock price
of such companies.
Furthermore,
companies that are developing applications of blockchain technology
applications may not in fact do so or may not be able to capitalize on those blockchain technologies. A proliferation of recent startups
attempting to apply blockchain technology in different contexts means the possibility of conflicting intellectual property claims could
be a risk to an issuer, its operations or its business. This could also pose a risk to blockchain platforms that permit transactions in
digital securities. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence
in the viability of blockchain may adversely affect an investment in the Fund. Additionally, blockchain technology is new, and as such
may be subject to future laws or regulations. Any such regulatory changes affecting blockchain technology may adversely impact an investment
in companies utilizing this technology.
Transacting
on a blockchain depends in part specifically on the use of cryptographic
keys that are required to access a user’s account (or “wallet”). The theft, loss or destruction of these keys impairs
the value of ownership claims users have over the relevant assets being represented by the ledger (whether “smart contracts,”
securities, currency or other digital assets). The theft, loss or destruction of private or public keys needed to transact on a blockchain
could also adversely affect a company’s business or operations if it were dependent on the ledger.
In
addition, because blockchain functionality relies on the Internet, a significant
disruption of Internet connectivity affecting large numbers of users or geographic areas could impede the functionality of blockchain
technologies and adversely affect the Fund. In addition, certain features of blockchain technology, such as decentralization, open source
protocol, and reliance on peer-to-peer connectivity, may increase the risk of fraud or cyber-attack by potentially reducing the likelihood
of a coordinated response.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer
8
fails to make anticipated
dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Micro-Capitalization
Company Risk. Investments in the securities of micro-capitalization
companies involve substantially greater risks of loss and price fluctuations than other securities with larger capitalizations. Micro-capitalization
companies carry additional risks because their earnings and revenues tend to be less predictable (and some companies may be experience
significant losses), their share prices tend to be more volatile and their markets less liquid than companies with larger market capitalizations.
Micro-capitalization companies may be newly formed or in the early stages of development, with limited product lines, markets or financial
resources, and they may lack management depth or may be overly reliant on specific key individuals. In addition, less public information
may be available about these companies. The shares of micro-capitalization companies tend to trade less frequently than those of larger,
more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Information
Technology Sector Risk. Companies in the information technology
sector may be adversely affected by the failure to obtain, or delays in obtaining, financing or regulatory approval, intense competition,
both domestically and internationally, product compatibility, consumer preferences, corporate capital expenditure, rapid obsolescence
and competition for the services of qualified personnel. Companies in the information technology sector also face competition or potential
competition with numerous alternative technologies. In
addition,
the highly competitive information technology sector may cause the prices for these products and services to decline in the future.
Information
technology companies may have limited product lines, markets, financial
resources or personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights.
The loss or impairment of these rights may adversely affect the profitability of these companies.
The
information technology sector is subject to rapid and significant changes
in technology that are evidenced by the increasing pace of technological upgrades, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for new products and enhancements, developments in emerging
wireless transmission technologies and changes in customer requirements and preferences. The success of sector participants depends substantially
on the timely and successful introduction of new products.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of
9
corruption and fraud
than developed market countries, as well as counterparties and financial institutions with less financial sophistication, creditworthiness
and/or resources. Investments in emerging market securities may also be subject to delays in settlement procedures, unexpected market
closures, and lack of timely information. Lack of relevant data and reliable public information, including financial information, about
securities in emerging markets may contribute to incorrect weightings and data and computational errors when the Index Provider selects
securities for inclusion in the Underlying Index or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Cryptocurrency
Risk. Cryptocurrencies (also referred to as “virtual currencies”
and “digital currencies”) are digital assets designed to act as a medium of exchange. Although cryptocurrency is an emerging
asset class, there are thousands of cryptocurrencies.
While
the Fund will not invest directly in cryptocurrencies, the value of the
Fund's investments in cryptocurrency-linked assets (including private investment
trusts and ETPs) is subject to fluctuations in the value of the
cryptocurrency, which have been and may in the future be highly volatile. The value of cryptocurrencies is determined by the supply and
demand for cryptocurrency in the global market for the trading of cryptocurrency, which consists primarily of transactions on electronic
exchanges. The price of a digital currency could drop precipitously (including to zero) for a variety of reasons, including, but not limited
to, regulatory changes, a crisis of confidence, flaw or operational issue in a digital currency network or a change in user preference
to competing cryptocurrencies. Cryptocurrency is a new technological innovation with a limited history; it is a highly speculative asset,
and the Fund's exposure to cryptocurrency-linked assets could result in substantial losses to the Fund.
Cryptocurrencies
trade on exchanges, which are largely unregulated and, therefore,
are more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies.
Cryptocurrency exchanges
have in the past, and may in the future, cease operating temporarily or even permanently, resulting in the potential loss of users' cryptocurrency
or other market disruptions. Cryptocurrency exchanges are more exposed to the risk of market manipulation than exchanges for traditional
assets. Cryptocurrency exchanges that are regulated typically must comply with minimum net capital, cybersecurity, and anti-money laundering
requirements, but are not typically required to protect customers or their markets to the same extent that regulated securities exchanges
or futures exchanges are required to do so. Furthermore, many cryptocurrency exchanges lack certain safeguards established by traditional
exchanges to enhance the stability of trading on the exchange, such as measures designed to prevent sudden drops in value of items traded
on the exchange (i.e., “flash crashes”). As a result, the prices of cryptocurrencies on exchanges may be subject to larger
and more frequent sudden declines than assets traded on traditional exchanges. In addition, cryptocurrency exchanges are also subject
to the risk of cybersecurity threats and have been breached, resulting in the theft and/or loss of cryptocurrencies. A cyber or other
security breach or a business failure of a cryptocurrency exchange or custodian may affect the price of a particular cryptocurrency or
cryptocurrencies generally. A risk also exists with respect to malicious actors or previously unknown vulnerabilities, which may adversely
affect the value of a digital currency.
Currently,
there is relatively limited use of cryptocurrency in the retail and
commercial marketplace, which contributes to price volatility. A lack of expansion by cryptocurrencies into retail and commercial markets,
or a contraction of such use, may result in increased volatility or a reduction in the value of cryptocurrencies, either of which could
adversely impact the Fund's investment in cryptocurrency. In addition, to the extent market participants develop a preference for one
cryptocurrency over another, the value of the less preferred cryptocurrency would likely be adversely affected.
Cryptocurrency
Tax Risk. Many significant aspects of the U.S. federal income tax
treatment of investments in cryptocurrencies are uncertain and an investment in cryptocurrencies, even indirectly, may produce income
that is not treated as qualifying income for purposes of the income test applicable to regulated investment companies, such as the Fund.
Accordingly, to the extent the Fund invests in any cryptocurrency-linked assets (such as ETPs or private funds) that generate non-qualifying
income, it intends to do so through the Subsidiary. Should the IRS issue guidance, or Congress enact legislation, that adversely affects
the tax treatment of the Fund's use of cryptocurrency-linked assets or the Subsidiary (which guidance might be applied to the Fund retroactively),
it could, among other consequences, limit the Fund's ability to pursue its investment strategy.
Cryptocurrency
ETPs and Trusts Risks. In seeking to track the Underlying Index,
the Fund may obtain investment exposure to cryptocurrencies indirectly through investments in ETPs
and private investment trusts, which are pooled investment vehicles that hold cryptocurrencies.
The Fund’s investment in these vehicles subjects the Fund
to all the risks of digital currencies described herein.
In addition, as a shareholder in a pooled investment vehicle,
the Fund will bear its ratable share of that vehicle’s expenses,
while simultaneously paying its own management fees and expenses. As a result, shareholders will absorb duplicate levels of fees with
respect to the Fund’s investments in these vehicles. The price of the ETPs and trusts in which the Fund invests may be highly volatile
and may not directly correspond to the price of the
underlying digital
currency in
which the vehicle invests.
Such investment vehicles may trade at premiums or discounts,
which may be significant.
To the extent the Fund invests in trusts that are
private investment vehicles,
the Fund is also subject to the risks of
private funds generally, which include, but are not limited to, liquidity risk, lack of a secondary market to trade securities, management
risk, concentration risk and valuation risk. The securities of the
ETPs and trusts in which the Fund invests are generally not registered
under the 1940
Act, and may not be registered under the Securities Act or
any
10
state
securities laws, and therefore such an
investment will not benefit from the protections and restrictions of such laws.
Market
Capitalization Risk. Companies that report cryptocurrency assets
on their balance sheets amounting to at least 50% of their market capitalization are eligible for inclusion in the Underlying Index. Market
capitalization refers to the total dollar market value of a company's outstanding shares; it is calculated by multiplying the total number
of the company's outstanding shares by the current market price per share. Market capitalization can fluctuate depending on changes in
the per share price of a security or due to changes in the number of shares outstanding. Because market capitalization is determined,
in large measure, by market price, market capitalization can fluctuate up or down depending on the fluctuation of market price of shares
and, at times, may be higher or lower than a company's book value. As a result, a portfolio company's holdings in bitcoin (when expressed
as a percentage of market capitalization) may appear to increase when market prices decline, and conversely, may appear to decrease when
market prices increase, even though such company's total holdings of bitcoin would remain unchanged both in an absolute sense and as a
percentage of book assets. Component companies whose cryptocurrency assets drop below 50% of their market capitalization will not be eligible
for the Underlying Index at its next rebalance.
Line
of Business Risk. Certain companies included in the Underlying
Index may be engaged in other lines of business unrelated to blockchain and cryptocurrency and these lines of business could adversely
affect their operating results. The operating results of these companies may fluctuate as a result of these additional risks and events
in the other lines of business. In addition, a company’s ability to engage in new activities may expose it to business risks with
which it has less experience than it has with the business risks associated with its traditional businesses. Despite a company’s
possible success in activities linked to its use of blockchain, there can be no assurance that the other lines of business in which these
companies are engaged will not have an adverse effect on a company’s business or financial condition.
Subsidiary
Investment Risk. By investing in the Subsidiary, the Fund is indirectly
exposed to the risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the 1940 Act; therefore,
the Fund will not receive all of the protections offered to investors in registered investment companies. Changes in the laws of the United
States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as intended, which may negatively
affect the Fund and its shareholders.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is
under no obligation to
distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
11
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Sampling
Risk. The Fund’s use of a representative sampling methodology
could result in the Fund holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development
to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the risk that the securities selected for the Fund, in
the aggregate, will not
provide investment performance matching that of the Underlying Index, thereby increasing tracking error.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
12
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and
interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options and options on futures contracts. The Fund may use futures contracts, options, options on futures
contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index, and to manage cash
flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
The
Fund's investment objective is a non-fundamental policy that the Board
of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder
approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional
Risks of Investing in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund anticipates meeting redemption requests
by paying redemption proceeds either in-kind or in cash. To the extent cash is used for redemptions, the Fund may be required to sell
portfolio securities to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on
these sales that might not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund
compared to utilizing an in-kind only redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk
13
(sometimes referred to
as “default risk”), which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of
Shares may adversely
affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger
cash position than it ordinarily would. To the extent these large shareholders transact in shares on the secondary market, such transactions
may account for a large percentage of the trading volume on the Fund’s exchange and may, therefore, have a material upward or downward
effect on the market price of the Shares. To the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion
of its assets in cash in anticipation of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to
14
economies and markets,
adversely impacting individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor
sentiment, and other factors affecting the value of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying
Index is concentrated is negatively impacted to a greater extent by such events, the Fund may experience heightened volatility. Given
the increasing interdependence among global economies and markets, conditions in one country, market, or region are increasingly likely
to adversely affect markets, issuers, and/or foreign exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or
at all. If the Fund lends
its securities and is unable to recover the securities loaned, it may sell the collateral and purchase a replacement security in the market.
Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the loaned securities increases and
the collateral is not increased accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money
market fund. This investment is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its
cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the Cboe BZX Exchange, Inc. (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed in exchange for cash or in-kind in Creation Units at each day’s next calculated NAV. In-kind
arrangements are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent
cash creation and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders
because the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable
gains that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism may reduce
the effect of a tax event for the Fund (to the extent it uses in-kind redemptions) or its shareholders. To the extent that the Fund effects
creations and redemptions for cash rather than on an in-kind basis, investments in the Shares may be less tax-efficient than if the Fund
utilized an entirely in-kind redemption process.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Fund’s Underlying Index. The Fund also may be required to distribute any such
gains to its shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions,
see the section entitled “Dividends, Other Distributions and Taxes” in this Prospectus.
15
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, David Hemming,
Theodore Samulowitz and Dave Sahota
(the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since September 2021. He has been responsible for the management of certain funds in the Invesco family of
ETFs since June 2007 and has been associated with the Adviser since 2005.
■
David
Hemming, Head of Alternatives Portfolio Management of the Adviser, has been responsible for the management of the Fund since September
2021. He has been responsible for the management of certain funds in the Invesco family of ETFs since September 2016 and has been associated
with the Adviser since 2016.
■
Theodore
Samulowitz, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since September 2021. He has
been responsible for the management of certain funds in the Invesco family of ETFs since August 2013 and has been associated with the
Adviser since 2012.
■
Dave
Sahota, CFA, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2024. He has been responsible
for the management of certain funds in the Invesco family of ETFs since February 2024 and has been associated with the Adviser since 2023.
Prior to joining the Adviser, Mr. Sahota was a senior data scientist at Meta with a focus on the monetization ecosystem from May 2021
through January 2023, a lead quantitative researcher at Morningstar from September 2019 through April 2021, and an investments associate
at EquiTrust Life Insurance from June 2017 through March 2019.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.60% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual
Report to Shareholders for the fiscal period ended April
30,
2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “BLKC.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market
16
conditions, to take up
to seven days after the receipt of a redemption request to pay an AP, all as permitted by the 1940 Act. If the Fund has foreign investments
in a country where local market holiday(s) prevent the Fund from delivering such foreign investments to an AP in response to a redemption
request, the Fund may take up to 15 days after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act, will not be able to receive those Rule 144A
securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should
17
recognize
gain or loss in an amount equal to the difference between the shareholder’s adjusted tax basis in his or her shares and the liquidating
distribution(s) he or she receives, except to the extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution
may be subject to backup withholding as described below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment
accounts.
After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions, return of capital distributions
and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the IRS, which can be relied upon currently,
such withholding is no longer required unless final regulations provide otherwise (which is not expected). The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar
laws. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate
certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Additional Considerations
for Investments in Cryptocurrency-Linked Investments
The
Fund's strategy of investing through its Subsidiary in ETPs and other instruments whose performance is linked to cryptocurrencies may
cause the Fund to recognize more ordinary income and short-term capital gains taxable as ordinary income than would be the case if the
Fund invested directly in cryptocurrencies.
The
Fund must meet certain requirements under the Code to receive favorable
tax treatment as a RIC, including asset diversification and income
18
requirements. The Subsidiary
will be classified for federal income tax purposes as a controlled foreign corporation (CFC) with respect to the Fund. As such, the Fund
will be required to include in its gross income each year amounts earned by the Subsidiary during that year (“Subpart F” income),
whether or not such earnings are distributed by the Subsidiary to the Fund (deemed inclusions).
Treasury
Regulations also permit the Fund to treat such deemed inclusions
of “Subpart F” income from the Subsidiary as qualifying income to the Fund, even if the Subsidiary does not make a distribution
of such income. Consequently, the Fund and the Subsidiary reserve the right to rely on deemed inclusions being treated as qualifying income
to the Fund consistent with such Treasury Regulations.
The
Fund intends to limit its investments in the Subsidiary to no more than
25% of the value of the Fund's total assets in order to satisfy the asset diversification requirement.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade.
Non-U.S. exchange-traded
options are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps
generally are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided
by independent pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s
fair value in accordance with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if
market quotations are available and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair
value prices. The Adviser may discontinue the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
19
Financial Highlights
The
financial highlights table below is intended to help you understand the Fund’s
financial performance for the period since the Fund’s inception. Certain information reflects financial results for a single Share.
The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all
dividends
and other distributions). This information has been derived from the Fund’s financial statements, which have been audited by PwC,
whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year
ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, |
For
the Period
October
5, 2021(a)
Through
October
31,
2021
| |
|
|
2023
|
2022
| |
|
Per
Share Operating Performance: |
|
|
|
|
Net
asset value at beginning of period |
$9.83
|
$27.93
|
$25.00
|
|
Net
investment income(b)
|
0.20
|
0.33
|
0.01
|
|
Net
realized and unrealized gain (loss) on investments |
3.23
|
(18.02)
|
2.92
|
|
Total
from investment operations |
3.43
|
(17.69)
|
2.93
|
|
Distributions
to shareholders from: |
|
|
|
|
Net
investment income |
(0.31)
|
(0.41)
|
-
|
|
Net
asset value at end of period |
$12.95
|
$9.83
|
$27.93
|
|
Market
price at end of period(c)
|
$12.94
|
$9.82
|
$27.73
|
|
Net
Asset Value Total Return(d)
|
35.88%
|
(63.88)%
|
11.72%(e)
|
|
Market
Price Total Return(d)
|
35.92%
|
(63.66)%
|
10.92%(e)
|
|
Ratios/Supplemental
Data: |
|
|
|
|
Net
assets at end of period (000’s omitted) |
$2,590
|
$1,966
|
$5,586
|
|
Ratio
to average net assets of: |
|
|
|
|
Expenses
|
0.60%
|
0.61%
|
0.60%(f)
|
|
Net
investment income |
1.78%
|
1.94%
|
0.27%(f)
|
|
Portfolio
turnover rate(g)
|
90%
|
124%
|
12%
|
|
(a)
|
Commencement
of investment operations. |
|
(b)
|
Based
on average shares outstanding. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
The
net asset value total return from Fund Inception (October 7, 2021, the first day of trading on the exchange) to October 31, 2021 was 10.48%.
The market price total return from Fund Inception
to October 31, 2021 was 9.34%. |
|
(f)
|
Annualized.
|
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
20
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Index Provider has entered into a licensing arrangement with Galaxy
Digital LP (“Galaxy”), pursuant to which Galaxy has licensed certain trademarks to the Index Provider for use in connection
with the Underlying Index. Neither Galaxy nor any affiliate of Galaxy has any right to influence the selection of the securities in the
Underlying Index. The Fund is not issued, sponsored, advised, endorsed, sold or promoted by Galaxy or any of its respective affiliates.
Disclaimers
Alerian®,
Alerian Galaxy Global Blockchain Equity, Trusts and ETPs Index, and BCHAIN are service marks of the Index Provider and have been licensed
for use by the Adviser. Galaxy®
is a trademark of Galaxy that has been licensed for use by the Index Provider in connection with the Underlying Index and sub-licensed
to the Adviser. The Fund is not issued, sponsored, endorsed, sold or promoted by the Index Provider, Galaxy or any of their respective
affiliates. Neither the Index Provider nor Galaxy makes any representation or warranty, express or implied, to the purchasers or owners
of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or
the ability of the Index to track general market performance. The Index Provider’s only relationship to the Fund is the licensing
to the Adviser of its trademarks and the Underlying Index, which is determined, composed and calculated by the Index Provider without
regard to the Adviser or the Fund. Galaxy's only relationship with the Fund is the licensing of its trademarks to the Index Provider,
which have been sub-licensed to the Adviser. Neither the Index Provider nor Galaxy is responsible for or has participated in the determination
of the timing of, prices at, or quantities of the Fund's Shares issued. Neither the Index Provider nor Galaxy has any obligation or liability
in connection with the issuance, administration, marketing or trading of the Fund.
THE
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN AND THE INDEX PROVIDER SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. THE INDEX PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX PROVIDER MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX PROVIDER HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall
have no liability for
any errors, omissions, restatements, re-calculations or interruptions therein. The Adviser makes no warranty, express or implied, as to
results to be obtained by the Fund, owners of the Shares or any other person or entity from the use of the Underlying Index or any data
included therein. The Adviser makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Adviser have any liability for any special, punitive, direct, indirect or consequential damages (including lost
profits) arising out of matters relating to the use of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of
21
Rule 153 under the Securities
Act only is available with respect to transactions on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
22
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Alerian Galaxy Crypto Economy ETF |
Cboe
BZX Exchange, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Alerian Galaxy Crypto Economy ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of
the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 80% of its total assets in the securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, VettaFi,
LLC (the “Index Provider”) maintains the Underlying Index, which is comprised of two different components: (i) stocks of digital
asset companies, which are companies that are materially engaged in cryptocurrency mining, cryptocurrency buying, or cryptocurrency enabling
technologies (the “Equity Component”); and (ii) exchange-traded products (“ETPs”) and U.S.-listed
private investment trusts that invest at least 75% of their assets
in Bitcoin (the “ETP and Trust Component”). However,
the Fund will not invest directly in cryptocurrencies such as Bitcoin, or in crypto assets. The Fund also will not invest in initial coin
offerings or futures contracts on cryptocurrencies.
Many
digital assets rely on “blockchain” technologies. A “blockchain” is a
peer-to-peer shared, distributed ledger, or decentralized database, that keeps continuously updated digital records of who owns a particular
asset (e.g., cryptocurrency). Blockchain is secured using cryptography and facilitates the process of recording transactions and tracking
assets in a business network. Blockchain derives its name from the way it stores
transaction data —
as unchangeable, digitally recorded data in packages called “blocks” that are linked together to form a chain. Blocks record
and confirm the time and sequence of transactions, which are then logged into the blockchain network. Each block in the chain is cryptographically
connected to the previous block in the chain, ensuring all data in the overall “blockchain” has not been tampered with. Blockchain
networks can be private with restricted membership similar to an intranet, or public like the Internet, and are governed by rules agreed
on by the network participants.
The
Equity Component of the Underlying Index is primarily comprised of exchange-listed
equity securities of companies that are principally or materially
engaged in one of the following three business activities (each,
a “Business Segment”):
■
Cryptocurrency
Miners: Companies that mine cryptocurrency assets.
■
Cryptocurrency
Enabling Technologies: Companies that (i) facilitate the buying, selling and transfer of cryptocurrency assets, (ii) provide custody for
cryptocurrency assets, (iii) supply semiconductors used in cryptocurrency mining, or (iv) supply cryptocurrency mining machines.
■
Cryptocurrency
Buyers: Companies that report cryptocurrency assets on their balance sheets.
To
be eligible for inclusion in the Equity Component of the Underlying Index,
a company’s stock must be listed on an approved and
globally recognized exchange and such company must have (i) a minimum full market capitalization value of $50 million, (ii) a minimum
free float factor of 20%, and (iii) a minimum average daily trading value (“ADTV”) for the previous three months of $1 million.
Companies may be located in the United States or in foreign jurisdictions, including in emerging markets, and may be represented by depositary
receipts such as American depositary receipts (“ADRs”) or global depositary receipts (“GDRs”).
A
company in either of the Cryptocurrency Enabling Technologies or Cryptocurrency
Miners Business Segments shall be considered principally engaged if it derives at least 50% of its revenues from business activities described
for its Business Segment. A company in the Cryptocurrency Buyers Business Segment shall be considered principally engaged if it reports
cryptocurrency assets on its balance sheet amounting to at least 50% of its market capitalization.
Certain
companies that are not principally engaged in one of the Business
Segments, but that derive significant revenues from businesses in that Segment (“Diversified Companies”) may also be included
in the Underlying Index, provided they meet certain eligibility criteria.
In
addition to stocks of companies engaged in the Business Segments above,
the Underlying Index also includes the ETP and Trust Component, which is represented by exchange-traded products and open-ended
private investment trusts that trade on an approved U.S. exchange
(in accordance with the Index Provider's methodology) and invest at least 75% of their assets in Bitcoin (“BTC”).
To
be eligible for inclusion in the ETP and Trust Component of the Underlying
Index, an ETP or private investment trust must also: (i) have a minimum full market capitalization of $1 billion ($500 million for current
Underlying Index constituents), (ii) have a minimum ADTV for the previous three months of $15 million ($7.5 million for current Underlying
Index constituents), and (iii) be open-ended.
Because
the Fund will not invest directly in any cryptocurrency, it will not
track price movements of any cryptocurrency. The Fund may, however, have indirect exposure to crypto assets by virtue of (i) its investments
in companies that use one or more crypto assets as part of their business activities or that hold crypto assets as proprietary investments
and (ii) its investments in the ETP and Trust Component.
1
The
Underlying Index is rebalanced monthly. At each rebalance, the ETP and
Trust Component is allocated a 15% Underlying Index weight, and the Equity Component is allocated the remaining 85% Underlying Index weight.
Companies that are principally engaged in a Business Segment together with the ETP and Trust Component are allocated 80% of the Underlying
Index weight, while Diversified Companies are allocated 20% of the Underlying Index weight.
As
of December 31, 2023,
the Underlying Index was comprised of 38
stocks with market capitalizations ranging from $383.9
million to $2.8
trillion.
The
Fund generally employs a “full replication” methodology
in seeking to track the Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying
Index in proportion to their weightings in the Underlying
Index. However, due to the practical difficulties and expense of
purchasing all of the securities in the Underlying Index, the Fund
may
also utilize a sampling methodology from time to time. A “sampling” methodology means that the Fund does not purchase all
the components of the Underlying Index. Rather, the Adviser uses quantitative analysis to select a representative sample of assets that
have, in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance attributes
and other characteristics.
The
Fund may obtain exposure to certain securities in the ETP and Trust Component
indirectly through a wholly-owned subsidiary organized under Cayman Islands law (the “Subsidiary”). The Fund’s investment
in the Subsidiary is expected to provide the Fund with exposure to such assets in accordance with the limits of the federal tax laws,
which may limit the ability of investment companies like the Fund to invest directly in such investments. The Fund’s investment
in the Subsidiary may not exceed 25% of the Fund’s total assets at each quarter-end of the Fund’s fiscal year. The Subsidiary
is wholly-owned and controlled by the Fund and advised by Invesco Capital Management LLC (the “Adviser”). The Subsidiary's
investment objective is to seek to track the performance of a subset of the securities in the Underlying Index. The Subsidiary will follow
the same general investment policies and restrictions as the Fund, except that unlike the Fund, it may invest to a greater extent in cryptocurrency-related
investments. The Subsidiary’s investments also will be subject to limits on leverage imposed by the Investment
Company Act of 1940,
as amended (the “1940 Act”).
Except as noted, for purposes of this Prospectus, references to the Fund’s investment strategies and risks include those of its
Subsidiary.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the 1940 Act.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
more than 25%
of the value of its net
assets) in securities of issuers in any one industry or group of industries only to the extent that the Underlying Index reflects a concentration
in that industry or group of industries. The Fund will not otherwise concentrate its investments in securities of issuers in any one industry
or group of industries. As of October 31, 2023,
the Fund had significant exposure to the information technology sector. The Fund's portfolio holdings, and the extent to which it
concentrates its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
2
3
4
5
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total
returns have varied from year to year and by showing how the Fund’s average
annual total returns compared with a broad measure of market performance and an additional index with characteristics relevant to
the Fund.
The Fund's
performance reflects fee waivers, if any, absent which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the period ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
Since
Inception
|
|
Return
Before Taxes |
|
% |
-
|
|
Return
After Taxes on Distributions |
|
|
-
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
-
|
|
| |||
|
Alerian
Galaxy Global Cryptocurrency-Focused
Blockchain
Equity, Trusts & ETPs Index (Net) reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other taxes) |
|
|
-
|
|
| |||
|
MSCI
ACWI (Net) (reflects reinvested dividends net of
withholding
taxes but reflects no deduction for fees,
expenses
or other taxes) |
|
|
|
|
| |||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
September
2021 |
|
| ||
|
David
Hemming |
Head
of Alternatives Portfolio
Management
of the Adviser |
September
2021 |
|
| ||
|
Theodore
Samulowitz |
Senior
Portfolio Manager of the
Adviser
|
September
2021 |
|
| ||
|
Dave
Sahota, CFA |
Portfolio
Manager of the Adviser |
February
2024 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for cash and/or the deposit or delivery
of a basket of securities. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the
6
Fund’s annual return
and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments,
while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index.
Moreover, as an index fund, the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund generally employs a “full replication” methodology in seeking to
track the Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying
Index in proportion to their weightings in the Underlying
Index. However, due to the practical difficulties and expense of,
purchasing all of the securities in the Underlying Index, the Fund may
also utilize a sampling methodology from time to time.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index, in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund's investment objective.
To the extent the Fund uses a sampling strategy, it may have larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Fund’s Underlying Index
is set forth below.
Alerian Galaxy Global Cryptocurrency-Focused
Blockchain Equity, Trusts and ETPs Index
The
Index Provider compiles, maintains and calculates the Underlying Index, which is primarily comprised of two different components: the
Equity Component and the ETP and Trust Component.
The
Equity Component of the Underlying Index is primarily comprised of exchange-listed
equity securities of companies that are principally or materially
engaged in one of the following three Business Segments:
■
Cryptocurrency
Miners: Companies that mine cryptocurrency assets.
■
Cryptocurrency
Enabling Technologies: Companies that (i) facilitate the buying, selling and transfer of cryptocurrency assets, (ii) provide custody for
cryptocurrency assets, (iii) supply semiconductors used in cryptocurrency mining, or (iv) supply cryptocurrency mining machines.
■
Cryptocurrency
Buyers: Companies that report cryptocurrency assets on their balance sheets.
To
be eligible for inclusion in the Equity Component of the Underlying Index,
a company’s stock must be listed on an approved and
globally recognized exchange and such company must have: (i) a minimum full market capitalization value of $50 million, (ii) a minimum
free float factor of 20%, and (iii) a minimum ADTV for the previous three months (or, if fewer than three months but at least 22 trading
days, the ADTV for its entire
trading history shall
be used) of $1 million. Companies may be located in the United States or in foreign jurisdictions, including in emerging markets, and
may be represented by depositary receipts such as ADRs and GDRs.
A
company in either of the Cryptocurrency Enabling Technologies or Cryptocurrency
Miners Business Segments shall be considered principally or materially
engaged if it derives at least 50% of its revenues from business
activities described for its Business Segment. A company in the Cryptocurrency Buyers Business Segment shall be considered principally
engaged if it reports cryptocurrency assets on its balance sheet amounting to at least 50% of its market capitalization.
Diversified
Companies may also be included in the Underlying Index, provided
that the Index Provider determines that:
■
such
revenues represent more than 20% of the company’s total revenues and such revenues are independently reported in the company’s
financial reports;
■
applicable
revenues are likely to have a material impact on the company’s overall share price performance;
■
research
and development investments in the technology are at the forefront of the company’s future initiatives; or
■
the
company’s applicable business is likely to have a significant impact on the sector as a whole.
Within
each Business Segment, the top 20 eligible principally engaged companies
are selected for inclusion in the Underlying Index based on an average rank of full market capitalization and three-month ADTV. In the
event that there are fewer than 20 eligible companies that are principally engaged in a Business Segment, then stocks of Diversified Companies
are additionally selected in accordance with the above methodology until the fixed count of 20 securities is met or all eligible companies
in the Business Segment have been selected.
In
addition to stocks of companies engaged in the Business Segments above,
the Underlying Index also includes the ETP and Trust Component, which is represented by ETPs and [private] investment trusts that trade
on an approved U.S. exchange (in accordance with the Index Provider's methodology) and invest at least 75% of their assets in BTC. To
be eligible for inclusion in the ETP and Trust Component of the Underlying Index, an ETP or private investment
trust must also: (i) have a minimum full market capitalization
of $1 billion ($500 million for current Underlying Index constituents), (ii) have a minimum ADTV for the previous three months of $15
million ($7.5 million for current Underlying Index
constituents), and (iii) be open-ended.
The
Underlying Index is rebalanced monthly. At each rebalance, the ETP and
Trust Component is allocated a 15% Underlying Index weight, with its constituents weighted relative to one another based on market capitalization,
subject to a minimum Underlying Index weight of 0.5%. The Equity Component is allocated the remaining 85% Underlying Index weight. Companies
that are principally engaged in a Business Segment together with the ETP and Trust Component are allocated 80% of the Underlying Index
weight, while Diversified Companies are allocated 20% of the Underlying Index weight. All of the companies in the Equity Component are
weighted equally to one another.
The
Underlying Index is rebalanced monthly at the open of trading on the
Monday following the third Friday of the month or the next trade date in the event of a market holiday (the “Effective Date”).
Changes to the Underlying Index take place at each rebalancing Effective Date, except in the event of certain intramonth corporate actions,
such as mergers, acquisitions, and delistings. In such cases, the change is applied on the effective date of the action, unless otherwise
determined by the Index Provider.
The
Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may
7
impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Digital
Asset Company Investments Risk. Companies engaged in the development,
enablement and acquisition of digital assets and cryptocurrencies are subject to a number of risks. The technology relating to digital
assets, including blockchain, is developing and the risks associated with digital assets may not fully emerge until the technology is
widely used. Cryptocurrencies and blockchain technology are new and many of their uses may be untested. The mechanics of using distributed
ledger technology to transact in other types of assets, such as securities or derivatives, is less clear. There is no assurance that widespread
adoption will occur. Furthermore, the development and acceptance of competing platforms or technologies may cause consumers or investors
to use an alternative to cryptocurrencies. A lack of expansion in the usage of cryptocurrencies could adversely affect an investment in
the Fund.
Currently,
there are relatively few companies for which digital assets represents
an attributable and significant revenue stream. Therefore, the values of the companies included in the Underlying Index may not be a reflection
of their connection to digital assets, but may be based on other business operations. Furthermore, companies that are developing applications
of digital assets and cryptocurrencies may not in fact do so or may not be able to capitalize on those digital assets. Blockchain technology
also may never be implemented to a scale that provides identifiable economic benefit to the companies included in the Underlying Index,
which could adversely affect an investment in the Fund. A proliferation of recent startups attempting to apply blockchain technology in
different contexts means the possibility of conflicting intellectual property claims could be a risk to an issuer, its operations or its
business. This could also pose a risk to blockchain platforms that permit transactions in digital securities. Regardless of the merit
of any intellectual property or other legal action, any threatened action that reduces confidence in the viability of blockchain and/or
cryptocurrencies may adversely affect an investment in the Fund.
There
may be risks posed by the lack of regulation for digital assets and any
future regulatory developments could affect the viability and expansion of the use of digital assets. Transacting on a blockchain depends
in part specifically on the use of cryptographic keys that are required to access a user’s account (or “wallet”). The
theft, loss or destruction of these keys impairs the value of ownership claims users have over the relevant assets being represented by
the ledger (whether “smart contracts,” securities, currency or other digital assets). The theft, loss or destruction of private
or public keys needed to transact on a blockchain could also adversely affect a company’s business or operations if it were dependent
on the ledger.
In
addition, because blockchain functionality relies on the Internet, a significant
disruption of Internet connectivity affecting large numbers of users or geographic areas could impede the functionality of blockchain
technologies and adversely affect the Fund. In addition, certain features of blockchain technology, such as decentralization, open source
protocol, and reliance on peer-to-peer connectivity, may increase the risk of fraud or cyber-attack by potentially reducing the likelihood
of a coordinated response.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer
8
fails to make anticipated
dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Micro-Capitalization
Company Risk. Investments in the securities of micro-capitalization
companies involve substantially greater risks of loss and price fluctuations than other securities with larger capitalizations. Micro-capitalization
companies carry additional risks because their earnings and revenues tend to be less predictable (and some companies may be experience
significant losses), their share prices tend to be more volatile and their markets less liquid than companies with larger market capitalizations.
Micro-capitalization companies may be newly formed or in the early stages of development, with limited product lines, markets or financial
resources, and they may lack management depth or may be overly reliant on specific key individuals. In addition, less public information
may be available about these companies. The shares of micro-capitalization companies tend to trade less frequently than those of larger,
more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Information
Technology Sector Risk. Companies in the information technology
sector may be adversely affected by the failure to obtain, or delays in obtaining, financing or regulatory approval, intense competition,
both domestically and internationally, product compatibility, consumer preferences, corporate capital expenditure, rapid obsolescence
and competition for the services of qualified personnel. Companies in the information technology sector also face competition or potential
competition with numerous alternative technologies. In
addition,
the highly competitive information technology sector may cause the prices for these products and services to decline in the future.
Information
technology companies may have limited product lines, markets, financial
resources or personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights.
The loss or impairment of these rights may adversely affect the profitability of these companies.
The
information technology sector is subject to rapid and significant changes
in technology that are evidenced by the increasing pace of technological upgrades, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for new products and enhancements, developments in emerging
wireless transmission technologies and changes in customer requirements and preferences. The success of sector participants depends substantially
on the timely and successful introduction of new products.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of
9
corruption and fraud
than developed market countries, as well as counterparties and financial institutions with less financial sophistication, creditworthiness
and/or resources. Investments in emerging market securities may also be subject to delays in settlement procedures, unexpected market
closures, and lack of timely information. Lack of relevant data and reliable public information, including financial information, about
securities in emerging markets may contribute to incorrect weightings and data and computational errors when the Index Provider selects
securities for inclusion in the Underlying Index or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Cryptocurrency
Risk. Cryptocurrencies (also referred to as “virtual currencies”
and “digital currencies”) are digital assets designed to act as a medium of exchange. Although cryptocurrency is an emerging
asset class, there are thousands of cryptocurrencies.
While
the Fund will not invest directly in cryptocurrencies, the value of the
Fund's investments in cryptocurrency-linked assets (including private investment
trusts and ETPs) is subject to fluctuations in the value of the
cryptocurrency, which have been and may in the future be highly volatile. The value of cryptocurrencies is determined by the supply and
demand for cryptocurrency in the global market for the trading of cryptocurrency, which consists primarily of transactions on electronic
exchanges. The price of a digital currency could drop precipitously (including to zero) for a variety of reasons, including, but not limited
to, regulatory changes, a crisis of confidence, flaw or operational issue in a digital currency network or a change in user preference
to competing cryptocurrencies. Cryptocurrency is a new technological innovation with a limited history; it is a highly speculative asset,
and the Fund's exposure to cryptocurrency-linked assets could result in substantial losses to the Fund.
Cryptocurrencies
trade on exchanges, which are largely unregulated and, therefore,
are more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies.
Cryptocurrency exchanges
have in the past, and may in the future, cease operating temporarily or even permanently, resulting in the potential loss of users' cryptocurrency
or other market disruptions. Cryptocurrency exchanges are more exposed to the risk of market manipulation than exchanges for traditional
assets. Cryptocurrency exchanges that are regulated typically must comply with minimum net capital, cybersecurity, and anti-money laundering
requirements, but are not typically required to protect customers or their markets to the same extent that regulated securities exchanges
or futures exchanges are required to do so. Furthermore, many cryptocurrency exchanges lack certain safeguards established by traditional
exchanges to enhance the stability of trading on the exchange, such as measures designed to prevent sudden drops in value of items traded
on the exchange (i.e., “flash crashes”). As a result, the prices of cryptocurrencies on exchanges may be subject to larger
and more frequent sudden declines than assets traded on traditional exchanges. In addition, cryptocurrency exchanges are also subject
to the risk of cybersecurity threats and have been breached, resulting in the theft and/or loss of cryptocurrencies. A cyber or other
security breach or a business failure of a cryptocurrency exchange or custodian may affect the price of a particular cryptocurrency or
cryptocurrencies generally. A risk also exists with respect to malicious actors or previously unknown vulnerabilities, which may adversely
affect the value of a digital currency.
Currently,
there is relatively limited use of cryptocurrency in the retail and
commercial marketplace, which contributes to price volatility. A lack of expansion by cryptocurrencies into retail and commercial markets,
or a contraction of such use, may result in increased volatility or a reduction in the value of cryptocurrencies, either of which could
adversely impact the Fund's investment in cryptocurrency. In addition, to the extent market participants develop a preference for one
cryptocurrency over another, the value of the less preferred cryptocurrency would likely be adversely affected.
Cryptocurrency
Tax Risk. Many significant aspects of the U.S. federal income tax
treatment of investments in cryptocurrencies are uncertain and an investment in cryptocurrencies, even indirectly, may produce income
that is not treated as qualifying income for purposes of the income test applicable to regulated investment companies, such as the Fund.
Accordingly, to the extent the Fund invests in any cryptocurrency-linked assets (such as ETPs or private funds) that generate non-qualifying
income, it intends to do so through the Subsidiary. Should the IRS issue guidance, or Congress enact legislation, that adversely affects
the tax treatment of the Fund's use of cryptocurrency-linked assets or the Subsidiary (which guidance might be applied to the Fund retroactively),
it could, among other consequences, limit the Fund's ability to pursue its investment strategy.
Cryptocurrency
ETPs and Trusts Risks. In seeking to track the Underlying Index,
the Fund may obtain investment exposure to cryptocurrencies indirectly through investments in ETPs
and private investment trusts, which are pooled investment vehicles that hold cryptocurrencies.
The Fund’s investment in these vehicles subjects the Fund
to all the risks of digital currencies described herein.
In addition, as a shareholder in a pooled investment vehicle,
the Fund will bear its ratable share of that vehicle’s expenses,
while simultaneously paying its own management fees and expenses. As a result, shareholders will absorb duplicate levels of fees with
respect to the Fund’s investments in these vehicles. The price of the ETPs and trusts in which the Fund invests may be highly volatile
and may not directly correspond to the price of the
underlying digital
currency in
which the vehicle invests.
Such investment vehicles may trade at premiums or discounts,
which may be significant.
To the extent the Fund invests in trusts that are
private investment vehicles,
the Fund is also subject to the risks of
private funds generally, which include, but are not limited to, liquidity risk, lack of a secondary market to trade securities, management
risk, concentration risk and valuation risk. The securities of the
ETPs and trusts in which the Fund invests are generally not registered
under the 1940
Act, and may not be registered under the Securities Act or
any
10
state
securities laws, and therefore such an
investment will not benefit from the protections and restrictions of such laws.
Market
Capitalization Risk. Companies that report cryptocurrency assets
on their balance sheets amounting to at least 50% of their market capitalization are eligible for inclusion in the Underlying Index. Market
capitalization refers to the total dollar market value of a company's outstanding shares; it is calculated by multiplying the total number
of the company's outstanding shares by the current market price per share. Market capitalization can fluctuate depending on changes in
the per share price of a security or due to changes in the number of shares outstanding. Because market capitalization is determined,
in large measure, by market price, market capitalization can fluctuate up or down depending on the fluctuation of market price of shares
and, at times, may be higher or lower than a company's book value. As a result, a portfolio company's holdings in bitcoin (when expressed
as a percentage of market capitalization) may appear to increase when market prices decline, and conversely, may appear to decrease when
market prices increase, even though such company's total holdings of bitcoin would remain unchanged both in an absolute sense and as a
percentage of book assets. Component companies whose cryptocurrency assets drop below 50% of their market capitalization will not be eligible
for the Underlying Index at its next rebalance.
Line
of Business Risk. Certain companies included in the Underlying
Index may be engaged in other lines of business unrelated to blockchain and cryptocurrency and these lines of business could adversely
affect their operating results. The operating results of these companies may fluctuate as a result of these additional risks and events
in the other lines of business. In addition, a company’s ability to engage in new activities may expose it to business risks with
which it has less experience than it has with the business risks associated with its traditional businesses. Despite a company’s
possible success in activities linked to its use of blockchain, there can be no assurance that the other lines of business in which these
companies are engaged will not have an adverse effect on a company’s business or financial condition.
Subsidiary
Investment Risk. By investing in the Subsidiary, the Fund is indirectly
exposed to the risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the 1940 Act; therefore,
the Fund will not receive all of the protections offered to investors in registered investment companies. Changes in the laws of the United
States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as intended, which may negatively
affect the Fund and its shareholders.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is
under no obligation to
distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
11
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Sampling
Risk. The Fund’s use of a representative sampling methodology
could result in the Fund holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development
to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the risk that the securities selected for the Fund, in
the aggregate, will not
provide investment performance matching that of the Underlying Index, thereby increasing tracking error.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in pursuing its investment objective, which may result in a high portfolio turnover rate. A portfolio turnover rate of 200%,
for example, is equivalent to the Fund buying and selling all of its securities two times during the course of a year. A high portfolio
turnover rate (such as 100% or more) could result in high brokerage costs for a fund. A high portfolio turnover rate also can result in
an increase in taxable capital gains distributions to the Fund's shareholders.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
12
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and
interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options and options on futures contracts. The Fund may use futures contracts, options, options on futures
contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index, and to manage cash
flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets (plus the amount of any borrowing for investment purposes) in
securities of companies principally engaged in the “Crypto Economy” (the “80% investment policy”). For purposes
of the 80% investment policy, the Fund defines issuers principally engaged in the Crypto Economy as issuers that are included in the Underlying
Index and satisfy one of the following criteria:
■
Companies
that derive at least 50% of their revenues from (i) mining cryptocurrency assets, (ii) facilitating the buying, selling and transfer
of cryptocurrency
assets, (iii) providing custody for cryptocurrency assets, (iv) supplying semiconductors used in cryptocurrency mining, and/or (v) supplying
cryptocurrency mining machines;
■
Companies
that report cryptocurrency assets on their balance sheets amounting to at least 50% of their market capitalization; OR
■
Investment
products that invest at least 75% in cryptocurrencies (or the returns of which are at least 75% derived from the value of cryptocurrencies).
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund anticipates meeting redemption requests
by paying redemption proceeds either in-kind or in cash. To the extent cash is used for redemptions, the Fund may be required to sell
portfolio securities to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on
these sales that might not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund
compared to utilizing an in-kind only redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences
13
could result from cybersecurity
incidents affecting issuers of securities in which the Fund invests, counterparties with which the Fund engages, governmental and other
regulatory authorities, exchanges and other financial market operators, banks, brokers, dealers, insurance companies, other financial
institutions and other parties. The Fund and its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
14
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or
options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the Cboe BZX Exchange, Inc. (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
15
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed in exchange for cash or in-kind in Creation Units at each day’s next calculated NAV. In-kind
arrangements are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent
cash creation and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders
because the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable
gains that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism may reduce
the effect of a tax event for the Fund (to the extent it uses in-kind redemptions) or its shareholders. To the extent that the Fund effects
creations and redemptions for cash rather than on an in-kind basis, investments in the Shares may be less tax-efficient than if the Fund
utilized an entirely in-kind redemption process.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Fund’s Underlying Index. The Fund also may be required to distribute any such
gains to its shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions,
see the section entitled “Dividends, Other Distributions and Taxes” in this Prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, David Hemming,
Theodore Samulowitz and
Dave Sahota (the “Portfolio Managers”) are jointly
and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since September 2021. He has been responsible for the management of certain funds in the Invesco family of
ETFs since June 2007 and has been associated with the Adviser since 2005.
■
David
Hemming, Head of Alternatives Portfolio Management of the Adviser, has been responsible for the management of the Fund since September
2021. He has been responsible for the management of certain funds in the Invesco family of ETFs since September 2016 and has been associated
with the Adviser since 2016.
■
Theodore
Samulowitz, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since September 2021. He has
been responsible for the management of certain funds in the Invesco family of ETFs since August 2013 and has been associated with the
Adviser since 2012.
■
Dave
Sahota, CFA, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2024. He has been responsible
for the management of certain funds in the Invesco family of ETFs since February 2024 and has been associated with the Adviser since 2023.
Prior to joining the Adviser, Mr. Sahota was a senior data scientist at Meta with a focus on the monetization ecosystem from May 2021
through January 2023, a lead quantitative researcher at Morningstar from September 2019 through April 2021, and an investments associate
at EquiTrust Life Insurance from June 2017 through March 2019.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.60% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025 ,
and there is no guarantee that the Adviser will extend it past that date.
16
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual
Report to Shareholders for the fiscal period ended April
30,
2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “SATO.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act, will not be able to receive those Rule 144A
securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share
Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which
17
dividends
may be paid to shareholders. If you are a taxable investor, distributions of net investment income generally are taxable to you as ordinary
income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s
“modified
adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust)
exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation
18
Units (plus any cash
paid by the AP as part of the redemption) and the aggregate market value of the securities received (plus any cash received by the AP
as part of the redemption). The IRS, however, may assert that a loss realized upon an exchange of securities for a Creation Unit, or of
a Creation Unit for securities, cannot be deducted currently under the rules governing “wash sales” or on the ground that
there has been no significant change in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s)
with respect to whether wash sale rules apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Additional Considerations
for Investments in Cryptocurrency-Linked Investments
The
Fund's strategy of investing through its Subsidiary in ETPs and other instruments whose performance is linked to cryptocurrencies may
cause the Fund to recognize more ordinary income and short-term capital gains taxable as ordinary income than would be the case if the
Fund invested directly in cryptocurrencies.
The
Fund must meet certain requirements under the Code to receive favorable
tax treatment as a RIC, including asset diversification and income requirements. The Subsidiary will be classified for federal income
tax purposes as a controlled foreign corporation (CFC) with respect to the Fund. As such, the Fund will be required to include in its
gross income each year amounts earned by the Subsidiary during that year (“Subpart F” income), whether or not such earnings
are distributed by the Subsidiary to the Fund (deemed inclusions).
Treasury
Regulations also permit the Fund to treat such deemed inclusions
of “Subpart F” income from the Subsidiary as qualifying income to the Fund, even if the Subsidiary does not make a distribution
of such income. Consequently, the Fund and the Subsidiary reserve the right to rely on deemed inclusions being treated as qualifying income
to the Fund consistent with such Treasury Regulations.
The
Fund intends to limit its investments in the Subsidiary to no more than
25% of the value of the Fund's total assets in order to satisfy the asset diversification requirement.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of
business of the NYSE
(normally 4:00 p.m., Eastern time). The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be
valued as of the announced closing time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated
by deducting all of the Fund’s liabilities from the total value of its assets and then dividing the result by the number of Shares
outstanding, rounding to the nearest cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus
one day. In determining NAV, expenses are accrued and applied daily and securities and other assets for which market quotations are readily
available and reliable are valued at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio
securities and other assets for which market quotations are not readily available and reliable in accordance with Board-approved policies
and related Adviser procedures (the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more
19
difficult for the Adviser
to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in their value from
one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation, and the
degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different than the
value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security for the
value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount to its established
value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference between the prices
used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
20
Financial Highlights
The
financial highlights table below is intended to help you understand the Fund’s
financial performance for the period since the Fund’s inception. Certain information reflects financial results for a single Share.
The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all
dividends
and other distributions). This information has been derived from the Fund’s financial statements, which have been audited by PwC,
whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year
ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, |
For
the Period
October
5, 2021(a)
Through
October
31,
2021
| |
|
|
2023
|
2022
| |
|
Per
Share Operating Performance: |
|
|
|
|
Net
asset value at beginning of period |
$6.15
|
$29.41
|
$25.00
|
|
Net
investment income (loss)(b)
|
0.14
|
0.36
|
(0.01)
|
|
Net
realized and unrealized gain (loss) on investments |
1.85
|
(23.23)
|
4.42
|
|
Total
from investment operations |
1.99
|
(22.87)
|
4.41
|
|
Distributions
to shareholders from: |
|
|
|
|
Net
investment income |
(0.22)
|
(0.36)
|
-
|
|
Net
realized gains |
-
|
(0.03)
|
-
|
|
Total
distributions |
(0.22)
|
(0.39)
|
-
|
|
Net
asset value at end of period |
$7.92
|
$6.15
|
$29.41
|
|
Market
price at end of period(c)
|
$7.96
|
$6.14
|
$29.09
|
|
Net
Asset Value Total Return(d)
|
34.34%
|
(78.47)%
|
17.64%(e)
|
|
Market
Price Total Return(d)
|
35.23%
|
(78.27)%
|
16.36%(e)
|
|
Ratios/Supplemental
Data: |
|
|
|
|
Net
assets at end of period (000’s omitted) |
$4,356
|
$2,768
|
$11,763
|
|
Ratio
to average net assets of: |
|
|
|
|
Expenses
|
0.60%
|
0.61%
|
0.60%(f)
|
|
Net
investment income (loss) |
1.93%
|
2.57%
|
(0.60)%(f)
|
|
Portfolio
turnover rate(g)
|
131%
|
149%
|
10%
|
|
(a)
|
Commencement
of investment operations. |
|
(b)
|
Based
on average shares outstanding. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
The
net asset value total return from Fund Inception (October 7, 2021, the first day of trading on the exchange) to October 31, 2021 was 16.25%.
The market price total return from Fund Inception
to October 31, 2021 was 13.63%. |
|
(f)
|
Annualized.
|
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
21
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Index Provider has entered into a licensing arrangement with Galaxy
Digital LP (“Galaxy”), pursuant to which Galaxy has licensed certain trademarks to the Index Provider for use in connection
with the Underlying Index. Neither Galaxy nor any affiliate of Galaxy has any right to influence the selection of the securities in the
Underlying Index. The Fund is not issued, sponsored, advised, endorsed, sold or promoted by Galaxy or any of its respective affiliates.
Disclaimers
Alerian®,
Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, and CRYPTO are service marks of the Index
Provider and have been licensed for use by the Adviser. Galaxy®
is a trademark of Galaxy that has been licensed for use by the Index Provider in connection with the Underlying Index and sub-licensed
to the Adviser. The Fund is not issued, sponsored, endorsed, sold or promoted by the Index Provider, Galaxy or any of their respective
affiliates. Neither the Index Provider nor Galaxy makes any representation or warranty, express or implied, to the purchasers or owners
of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or
the ability of the Index to track general market performance. The Index Provider’s only relationship to the Fund is the licensing
to the Adviser of its trademarks and the Underlying Index, which is determined, composed and calculated by the Index Provider without
regard to the Adviser or the Fund. Galaxy's only relationship with the Fund is the licensing of its trademarks to the Index Provider,
which have been sub-licensed to the Adviser. Neither the Index Provider nor Galaxy is responsible for or has participated in the determination
of the timing of, prices at, or quantities of the Fund's Shares issued. Neither the Index Provider nor Galaxy has any obligation or liability
in connection with the issuance, administration, marketing or trading of the Fund.
THE
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN AND THE INDEX PROVIDER SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. THE INDEX PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX PROVIDER MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX PROVIDER HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall
have no liability for
any errors, omissions, restatements, re-calculations or interruptions therein. The Adviser makes no warranty, express or implied, as to
results to be obtained by the Fund, owners of the Shares or any other person or entity from the use of the Underlying Index or any data
included therein. The Adviser makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness
for a particular purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Adviser have any liability for any special, punitive, direct, indirect or consequential damages (including lost
profits) arising out of matters relating to the use of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of
22
Rule 153 under the Securities
Act only is available with respect to transactions on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
23
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
China Technology ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco China Technology ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the FTSE China
Incl A 25% Technology Capped Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees1
|
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses1
|
|
|
| |
1
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index, as well as American depositary
receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, FTSE
International Limited (the “Index Provider”) compiles, maintains, and calculates the Underlying Index. The Underlying Index
is composed of securities that the Index Provider, pursuant to the Underlying Index methodology, has classified as being in the technology
industry and that are constituents of the FTSE China Index or FTSE China A Stock Connect CNH Index. The Underlying Index may include China
A-Shares (shares of Chinese incorporated companies that may trade on the Shanghai or Shenzhen stock exchanges via a Stock Connect program
(“Stock Connect Programs”)), B Shares, H Shares, N Shares, Red Chips, P Chips and S Chips. Underlying Index constituents are
modified market capitalization weighted.
As
of December 31, 2023,
the Underlying Index was comprised of 150
constituents with market capitalizations ranging from $133.3
million to $357.4
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required
to meet certain diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
The
Fund is the successor to the investment performance of the Guggenheim
China Technology ETF (the “Predecessor Fund”) as a result of the reorganization of the Predecessor Fund into the Fund, which
was consummated after the close of business on May 18, 2018. Accordingly, the performance information shown below for periods ended on
or prior to May 18, 2018 is that of the Predecessor Fund.
Updated
performance information is available online at www.invesco.com/ETFs .
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Ended |
Returns
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-
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Average Annual Total Returns (for the period ended December 31, 2023)
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Inception
Date
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1
Year
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5
Years
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10
Years
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Return
Before Taxes |
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% |
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Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale of Fund
Shares
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FTSE
China Incl A 25% Technology Capped Index
(Net)
withholding
taxes, but reflects no deduction for |
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Blended
- FTSE China Incl A 25% Technology
Capped
Index2
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MSCI
China Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
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1
2
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
4
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
April
2018 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
April
2018 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
April
2018 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index, as well as ADRs and GDRs
that represent the securities in the Underlying Index. The Fund operates as an index fund and is not actively managed, meaning that it
does not seek to outperform the Underlying Index. Rather the Fund seeks to generally track the performance of the Underlying Index as
closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying Index and to
minimize “tracking
error” between the two). Tracking error means the variation between the Fund’s annual return and the return of the Underlying
Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments, while the Fund is an actual
investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance of the Underlying Index.
For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index. Moreover, as an index fund,
the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index, in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling strategy, it may have larger tracking error than if it used a full replication strategy.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Fund’s Underlying Index
is set forth below.
FTSE China Incl A 25% Technology
Capped Index
The
Underlying Index is composed of securities of companies that the Index Provider has classified as being in the technology industry pursuant
to the Index Provider’s Industry Classification Benchmark (ICB) taxonomy and that are constituents of the FTSE China Index or FTSE
China A Stock Connect CNH Index. The Underlying Index may include A Shares and B Shares (included in the Northbound China Stock Connect
Scheme Buy-and-Sell List or traded on either the Shanghai or Shenzhen stock exchanges), H Shares (traded on the Hong Kong stock exchange),
N Shares (traded on the NYSE Arca, Inc.
(the “Exchange”)
or the Nasdaq Stock Market), Red Chips (traded on the Hong Kong stock exchange), P Chips (traded on the Hong Kong stock exchange) and
S Chips (traded on the Singapore stock exchange).
Underlying
Index constituents are modified market capitalization weighted.
Each Underlying Index constituent is assigned an investability weighting based on the constituent’s free float and foreign ownership
limits. Each constituent’s weight in the Underlying Index is determined by the product of its investability weighting and its market
capitalization. Further, each A Share constituent’s investability weighting is reduced by 75% prior to calculating the security’s
weight. Underlying Index constituents whose weights are greater than 10% are capped at 10%, and the weights of all
5
lower ranking companies
are increased correspondingly. The application of the 10% cap is repeated until no company has a weight of greater than 10%. Underlying
Index constituents whose individual weights exceed 5% are added together and if the sum is less than 40% of the total index weight, no
further capping is required. If the sum is greater than 40%, the constituent weights are further capped until the sum of those securities
with individual weights greater than 5%, is less than 40% (i.e. the next capping step is only taken if, after application of the current
cap, the sum of those securities with individual weights greater than 5%, remains greater than 40%). After each of the following capping
steps, the weights of all lower ranking companies are increased proportionately:
■The
largest company is capped at 10%.
■The
second largest company is capped at 9%.
■The
third largest company is capped at 8%.
■The
fourth largest company is capped at 7%.
■The
fifth largest company is capped at 6%.
■Any
remaining securities are capped at 4%
The
Underlying Index is rebalanced quarterly after market close on the third
Friday of March, June, September, and December. Additions to the Underlying Index generally occur only at the time of the quarterly rebalance,
but a constituent (i) that is removed from the FTSE China Index or FTSE China A Stock Connect CNH Index will be removed from the Underlying
Index concurrently, and (ii) whose industry classification has changed will be removed from the Underlying Index concurrent with the industry
classification change. In the case of either such removal, the constituent’s weight will be distributed on a pro-rata basis amongst
the remaining constituents in the Underlying Index. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region.
China
Investment Risk. Investments in companies located or operating
in Greater China (normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan) involve risks
and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control
over the economy; political, legal and regulatory uncertainty; nationalization, expropriation, or confiscation of property; lack
of willingness or ability of the Chinese government to support the economies and markets of the Greater China region; lack of publicly
available information and difficulty in obtaining information necessary
for investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal
remedies for shareholders; alteration or discontinuation of economic reforms; military conflicts
and the risk of war, either internal or with other countries; public
health emergencies resulting in market closures, travel restrictions, quarantines or other interventions;
inflation, currency fluctuations and fluctuations in inflation and interest rates that may have negative effects on the economy and securities
markets of Greater China; and Greater China’s dependency on the economies of other Asian countries, many of which are developing
countries. Events in any one country within Greater China may impact the other countries in the region or Greater China as a whole. For
example, changes to their political and economic relationships with mainland China could adversely impact the Fund’s investments
in Taiwan and Hong Kong. Further, health events
may cause uncertainty and volatility in the Chinese economy, especially
in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, any difficulties
of the PCAOB to inspect audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work
of U.S. reporting companies may impose significant additional risks associated with investments in China.
Investments
in Chinese companies may be made through a special structure known
as a variable interest entity (“VIE”) that is designed to provide foreign investors, such as the Fund, with exposure to Chinese
companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional
6
risks
because the investment is made through an intermediary shell company that has entered into service and other contracts with the underlying
Chinese operating company in order to provide investors with exposure to the operating company, and
therefore does not represent equity ownership in the operating
company. As a result, such investment may limit the rights of an investor with respect to the underlying Chinese operating company. VIEs
allow foreign shareholders
to exert a degree of control over, and obtain economic benefits
arising from, the VIE without formal legal ownership. However, the contractual arrangements between the shell company and the operating
company may not be as effective in providing operational control as direct equity ownership, and a foreign investor’s rights may
be limited by, for example, actions of the Chinese government which could determine that the underlying contractual arrangements on which
control of the VIE is based are invalid. The contractual arrangement on which the VIE structure is based would likely be subject to Chinese
law and jurisdiction, which could raise questions about how recourse is sought.
Investments
through VIEs may be affected by conflicts of interest and duties
between the legal owners of the VIE and the stockholders of the listed holding company, which could adversely impact the value of investments.
VIEs are not formally recognized under Chinese law. Recently, the Chinese government provided new guidance to and placed restrictions
on China-based companies raising capital offshore, including through VIEs, and investors face uncertainty about future actions by the
Chinese government that could significantly affect the operating company’s financial performance and the enforceability of the contractual
arrangements underlying the VIE structure.
Certain
securities issued by companies located or operating in Greater
China, such as China A-shares, are subject to trading restrictions and suspensions, quota limitations and sudden changes in those limitations,
and operational, clearing and settlement risks. Significant portions of the Chinese securities markets may become rapidly illiquid, as
Chinese issuers have the ability to suspend the trading of their equity securities, and have shown a willingness to exercise that option
in response to market volatility and other events. The liquidity of Chinese securities may shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic
growth. As a result, a reduction in spending on Chinese products and services, the institution of tariffs,
sanctions, capital controls, embargoes, trade wars,
or other trade barriers (or the threat thereof), or a downturn in any of the economies of China’s key trading partners may have
an adverse impact on the Chinese economy. The ongoing trade dispute and imposition of tariffs between China and the United States continues
to introduce uncertainty into the Chinese economy and may result in reductions in international trade, the oversupply of certain manufactured
goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on the Fund’s performance. Events such as these and their consequences are difficult
to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future. In addition,
actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting
their operations in the U.S., may negatively impact the value of such securities held by the Fund.
Additionally,
developing countries, such as those in Greater China, may subject
the Fund’s investments to a number of tax rules, and the application of many of those rules may be uncertain. Moreover, China has
implemented a number of tax reforms in recent years, and may amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law could reduce the after-tax profits of the Fund, directly or indirectly,
including
by reducing the after-tax profits of companies in China in which the Fund invests. Chinese taxes that may apply to the Fund’s investments
include income tax or withholding tax on dividends, interest or gains earned by the Fund, business tax and stamp duty. Uncertainties in
Chinese tax rules could result in unexpected tax liabilities for the Fund.
Stock
Connect Risk. Investments in China A-shares listed and traded through
the Stock Connect Programs involve unique risks. The Stock Connect Programs are relatively new and there is no guarantee that they will
continue. Trading through Stock Connect Programs is subject to daily quotas that limit the maximum daily net purchases and daily limits
on permitted price fluctuations. Trading suspensions are more likely in the A-shares market than in many other global equity markets.
There can be no assurance that a liquid market on an exchange will exist. In addition, investments made through Stock Connect Programs
are subject to comparatively untested trading, clearance and settlement procedures. Stock Connect Programs are available only on days
when markets in both China and Hong Kong are open. The Fund’s ownership interest in Stock Connect Programs securities will not be
reflected directly, and thus the Fund may have to rely on the ability or willingness of a third party to enforce its rights. Investments
in Stock Connect Program A-shares are generally subject to Chinese securities regulations and listing rules, among other restrictions.
Hong Kong investor compensation funds, which protect against trade defaults, are unavailable when investing through Stock Connect Programs.
Uncertainties in Chinese tax rules could also result in unexpected tax liabilities for the Fund.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Information
Technology Sector Risk. Companies in the information technology
sector may be adversely affected by the failure to obtain, or delays in obtaining, financing or regulatory approval, intense competition,
both domestically and internationally, product compatibility, consumer preferences, corporate capital expenditure, rapid obsolescence
and competition for the services of qualified personnel. Companies in the information technology sector also face competition or potential
competition with numerous alternative technologies. In addition, the highly competitive information technology sector may cause the prices
for these products and services to decline in the future.
Information
technology companies may have limited product lines, markets, financial
resources or personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights.
The loss or impairment of these rights may adversely affect the profitability of these companies.
7
The
information technology sector is subject to rapid and significant changes
in technology that are evidenced by the increasing pace of technological upgrades, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for new products and enhancements, developments in emerging
wireless transmission technologies and changes in customer requirements and preferences. The success of sector participants depends substantially
on the timely and successful introduction of new products.
Communication
Services Sector Risk. The companies in the communication services
sector may be subject to legislative or regulatory changes, adverse market conditions, and/or increased competition. The value of the
securities of communication services companies are particularly vulnerable to rapid advancements in technology, the innovation of competitors,
rapid product obsolescence, and government regulation and competition, both domestically and internationally. Additionally, fluctuating
domestic and international demand, shifting demographics and often unpredictable changes in consumer tastes can drastically affect a communication
services company's profitability. While all companies may be susceptible to network security breaches, certain companies in the communication
services sector may be particular targets of hacking and potential theft of proprietary or consumer information or disruptions in service,
which could have a material adverse effect on their businesses.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder
rights may change quickly
and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed to pursue or
enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation systems
at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and subject
to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries, as well
as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments in emerging
market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In
8
particular, the common
stock of a company may decline significantly in price over short periods of time. For example, an adverse event, such as an unfavorable
earnings report, may depress the value of common stock; similarly, the common stock of an issuer may decline in price if the issuer fails
to make anticipated dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in
order to make distributions
if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities
9
it holds. To the extent
the Fund calculates its NAV based on fair value prices, the Fund’s ability to track the Underlying Index may be adversely affected.
Since the Underlying Index is not subject to the tax diversification requirements to which the Fund must adhere, the Fund may be required
to deviate its investments from the securities contained in, and relative weightings of, the Underlying Index. The Fund may not invest
in certain securities included in the Underlying Index due to liquidity constraints. Liquidity constraints also may delay the Fund’s
purchase or sale of securities included in the Underlying Index. For tax efficiency purposes, the Fund may sell certain securities to
realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, as well as ADRs and GDRs that
represent the securities in the Underlying Index, may invest its remaining assets in securities (including other funds) not included in
the Underlying Index and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that
invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act or exemptions therefrom), convertible
securities and structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one
or more specified factors, such as the movement of a particular security or securities index) and in futures contracts, options and options
on futures contracts or other derivatives.
The Fund may use futures contracts, options, options on futures contracts, convertible securities and structured notes to seek performance
that corresponds to its
Underlying Index and to manage cash flows. The Adviser anticipates that it may take approximately two business days (a business day is
any day that the New
10
York Stock Exchange (“NYSE”)
is open) for additions to, and deletions from, the Fund’s Underlying Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in securities that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks.
Cybersecurity incidents
involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer agent and
financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial losses,
impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory
fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse
consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with
which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply
11
with the eligibility
requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune times or for prices other
than at current market values or may elect not to sell such securities on the day that they are removed from the Underlying Index, due
to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return and the return of the Underlying
Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in
developed markets. Thus,
there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares
before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
12
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the
Exchange necessary to
maintain the listing of the Fund will continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are
not priced, and therefore, if the Fund holds securities that are primarily listed on such exchanges, the value of such securities in the
Fund’s portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with
13
other team members to
focus on certain asset classes, implementing investment strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since April 2018. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.65%
of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “CQQQ.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
14
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid annually by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
15
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
16
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year
|
$32.16
|
$68.90
|
$73.98
|
$47.88
|
$40.55
|
|
Net
investment income (loss)(a)
|
(0.09)
|
(0.07)
|
(0.15)
|
(0.06)
|
0.04
|
|
Net
realized and unrealized gain (loss) on investments |
2.62
|
(36.71)
|
(4.54)
|
26.17
|
7.46
|
|
Total
from investment operations |
2.53
|
(36.78)
|
(4.69)
|
26.11
|
7.50
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.03)
|
-
|
(0.39)
|
(0.01)
|
(0.17)
|
|
Transaction
fees(a)
|
0.03
|
0.04
|
-
|
-
|
-
|
|
Net
asset value at end of year |
$34.69
|
$32.16
|
$68.90
|
$73.98
|
$47.88
|
|
Market
price at end of year(b)
|
$34.67
|
$31.96
|
$68.25
|
$74.34
|
$47.67
|
|
Net
Asset Value Total Return(c)
|
7.95%
|
(53.32)%
|
(6.41)%
|
54.53%
|
18.59%
|
|
Market
Price Total Return(c)
|
8.56%
|
(53.17)%
|
(7.75)%
|
55.97%
|
17.32%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year
(000’s
omitted) |
$685,051
|
$702,610
|
$1,519,338
|
$1,043,162
|
$509,964
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.70%
|
0.70%
|
0.70%
|
0.70%
|
0.70%
|
|
Net
investment income (loss) |
(0.21)%
|
(0.14)%
|
(0.19)%
|
(0.09)%
|
0.09%
|
|
Portfolio
turnover rate(d)
|
58%
|
58%
|
54%
|
38%
|
80%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Underlying Index is a trademark of FTSE International Limited (“FTSE”)
and has been licensed for use for certain purposes by the Adviser.
FTSE®
is a trademark of London Stock Exchange Group.
Disclaimers
The Fund has been developed by the Adviser.
The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group
undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies.
All
rights in the Underlying Index vest in the relevant LSE Group company
which owns the Underlying Index. “FTSE®”
is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license.
The
Underlying Index is calculated by or on behalf of FTSE International Limited
or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of,
reliance on or any error in the Underlying Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction,
warranty or representation either as to the results to be obtained from the Fund or the suitability of the Underlying Index for the purpose
to which it is being put by the Adviser.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year.
19
If you have questions
about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder
inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of
this information may
be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Dorsey Wright Developed Markets
Momentum ETF (formerly,
Invesco DWA
Developed
Markets Momentum ETF)
|
The
Nasdaq Stock Market LLC |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Dorsey Wright
Developed Markets Momentum ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the Dorsey
Wright Developed Markets Technical LeadersTM
Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, Dorsey
Wright & Associates, LLC (“Dorsey Wright” or the “Index Provider”) selects securities pursuant to its proprietary
selection methodology for inclusion in the Underlying Index, which is designed to identify securities that demonstrate powerful relative
strength characteristics.
“Relative
strength” is an investing technique that seeks to determine the strongest
performing securities by measuring certain factors, such as a security’s relative performance against the overall market or a security’s
relative strength value, which is derived by comparing the rate of increase of the security’s price over a set period as compared
to that of a benchmark index.
The
Underlying Index is comprised of equity securities of large capitalization
companies based in countries classified as developed markets, excluding the United States. Dorsey Wright selects securities for inclusion
in the Underlying Index from an eligible universe of the largest 1,000 constituents by market capitalization within the Nasdaq Developed
Markets Ex United States Index (except for U.S.-listed American depositary
receipts (“ADRs”)
or foreign listings). The Index Provider assigns a relative strength score to each eligible security and selects approximately 100 securities
with the greatest scores for inclusion in the Underlying Index. Component security weights are based on relative scores, with securities
with higher scores receiving larger weights.
As
of December 31, 2023,
the Underlying Index was comprised of 100
securities with market capitalizations ranging from $3.5
billion to $355.2
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
3
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of
Fund
Shares |
|
|
|
|
|
| ||||
|
Dorsey
Wright Developed Markets Technical
Leaders™
Index (Net) dividends
net of withholding taxes, but reflects no |
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)1
|
|
|
|
|
|
| ||||
1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
December
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many
4
securities as it believes
necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking
error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
Dorsey Wright Developed
Markets Technical LeadersTM
Index
The
Underlying Index is a modified market capitalization-weighted index of large capitalization companies based in countries with developed
economies, excluding the United States, that includes securities that demonstrate powerful relative strength characteristics. Such securities
are selected for the Underlying Index pursuant to Dorsey Wright’s proprietary methodology, which emphasizes a security’s momentum
and takes into account, among other factors, the performance of each of the companies in the eligible universe as compared to benchmark
indices.
The
Index Provider selects components from an eligible universe of approximately
1,000 securities of large capitalization companies from countries other than the United States with developed markets, as determined by
the Underlying Index methodology. Eligible securities must be one of the largest 1,000 constituents by market capitalization within the
Nasdaq Developed Markets Ex United States Index (except for U.S.-listed ADRs or foreign listings) and have a minimum three-month average
daily dollar trading volume of $1 million. Eligible securities must also (i) be classified as either a common stock, depositary receipt,
or shares of beneficial interest of a real estate investment trust, (ii) be issued by a company that has not entered into a definitive
agreement or other arrangement that likely would result in the security no longer being eligible for inclusion in the Underlying Index,
and (iii) be issued by a company that does not have annual financial statements with an audit opinion that is currently withdrawn. Only
one security per issuer is permitted; if an issuer has multiple securities, the security selected for possible inclusion in the Underlying
Index will be based on Dorsey Wright’s proprietary screening. The Index Provider assigns a relative strength score for each eligible
security based on the security’s intermediate- and long-term price movements relative to a representative market benchmark index.
The Index Provider then ranks the eligible securities by their relative strength score, selects approximately 100 securities with the
greatest scores for inclusion in the Underlying Index and weights each component security based on its relative strength score. Securities
with higher scores receive larger weights.
The
Underlying Index is rebalanced quarterly, after the close of the last trading
day in March, June, September and December. At each rebalance, the Index Provider ensures that all securities with weights greater than
5% of the Underlying Index, in the aggregate, do not exceed 25% of the Underlying Index. Component securities that cease to remain eligible
for inclusion in the Underlying Index are removed and are not replaced until the next quarterly rebalance. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may
impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes,
5
currency blockage and/or
transfer restrictions and higher transactional costs. Each country has different laws specific to that country that impact investment,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often, mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, mid-capitalization companies
are typically less financially stable than larger, more established companies, and they may depend on a small number of essential personnel,
making them more
vulnerable to loss of
personnel. Mid-capitalization companies also normally have less diverse product lines than large-capitalization companies and are more
susceptible to adverse developments concerning their products. As such, mid-capitalization companies typically are more likely to be adversely
affected than large-capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic
or market conditions.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe
includes both developed and emerging markets.
Most countries in Western Europe,
and a number of countries in Eastern Europe,
are members of the EU and the EMU.
The EMU,
which is authorized to direct monetary policies,
including policies related to money supply and interest rates for
the euro (the
common currency
of certain EU countries) requires
compliance by member states with
restrictions on inflation rates, deficits,
interest rates,
debt levels and fiscal and
monetary controls,
each of which may significantly affect every country in Europe.
Decreasing imports or exports, changes
in governmental or EU regulations on trade, changes
in the exchange rate of the euro, the
default or threat of default by an
EU member country
on its sovereign debt, and/or
economic recessions in an EU member country
may have significant adverse effects on the economies of EU member countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity measures and reforms, may not
produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped
and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration, war and geopolitical
risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result
6
in increased
volatility, illiquidity and potentially lower economic growth in the affected markets, which will adversely affect the Fund’s investments.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry
(as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Industrials
Sector Risk. Changes in government regulation, world events and
economic conditions may adversely affect the companies in the industrials sector. In addition, these companies are at risk for environmental
damage claims. Industrial companies also may be adversely affected by commodity price volatility, changes in exchange rates, imposition
of import controls, increased competition, depletion of resources, technological developments, labor relations and changes in the supply
of and demand for their specific products or services or for industrials sector products in general.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in connection with the rebalancing or adjustment of the Underlying Index, which may result in a high portfolio turnover rate.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying and selling all of its securities two times during the
course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high
portfolio turnover rate can result in an increase in taxable capital gains distributions to the Fund’s shareholders, the Fund will
seek to utilize the in-kind creation and redemption mechanism (described below) to minimize the realization of capital gains to the extent
possible.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
7
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result,
an investor could lose
money over short or long periods. Further, the Fund may experience low trading volume and wide bid/ask spreads. Bid/ask spreads vary over
time based on trading volume and market liquidity (including for the underlying securities held by the Fund), and are generally lower
if Shares have more trading volume and market liquidity and higher if Shares have little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and
interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures
8
contracts,
options, options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater
susceptibility to default
or decline in market value than investment grade (or higher-rated) securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter (OTC) derivatives are also subject to counterparty risk (sometimes referred to as “default risk”),
which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or
9
costs associated with
Index Provider errors will generally be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians
may be recently organized
or otherwise lack extensive operating experience. In addition, in certain countries there may be legal restrictions or limitations on
the ability of the Fund to recover assets held in custody by a foreign sub-custodian in the event of the bankruptcy of the sub-custodian.
Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of failures
of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local
shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
REIT
Risk. The REITs in which the Fund may invest will be subject to
risks inherent in the direct ownership of real estate. These risks include, among others: fluctuations in the value of the underlying
properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market
rates for rents; changes in the availability, cost and terms of mortgage funds; increased competition, property taxes, capital expenditures,
or operating expenses; and other occurrences, including the impact of changes in environmental laws that may affect the real estate industry.
A REIT that fails to comply with federal tax requirements affecting REITs may be subject to federal income taxation, or the federal tax
requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital
for future expenditures. The value of a REIT can depend on the structure of and cash flow generated by the REIT. In addition, like mutual
funds, REITs have expenses, including advisory and administration fees, that
10
their shareholders pay.
As a result, an investor may absorb duplicate levels of fees when the Fund invests in REITs. In addition, REITs are subject to certain
provisions under federal tax law. The failure of a company to qualify as a REIT could have adverse consequences for the Fund, including
significantly reducing the return to the Fund on its investment in such company. Mortgage REITs lend money to developers and owners of
properties and invest primarily in mortgages and similar real estate interests. Mortgage REITs receive interest payments from the owners
of the mortgaged properties. Accordingly, mortgage REITs are subject to the credit risk of the borrowers to whom they extend funds. Credit
risk is the risk that the borrower will not be able to make interest and principal payments on the loan to the REIT when they are due.
Mortgage REITs also are subject to the risk that the value of mortgaged properties may be less than the amounts owed on the properties.
If a mortgage REIT is required to foreclose on a borrower, the amount recovered in connection with the foreclosure may be less than the
amount owed to the mortgage REIT. Mortgage REITs are subject to significant interest rate risk. During periods when interest rates are
declining, mortgages are often refinanced or prepaid. Refinancing or prepayment of mortgages may reduce the yield of mortgage REITs. When
interest rates decline, however, the value of a REIT’s investment in fixed rate obligations can be expected to rise. Conversely,
when interest rates rise, the value of a REIT’s investment in fixed rate obligations can be expected to decline. In addition, rising
interest rates generally increase the costs of obtaining financing, which could cause the value of a mortgage REIT’s investments
to decline. A REIT’s investment in adjustable rate obligations may react differently to interest rate changes than an investment
in fixed rate obligations. As interest rates on adjustable rate mortgage loans are reset periodically, yields on a REIT’s investment
in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate
less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.
Mortgage
REITs typically use leverage (and in many cases, may be highly
leveraged), which increases investment risk and could adversely affect a REIT’s operations and market value in periods of rising
interest rates, increased interest rate volatility, downturns in the economy and reductions in the availability of financing or deterioration
in the conditions of the REIT’s mortgage-related assets.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s
strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on The Nasdaq Stock Market LLC (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
11
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
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Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since December 2007.
He has
been responsible for the management of certain funds in the Invesco family of ETFs since June 2007 and has been associated with the Adviser
since 2005.
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Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
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Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.80% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although
12
Shares generally are
purchased and sold in “round lots” of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in
smaller “odd lots,” at no per share price differential. When buying or selling Shares through a broker, you will incur customary
brokerage commissions and charges, and you may pay some or all of the spread between the bid and the offered price in the secondary market
on each leg of a round trip (purchase and sale) transaction.
The
Shares trade on the Exchange under the symbol “PIZ.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary
market are unlikely to
cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions of Creation Units,
however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased transaction costs,
which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization of capital
gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases. However,
direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at
13
long-term
capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for dividends derived
from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund invests primarily
in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation at these reduced
rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation
14
Units are held as a capital
asset. If you purchase or redeem one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased
or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by
independent pricing services
or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the
Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and
reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$26.03
|
$39.99
|
$29.82
|
$27.18
|
$24.53
|
|
Net
investment income(a)
|
0.54
|
0.40
|
0.22(b)
|
0.13
|
0.30
|
|
Net
realized and unrealized gain (loss) on investments |
1.42
|
(13.59)
|
10.12
|
2.77
|
2.70
|
|
Total
from investment operations |
1.96
|
(13.19)
|
10.34
|
2.90
|
3.00
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.51)
|
(0.77)
|
(0.17)
|
(0.26)
|
(0.35)
|
|
Net
asset value at end of year |
$27.48
|
$26.03
|
$39.99
|
$29.82
|
$27.18
|
|
Market
price at end of year(c)
|
$27.65
|
$26.00
|
$40.09
|
$29.77
|
$27.10
|
|
Net
Asset Value Total Return(d)
|
7.40%
|
(33.25)%
|
34.70%
|
10.82%
|
12.31%
|
|
Market
Price Total Return(d)
|
8.18%
|
(33.49)%
|
35.26%
|
10.96%
|
12.25%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$108,533
|
$101,514
|
$251,951
|
$155,043
|
$175,327
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.80%
|
0.80%
|
0.80%
|
0.80%
|
0.81%
|
|
Net
investment income |
1.83%
|
1.22%
|
0.59%(b)
|
0.47%
|
1.18%
|
|
Portfolio
turnover rate(e)
|
144%
|
152%
|
161%
|
115%
|
106%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets includes income received from foreign withholding
tax claims. Net investment income per share and
the
ratio of net investment income to average net assets excluding the foreign withholding tax claims are $0.16 and 0.44%, respectively.
|
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by Dorsey Wright, and Dorsey Wright does not make any representation regarding the advisability of investing in Shares of
the Fund.
There
is no relationship between Dorsey Wright and the Adviser other than
a license by Dorsey Wright to the Adviser of certain Dorsey Wright trademarks and trade names, and the Dorsey Wright
Developed Markets Technical LeadersTM
Index
for use by the Adviser.
for use by the Adviser.
Such
trademarks, trade names and the Underlying Index have been created
and developed by Dorsey Wright without regard to and independently of the Adviser, its businesses, its development of the Fund and/or
any prospective investor. The Adviser has arranged with Dorsey Wright to license indexes, such as the Underlying Index, based on Point
& Figure Analysis for possible inclusion in products which the Adviser independently develops and promotes. The licensing of any model
such as the Underlying Index to the Adviser is not an offer to purchase or sell, or a solicitation. A determination that any portion of
an investor’s portfolio should be devoted to any product developed by the Adviser with reference to a Dorsey Wright Index is a determination
made solely by the Adviser serving the investor or the investor himself, not Dorsey Wright.
Dorsey
Wright is not responsible for and has not participated in the determination
of the prices and amount of Shares, the timing of the issuance or sale of Shares or in the determination of any financial calculations
relating thereto. Dorsey Wright has no obligation or liability in connection with the administration of the Trust or marketing of the
Shares. Dorsey Wright does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein. Dorsey
Wright shall have no liability for any errors, omissions or interruptions therein. Dorsey Wright makes no warranty, express or implied,
as to results to be obtained by the Distributor, the Adviser, the Trust or owners of Shares, or any other person or entity, from the use
of the Underlying Index, or any data included therein in connection with the Fund, or for any other use. Dorsey Wright expressly disclaims
all warranties and conditions of merchantability, title or fitness for a particular purpose or use, with respect to the Fund or the Underlying
Index or to any data included therein, except as set forth in the respective license agreements with the Adviser. Without limiting any
of the foregoing, in no event shall Dorsey Wright have any liability for any incidental, special, exemplary, punitive, indirect or consequential
damages (including lost profits), however caused and on any theory of liability, whether in contract, strict liability or tort (including
negligence or otherwise), resulting from the use of the Underlying Index or any data included therein, even if notified of the possibility
of such damages.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or
interruptions therein.
The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares or any other person
or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied warranties and expressly
disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying Index or any data
included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special, punitive, direct,
indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying Index, even if
notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
17
Delivery
of Shareholder Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Dorsey Wright Emerging Markets
Momentum ETF
(formerly, Invesco DWA
Emerging
Markets Momentum ETF)
|
The
Nasdaq Stock Market LLC |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Dorsey Wright
Emerging Markets Momentum ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the Dorsey
Wright Emerging Markets Technical LeadersTM
Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, Dorsey
Wright & Associates, LLC (“Dorsey Wright” or the “Index Provider”) selects securities pursuant to its proprietary
selection methodology for inclusion in the Underlying Index, which is designed to identify securities that demonstrate powerful relative
strength characteristics.
“Relative
strength” is an investing technique that seeks to determine the strongest
performing securities by measuring certain factors, such as a security’s relative performance against the overall market or a security’s
relative strength value, which is derived by comparing the rate of increase of the security’s price over a set period as compared
to that of a benchmark index.
The
Underlying Index is comprised of equity securities of large capitalization
companies based in countries classified as emerging markets.
Dorsey
Wright selects securities for inclusion in the Underlying Index from
an eligible universe of the largest 1,000 constituents by market capitalization within the Nasdaq Emerging Markets Index (except for U.S.-listed
American Depositary Receipts (“ADRs”) or foreign listings). The
Index Provider assigns
a relative strength score to each eligible security and selects approximately 100 securities with the greatest scores for inclusion in
the Underlying Index. Component security weights are based on relative scores, with securities with higher scores receiving larger weights.
As
of December 31, 2023,
the Underlying Index was comprised of 100 securities with market capitalizations ranging from $878.6
million to $502.9
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of
Fund
Shares |
|
|
|
|
|
| ||||
|
Dorsey
Wright Emerging Markets Technical
Leaders™
Index (Net) dividends
net of withholding taxes, but reflects no |
|
|
|
|
|
| ||||
|
MSCI
Emerging Markets Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)1
|
|
|
|
|
|
| ||||
1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
4
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
December
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the
Fund’s annual return
and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments,
while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
Dorsey Wright Emerging Markets
Technical LeadersTM
Index
The
Underlying Index is a modified market capitalization-weighted index of large capitalization companies based in emerging market countries
that demonstrate powerful relative strength characteristics. Such securities are selected for the Underlying Index pursuant to Dorsey
Wright’s proprietary methodology, which emphasizes a security’s momentum and takes into account, among other factors, the
performance of each of the companies in the eligible universe as compared to benchmark indices.
The
Index Provider selects components from an eligible universe of approximately
1,000 securities of large capitalization companies from emerging market countries, as determined by the Underlying Index methodology.
Eligible securities must be one of the largest 1,000 constituents by market capitalization within the Nasdaq Emerging Markets Index (except
for U.S.-listed ADRs or foreign listings) and have a minimum three-month average daily dollar trading volume of $1 million. Eligible securities
must also (i) be classified as either a common stock, depositary receipt, or shares of beneficial interest of a real estate investment
trust, (ii) be issued by a company that has not entered into a definitive agreement or other arrangement that likely would result in the
security no longer being eligible for inclusion in the Underlying Index, and (iii) be issued by a
5
company that does not
have annual financial statements with an audit opinion that is currently withdrawn. Only one security per issuer is permitted; if an issuer
has multiple securities, the security selected for possible inclusion in the Underlying Index will be based on Dorsey Wright’s proprietary
screening. The Index Provider assigns a relative strength score for each eligible security based on the security’s intermediate-
and long-term price movements relative to a representative market benchmark index. The Index Provider then ranks the eligible securities
by their relative strength score, selects approximately 100 securities with the greatest scores for inclusion in the Underlying Index
and weights each component security based on its relative strength score. Securities with higher scores receive larger weights.
The
Underlying Index is rebalanced quarterly, after the close of the last trading
day in March, June, September and December. At each rebalance, the Index Provider ensures that all securities with weights greater than
5% of the Underlying Index, in the aggregate, do not exceed 25% of the Underlying Index. Component securities that cease to remain eligible
for inclusion in the Underlying Index are removed and are not replaced until the next quarterly rebalance. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed
from the Underlying Index,
the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current market value.
The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally, the Fund rebalances
its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s rebalance schedule
will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed fund, the Adviser
does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market decline. This
means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types of funds with
investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against market events.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market
6
securities may also be
subject to delays in settlement procedures, unexpected market closures, and lack of timely information. Lack of relevant data and reliable
public information, including financial information, about securities in emerging markets may contribute to incorrect weightings and data
and computational errors when the Index Provider selects securities for inclusion in the Underlying Index or rebalances the Underlying
Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often,
mid-capitalization companies
and the industries in which they focus are still evolving and, as a result, they may be more sensitive to changing market conditions.
In addition, mid-capitalization companies are typically less financially stable than larger, more established companies, and they may
depend on a small number of essential personnel, making them more vulnerable to loss of personnel. Mid-capitalization companies also normally
have less diverse product lines than large-capitalization companies and are more susceptible to adverse developments concerning their
products. As such, mid-capitalization companies typically are more likely to be adversely affected than large-capitalization companies
by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
China
Investment Risk. Investments in companies located or operating
in Greater China (normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan) involve risks
and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control
over the economy; political, legal and regulatory uncertainty; nationalization, expropriation, or confiscation of property; lack
of willingness or ability of the Chinese government to support the economies and markets of the Greater China region; lack of publicly
available information and difficulty in obtaining information necessary
for investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal
remedies for shareholders; alteration or discontinuation of economic reforms; military conflicts
and the risk of war, either internal or with other countries; public
health emergencies resulting in market closures, travel restrictions, quarantines or other interventions;
inflation, currency fluctuations and fluctuations in inflation and interest rates that may have negative effects on the economy and securities
markets of Greater China; and Greater China’s dependency on the economies of other Asian countries, many of which are developing
countries. Events in any one country within Greater China may impact the other countries in the region or Greater China as a whole. For
example, changes to their political and economic relationships with mainland China could adversely impact the Fund’s investments
in Taiwan and Hong Kong. Further, health events
may cause uncertainty and volatility in the Chinese economy, especially
in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, any difficulties
of the PCAOB to inspect audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work
of U.S. reporting companies may impose significant additional risks associated with investments in China.
Investments
in Chinese companies may be made through a special structure known
as a variable interest entity (“VIE”) that is designed to provide foreign investors, such as the Fund, with exposure to Chinese
companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional
risks because the investment is made through an intermediary shell company that has entered into service and other contracts with the
underlying Chinese operating company in order to provide investors with exposure to the operating company, and
therefore does not represent equity ownership in the operating
company. As a result, such
7
investment
may limit the rights of an investor with respect to the underlying Chinese operating company. VIEs allow foreign
shareholders to
exert a degree of control over, and obtain economic benefits arising from, the VIE without formal legal ownership. However, the contractual
arrangements between the shell company and the operating company may not be as effective in providing operational control as direct equity
ownership, and a foreign investor’s rights may be limited by, for example, actions of the Chinese government which could determine
that the underlying contractual arrangements on which control of the VIE is based are invalid. The contractual arrangement on which the
VIE structure is based would likely be subject to Chinese law and jurisdiction, which could raise questions about how recourse is sought.
Investments
through VIEs may be affected by conflicts of interest and duties
between the legal owners of the VIE and the stockholders of the listed holding company, which could adversely impact the value of investments.
VIEs are not formally recognized under Chinese law. Recently, the Chinese government provided new guidance to and placed restrictions
on China-based companies raising capital offshore, including through VIEs, and investors face uncertainty about future actions by the
Chinese government that could significantly affect the operating company’s financial performance and the enforceability of the contractual
arrangements underlying the VIE structure.
Certain
securities issued by companies located or operating in Greater
China, such as China A-shares, are subject to trading restrictions and suspensions, quota limitations and sudden changes in those limitations,
and operational, clearing and settlement risks. Significant portions of the Chinese securities markets may become rapidly illiquid, as
Chinese issuers have the ability to suspend the trading of their equity securities, and have shown a willingness to exercise that option
in response to market volatility and other events. The liquidity of Chinese securities may shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic
growth. As a result, a reduction in spending on Chinese products and services, the institution of tariffs,
sanctions, capital controls, embargoes, trade wars,
or other trade barriers (or the threat thereof), or a downturn in any of the economies of China’s key trading partners may have
an adverse impact on the Chinese economy. The ongoing trade dispute and imposition of tariffs between China and the United States continues
to introduce uncertainty into the Chinese economy and may result in reductions in international trade, the oversupply of certain manufactured
goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on the Fund’s performance. Events such as these and their consequences are difficult
to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future. In addition,
actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting
their operations in the U.S., may negatively impact the value of such securities held by the Fund.
Additionally,
developing countries, such as those in Greater China, may subject
the Fund’s investments to a number of tax rules, and the application of many of those rules may be uncertain. Moreover, China has
implemented a number of tax reforms in recent years, and may amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law could reduce the after-tax profits of the Fund, directly or indirectly,
including by reducing the after-tax profits of companies in China in which the Fund invests. Chinese taxes that may apply to the Fund’s
investments include income tax or withholding tax on dividends, interest
or gains
earned by the Fund, business tax and stamp duty. Uncertainties in Chinese tax rules could result in unexpected tax liabilities for the
Fund.
Taiwan
Investment Risk. Investments in Taiwanese issuers may subject the
Fund to legal, regulatory, political, currency and economic risks that are specific to Taiwan. Specifically, Taiwan’s geographic
proximity and history of political contention with China have resulted in ongoing tensions between the two countries. These tensions may
materially affect the Taiwanese economy and its securities market. Taiwan’s economy is export-oriented, so it depends on an open
world trade regime and remains vulnerable to fluctuations in the world economy. The Taiwanese economy is dependent on the economies of
Asia, mainly those of Japan and China, and the United States. Reduction in spending by any of these countries on Taiwanese products and
services or negative changes in any of these economies may cause an adverse impact on the Taiwanese economy.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Information
Technology Sector Risk. Companies in the information technology
sector may be adversely affected by the failure to obtain, or delays in obtaining, financing or regulatory approval, intense competition,
both domestically and internationally, product compatibility, consumer preferences, corporate capital expenditure, rapid obsolescence
and competition for the services of qualified personnel. Companies in the information technology sector also face competition or potential
competition with numerous alternative technologies. In addition, the highly competitive information technology sector may cause the prices
for these products and services to decline in the future.
Information
technology companies may have limited product lines, markets, financial
resources or personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights.
The loss or impairment of these rights may adversely affect the profitability of these companies.
The
information technology sector is subject to rapid and significant changes
in technology that are evidenced by the increasing pace of technological upgrades, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for new products and enhancements, developments in emerging
wireless transmission technologies and changes in customer requirements and preferences. The success of sector participants depends substantially
on the timely and successful introduction of new products.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in
8
which the Fund invests
depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally,
an increase in the value of the U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign
currency, thereby decreasing the Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect
the economy or particular business operations of companies in a geographic region in which the Fund invests, causing an adverse impact
on the Fund. As a result, investors have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be
able to purchase or sell
your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and, therefore, increase the
difference between the market price of the Shares and the NAV of such Shares.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in connection with the rebalancing or adjustment of the Underlying Index, which may result in a high portfolio turnover rate.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying and selling all of its securities two times during the
course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high
portfolio turnover rate can result in an increase in taxable capital gains distributions to the Fund’s shareholders, the Fund will
seek to utilize the in-kind creation and redemption mechanism (described below) to minimize the realization of capital gains to the extent
possible.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
9
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether
the Shares will trade
below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing
reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and
interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
10
Additional
Risks of Investing in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset
resulting
from changes in the general level of interest rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred
to as “default risk”), which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the
11
Fund’s remaining
assets may be less liquid, more volatile, and more difficult to price. To the extent the Fund permits cash purchases, large purchases
of Shares may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required
to maintain a larger cash position than it ordinarily would. To the extent these large shareholders transact in shares on the secondary
market, such transactions may account for a large percentage of the trading volume on the Fund’s exchange and may, therefore, have
a material upward or downward effect on the market price of the Shares. To the extent the Fund permits redemptions in cash, the Fund may
hold a relatively large proportion of its assets in cash in anticipation of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe
weather-related phenomena
generally, and widespread disease, including pandemics and epidemics, have been and may be highly disruptive to economies and markets,
adversely impacting individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor
sentiment, and other factors affecting the value of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying
Index is concentrated is negatively impacted to a greater extent by such events, the Fund may experience heightened volatility. Given
the increasing interdependence among global economies and markets, conditions in one country, market, or region are increasingly likely
to adversely affect markets, issuers, and/or foreign exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
12
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on The Nasdaq Stock Market LLC (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since December 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
13
Advisory
Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.90% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PIE.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a
redemption request, the
Fund may take up to 15 days after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
14
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should
recognize
gain or loss in an amount equal to the difference between the shareholder’s adjusted tax basis in his or her shares and the liquidating
distribution(s) he or she receives, except to the extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution
may be subject to backup withholding as described below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment
15
accounts.
After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions, return of capital distributions
and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the IRS, which can be relied upon currently,
such withholding is no longer required unless final regulations provide otherwise (which is not expected). The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar
laws. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate
certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such
16
price is stale or unreliable,
the Adviser will value the security at fair value in good faith using the Valuation Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$15.90
|
$24.99
|
$19.56
|
$18.59
|
$16.12
|
|
Net
investment income(a)
|
0.51
|
0.57(b)
|
0.19
|
0.23
|
0.36(c)
|
|
Net
realized and unrealized gain (loss) on investments |
1.56
|
(8.97)
|
5.52
|
1.07
|
2.51
|
|
Total
from investment operations |
2.07
|
(8.40)
|
5.71
|
1.30
|
2.87
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.50)
|
(0.71)
|
(0.30)
|
(0.34)
|
(0.41)
|
|
Transaction
fees(a)
|
0.02
|
0.02
|
0.02
|
0.01
|
0.01
|
|
Net
asset value at end of year |
$17.49
|
$15.90
|
$24.99
|
$19.56
|
$18.59
|
|
Market
price at end of year(d)
|
$17.46
|
$15.85
|
$24.81
|
$19.60
|
$18.51
|
|
Net
Asset Value Total Return(e)
|
12.98%
|
(34.05)%
|
29.35%
|
7.08%
|
18.23%
|
|
Market
Price Total Return(e)
|
13.16%
|
(33.79)%
|
28.17%
|
7.77%
|
18.03%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$118,030
|
$125,593
|
$214,944
|
$155,489
|
$168,210
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.90%
|
0.90%
|
0.90%
|
0.90%
|
0.91%(f)
|
|
Net
investment income |
2.76%
|
2.66%(b)
|
0.79%
|
1.25%
|
2.13%(c)(f)
|
|
Portfolio
turnover rate(g)
|
150%
|
169%
|
198%
|
155%
|
158%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.48 and 2.24%, respectively. |
|
(c)
|
Net
Investment income per share and the ratio of net investment income to average net assets include a non-cash taxable distribution received
during the year. Net investment income per share
and
the ratio of net investment income to average net assets excluding the non-cash taxable distribution are $0.24 and 1.39%, respectively.
|
|
(d)
|
The
mean between the last bid and ask prices. |
|
(e)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(f)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.01%. |
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by Dorsey Wright, and Dorsey Wright does not make any representation regarding the advisability of investing in Shares of
the Fund.
There
is no relationship between Dorsey Wright and the Adviser other than
a license by Dorsey Wright to the Adviser of certain Dorsey Wright trademarks and trade names, and the Dorsey Wright Emerging Markets
Technical LeadersTM
Index for use by the Adviser.
Such
trademarks, trade names and the Underlying Index have been created
and developed by Dorsey Wright without regard to and independently of the Adviser, its businesses, its development of the Fund and/or
any prospective investor. The Adviser has arranged with Dorsey Wright to license indexes, such as the Underlying Index, based on Point
& Figure Analysis for possible inclusion in products which the Adviser independently develops and promotes. The licensing of any model
such as the Underlying Index to the Adviser is not an offer to purchase or sell, or a solicitation. A determination that any portion of
an investor’s portfolio should be devoted to any product developed by the Adviser with reference to a Dorsey Wright Index is a determination
made solely by the Adviser serving the investor or the investor himself, not Dorsey Wright.
Dorsey
Wright is not responsible for and has not participated in the determination
of the prices and amount of Shares, the timing of the issuance or sale of Shares or in the determination of any financial calculations
relating thereto. Dorsey Wright has no obligation or liability in connection with the administration of the Trust or marketing of the
Shares. Dorsey Wright does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein. Dorsey
Wright shall have no liability for any errors, omissions or interruptions therein. Dorsey Wright makes no warranty, express or implied,
as to results to be obtained by the Distributor, the Adviser, the Trust or owners of Shares, or any other person or entity, from the use
of the Underlying Index, or any data included therein in connection with the Fund, or for any other use. Dorsey Wright expressly disclaims
all warranties and conditions of merchantability, title or fitness for a particular purpose or use, with respect to the Fund or the Underlying
Index or to any data included therein, except as set forth in the respective license agreements with the Adviser. Without limiting any
of the foregoing, in no event shall Dorsey Wright have any liability for any incidental, special, exemplary, punitive, indirect or consequential
damages (including lost profits), however caused and on any theory of liability, whether in contract, strict liability or tort (including
negligence or otherwise), resulting from the use of the Underlying Index or any data included therein, even if notified of the possibility
of such damages.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as
to results to be obtained
by the Fund, owners of the Shares or any other person or entity from the use of the Underlying Index or any data included therein. The
Adviser makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall the
Adviser have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of
matters relating to the use of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
19
Delivery
of Shareholder Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Emerging Markets Sovereign Debt ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Emerging Markets Sovereign Debt ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the DBIQ Emerging Markets USD Liquid Balanced Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 80% of its total assets in the components that comprise the Underlying Index. Strictly in accordance
with its guidelines and mandated procedures, Deutsche Bank Securities Inc. (“DB” or the “Index Provider”) compiles
and maintains the Underlying Index, which measures potential returns of a theoretical portfolio of liquid U.S. dollar-denominated government
bonds from emerging market countries. The Underlying Index is composed of one to three securities from each of the countries set forth
below that (i) are denominated in U.S. dollars, (ii) are sovereign or quasi-sovereign bonds, (iii) generally have at least three years
to maturity at the time of rebalancing, (iv) have an outstanding amount of at least $500 million or greater, and (v) have a fixed coupon.
As
of December 31, 2023,
the Underlying Index has determined the following to be eligible emerging market countries: Angola, Bahrain, Brazil, Chile, China, Colombia,
Costa Rica, Croatia, Dominican Republic, Egypt, El Salvador, Guatemala, Hungary, India, Indonesia, Jordan, Kazakhstan, Kenya, Kuwait,
Malaysia, Mexico, Mongolia, Morocco, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, the Philippines, Poland, Qatar, Romania, Saudi Arabia,
South Africa, Turkey, and the United Arab Emirates. This universe of countries may change in accordance with DB’s determination
of eligible
emerging market countries
and there is no assurance that a particular country will be represented in the Underlying Index at any given time.
As
of December 31, 2023,
the Underlying Index was comprised of 95
constituents.
The
Fund does not purchase all of the securities in the Underlying Index;
instead, the Fund utilizes a “sampling” methodology to seek to achieve its investment objective.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
additional indices
with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
3
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
-
|
|
|
Return
After Taxes on Distributions and Sale of
Fund
Shares |
|
|
-
|
|
|
| ||||
|
DBIQ
Emerging Markets USD Liquid Balanced
Index
taxes) |
|
|
|
|
|
| ||||
|
Bloomberg
Global Aggregate ex-U.S. Index (reflects
no
deductionfor fees, expenses or taxes)1
|
|
|
-
|
-
|
|
| ||||
|
JP
Morgan Emerging Market Bond Global Index
(reflects
no deduction for fees, expenses or
taxes)1
|
|
|
|
|
|
| ||||
1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
October
2007 |
|
| ||
|
Richard
Ose |
Senior
Portfolio Manager of the
Adviser
|
February
2014 |
|
| ||
|
Gary
Jones |
Portfolio
Manager of the Adviser |
January
2012 |
|
| ||
|
Gregory
Meisenger |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 100,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax
Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund's annual return
and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments,
while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index.
As an index fund, the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund, because of the practical difficulties and expense of purchasing
all of the securities in the Underlying Index, does not purchase all of the securities in the Underlying Index; instead, the Fund utilizes
a sampling methodology to seek to achieve its investment objective. A “sampling” methodology means that the Adviser uses a
quantitative analysis to select securities from the Underlying Index universe to obtain a representative sample of securities that have,
in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and
other characteristics. These include duration, maturity, credit quality, yield and coupon. When employing a sampling methodology, the
Adviser bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the
Fund to hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund
in as many securities as it believes necessary to achieve the Fund's investment objective.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of
4
their removal from the
Underlying Index, or (iv) purchasing securities not included in the Underlying Index in anticipation of their addition to the Underlying
Index.
Additional
information about the construction of the Underlying Index is set
forth below.
DBIQ Emerging Markets USD
Liquid Balanced Index
The
Underlying Index is constructed in two phases.
The
first phase establishes a broad “Underlying Index Membership,” which
represents all of the bonds eligible for inclusion in the Underlying Index. The Index Provider first establishes a list of eligible countries
on an annual basis in February. Once the list of countries is set, the Index Provider generates the “Underlying Index Membership”
by identifying bonds that meet the following criteria:
•
Issued
in U.S. dollars;
•
Sovereign
or quasi-sovereign bond;
•
At
least three years remaining to maturity for a bond already in the Underlying Index at the time of rebalance;
•
At
least 3 years and 3 months remain to maturity for a bond not currently a member of the Underlying Index at the time of rebalance;
•
Outstanding
amount of $500 million or greater; and
•
Has
a fixed coupon bond.
Domestic
issues are excluded from the Underlying Index. Also ineligible are:
Rule 144A securities, private placements, Brady Bonds, restructured bonds, bonds in default, floating/variable coupon bonds, sinking bonds,
callable bonds (unless it has a make-whole call provision), putable bonds, zero coupon/zero coupon step-up bonds, bonds without known
cash flows, or convertible, inflation linked, other index-linked, cum or ex-warrant, floating rate note with coupon cap, perpetual or
accrued only bonds.
In
the second phase of the construction process, the Index Provider selects
up to three bonds from each eligible country from the “Underlying Index Membership” according to the following criteria:
(1)
Each
emerging market country with at least one eligible security will be included in the Underlying Index;
(2)
Each
emerging market country cannot have more than three securities included from the “Underlying Index Membership” list;
(3)
If
an emerging market country has more than three eligible bonds, the three bonds with the highest potential for excess return compared to
the eligible bonds are selected, but if an emerging market country has three or fewer eligible bonds, all eligible bonds are selected;
and
(4)
Each
eligible emerging market country included with at least two bonds will be given an equal weighting in the Underlying Index, and each eligible
emerging market country with at least one bond will be given half this weight in the Underlying Index annually on the calendar day before
March 1.
The
resulting Underlying Index consists of one to three bonds from each eligible
emerging market country.
The
Underlying Index is rebalanced quarterly on the last calendar day in February,
May, August and November. The Index Provider generates the Underlying Index Membership on a quarterly basis, five business days before
the last business day of February, May, August and November of each year. Further, monthly selection observations are made to ensure that
bonds meet the default and notional outstanding eligibility criteria. If a bond is in default, the Index Provider will remove all bonds
from that country at the next rebalancing, which occurs on the last calendar day of each month. The Fund is rebalanced in accordance with
the Underlying Index.
The
Index Provider will re-invest the cash proportionally to all other countries
at month-end. Valuation data regarding the Underlying Index is available via the DB website at http://index.db.com and Bloomberg, L.P.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may
impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Emerging
Markets Sovereign Debt Risk. Investments in emerging markets sovereign
debt carry a number of risks. Government obligors in emerging market countries are among the world's largest debtors to commercial banks,
other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government
debt securities in which the Fund may invest have experienced substantial difficulties in meeting its external debt obligations, resulting
in defaults on certain obligations and the restructuring of certain indebtedness. Such restructuring arrangements have included obtaining
additional credit to finance outstanding obligations and the reduction and rescheduling of payments of interest and principal through
the negotiation of new or amended credit agreements. As a holder of government debt securities, the Fund may be asked to participate in
the restructuring of such obligations
5
and to extend further
loans to its issuers. There can be no assurance that the securities in which the Fund will invest will not be subject to restructuring
arrangements or to requests for additional credit. In addition, certain participants in the secondary market for such debt may be directly
involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants.
Emerging
market countries may also have higher rates of inflation and more
rapid and extreme fluctuations in inflation rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may
have relatively low market liquidity, decreased publicly available and less reliable information, and inconsistent and less stringent
regulatory, disclosure, accounting, auditing and financial reporting requirements and standards of practice, including recordkeeping standards,
comparable to those applicable to issuers in more developed markets. As a result, the nature and quality of such information may vary.
In
addition, the taxation systems at the federal, regional and local levels in
emerging market countries may be less transparent and inconsistently enforced, and subject to sudden change. Emerging markets countries
may have a higher degree of corruption and fraud than developed market countries, as well as counterparties and financial institutions
with less financial sophistication, creditworthiness and/or resources. Investments in emerging markets securities may also be subject
to delays in settlement procedures, unexpected market closures, and lack of timely information.
Sovereign
and Quasi-Sovereign Debt Risk. Investments in sovereign or quasi-sovereign
debt securities involve special risks. Sovereign debt includes securities issued by or guaranteed by a foreign sovereign government, and
quasi-sovereign debt includes securities issued by or guaranteed by an entity affiliated with or backed by a sovereign government. The
governmental authority that controls the repayment of the debt may be unwilling or unable to repay the principal and/or interest when
due in accordance with the terms of such securities due to the extent of its foreign reserves; the availability of sufficient foreign
exchange on the date a payment is due; the relative size of the debt service burden to the economy as a whole; or the government debtor’s
policy towards the International Monetary Fund and the political constraints to which a government debtor may be subject. If an issuer
of sovereign debt defaults on payments of principal and/or interest, the Fund may have limited legal recourse against the issuer and/or
guarantor. In certain cases, remedies must be pursued in the courts of the defaulting party itself, and the Fund’s ability to obtain
recourse may be limited. Similar to other issuers, changes to the financial condition or credit rating of a government may cause the value
of a sovereign debt obligation to decline. Quasi-sovereign debt obligations are typically less liquid and less standardized than sovereign
debt obligations.
Certain
issuers of sovereign debt may be dependent on disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Such disbursements
may be conditioned upon a debtor's implementation of economic reforms and/or economic performance and the timely service of such debtor's
obligations. A failure on the part of the debtor to implement such reforms, achieve such levels of economic performance or repay principal
or interest when due may result in the cancellation of such third parties' commitments to lend funds to the government debtor, which may
impair the debtor's ability to service its debts on a timely basis. If the Fund is a holder of government debt, it may be requested to
participate in the rescheduling of such debt and to extend further loans to government debtors.
Fixed-Income
Securities Risk. The Fund invests in fixed-income securities, which
are subject to interest rate risk and credit risk. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. Fixed-income
securities with longer maturities typically are more sensitive to changes in interest rates, making them more volatile than securities
with shorter maturities. Credit risk refers
to
the possibility that the issuer of a security will be unable and/or unwilling to make timely interest payments and/or repay the principal
on its debt. Debt instruments are subject to varying degrees of credit risk, which may be reflected in credit ratings. There is a possibility
that the credit rating of a fixed-income security may be downgraded after purchase, which may occur quickly and without advance warning
following sudden market downturns or unexpected developments involving an issuer, and which may adversely affect the liquidity and value
of the security. Securities issued by the U.S. government
historically have been subject to limited credit risk; however, the actual or threatened failure of the U.S. government
to pay its obligations will increase credit risks and securities issued by U.S. government
agencies are not necessarily backed by the full faith and credit of the U.S. government.
Due to recent events in the fixed-income markets, including the Federal Reserve Board (“FRB”) ending its quantitative easing
program, the Fund is subject to heightened interest rate risk as a result of a rise in interest rates. In addition, the Fund is subject
to the risk that interest rates may exhibit increased volatility, which could cause the Fund’s NAV to fluctuate more. A decrease
in fixed-income market maker capacity may act to decrease liquidity in the fixed-income markets and act to further increase volatility,
affecting the Fund’s returns.
Foreign
Fixed-Income Investment Risk. Investments in fixed-income securities
of non-U.S. issuers are subject to the same risks as other debt securities, notably credit risk, market risk, interest rate risk and liquidity
risk, while also facing risks beyond those associated with investments in U.S. securities including, among others, greater market volatility,
the availability of less reliable financial information, higher transactional costs, taxation by foreign governments, decreased market
liquidity and political instability. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing,
financial reporting and record keeping than are U.S. issuers, and therefore, not all material information regarding these issuers will
be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability
to invest in foreign securities or may prevent the Fund from repatriating its investments.
Changing
Fixed-Income Market Conditions Risk. Increases in the federal funds
and equivalent foreign interest rates or other changes to monetary policy or regulatory actions may expose fixed-income markets to heightened
volatility and reduced liquidity for certain fixed-income investments, particularly those with longer maturities. It is difficult to predict
the impact of interest rate changes on various markets. In addition, decreases in fixed-income dealer market-making capacity may also
potentially lead to heightened volatility and reduced liquidity in the fixed-income markets. As a result, the value of the Fund's investments
and share price may decline. Changes in central bank policies could also result in higher than normal redemptions by APs (as defined herein),
which could potentially increase the Fund's portfolio turnover rate and transaction costs and potentially lower the Fund’s performance
returns.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
6
industry
group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Non-Investment
Grade Securities Risk. The risk of investing in non-investment
grade securities is a form of credit risk. Securities that are rated non-investment grade (commonly known as “junk bonds”
or “high yield bonds”) and unrated securities of comparable credit quality are regarded as having predominantly speculative
characteristics with respect to the capacity to pay interest and repay principal. Non-investment grade securities may be more susceptible
to real or perceived adverse economic and competitive industry conditions than higher grade securities. The prices of non-investment grade
securities have been found to be less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. Yields on non-investment grade securities will fluctuate. If the issuer of non-investment
grade securities defaults, the Fund may incur additional expenses to seek recovery. The secondary markets in which non-investment grade
securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading markets
could adversely affect the price at which the Fund could sell a particular non-investment grade security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer, and could adversely
affect and cause large fluctuations in the NAV of the Shares. Adverse publicity and investor perceptions may decrease the values and liquidity
of non-investment grade securities.
Restricted
Securities Risk. The Fund may invest in restricted securities,
including those that may be resold only in accordance with Regulation S under the Securities Act. Regulation S securities are securities
of U.S. and non-U.S. issuers initially offered and sold outside the United States without registration with the SEC. Accordingly, the
liquidity of the market for specific Regulation S securities may vary. Delay or difficulty in selling such securities may result in a
loss to the Fund.
Rule
144A Securities and Other Exempt Securities Risk. The Fund may
invest in Rule 144A securities and other types of exempt securities, which are not registered for sale pursuant to an exemption from registration
under the Securities Act of 1933, as amended. These securities are also known as privately issued securities, and typically may be resold
only to qualified institutional buyers, or in a privately negotiated transaction, or to a limited number of purchasers, or in limited
quantities after they have been held for a specified period of time and other conditions are met for an exemption from registration. Although
such securities may be determined to be liquid in accordance with the requirements of Rule 22e-4 under the Investment Company Act of 1940
as amended (the “1940 Act”), if there are an insufficient number of qualified institutional buyers interested in purchasing
such securities at a particular time, the Fund may have difficulty selling such securities at a desirable time or price. As a result,
the Fund’s investment in such securities may be subject to increased liquidity risk. In addition, the issuers of Rule 144A securities
may require their qualified institutional buyers (such as the Fund) to keep certain offering information confidential, which could adversely
affect the ability of the Fund to sell such securities.
Call
Risk.
If interest rates fall, it is possible that issuers of callable
securities with high interest coupons will “call” (or prepay) their bonds
before their maturity
date. If an issuer exercises such a call during a period of declining interest rates, the Fund may have to replace such called security
with a lower yielding security. If that were to happen, the Fund’s net investment income could fall.
Reinvestment
Risk. Reinvestment risk is the risk that the Fund will not be able
to reinvest income or principal at the same return it is currently earning. Reinvestment risk is greater during periods of declining interest
rates, as prepayments often occur faster. This may require the Fund to reinvest the proceeds at an earlier date, and it may be able to
do so only at lower yields, thereby reducing its return.
Liquidity
Risk. Liquidity risk exists when a particular investment is difficult
to purchase or sell. If the Fund invests in illiquid securities or current portfolio securities become illiquid, it may reduce the returns
of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. In the event that the Fund
voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those
assets.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Sampling
Risk. The Fund’s use of a representative sampling methodology
could result in the Fund holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development
to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the risk that the securities selected for the Fund, in the aggregate,
will not provide investment performance matching that of the Underlying Index, thereby increasing tracking error.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect
7
changes
in the composition of the Underlying Index. To the extent that the Fund has recently commenced operations and/or otherwise has a relatively
small amount of assets, such transaction costs could have a proportionally greater impact on the Fund. Additionally, if the Fund uses
a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in the components that comprise the Underlying Index, may invest its remaining
assets in
8
securities
(including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements and other
funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under the 1940
Act, or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and interest
payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities index)
and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index,
and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those components that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 80% of its total assets in the components that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price
of the underlying stock
goes up, and to decrease as the price of the underlying stock goes down. Declining common stock values therefore also may cause the value
of the Fund’s investments to decline. Like a debt security, a convertible security provides a fixed-income stream and also tends
to decrease in value when interest rates rise. Moreover, many convertible securities have credit ratings that are below investment grade
and are subject to the same risks as lower-rated debt securities, which are considered to have more speculative characteristics and greater
susceptibility to default or decline in market value than investment grade (or higher-rated) securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider
9
gives descriptions of
what the Underlying Index is designed to achieve, the Index Provider generally does not provide any warranty or accept any liability in
relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally does not guarantee that the Underlying
Index will be in line with its methodology. Errors made by the Index Provider with respect to the quality, accuracy and completeness of
the data within the Underlying Index may occur from time to time and may not be identified and corrected by the Index Provider for a period
of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally be borne by the Fund and
its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a
10
repurchase agreement
defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Fund will seek to
dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities may be restricted. If the
seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of the underlying securities
are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Depending on the factors used, changes in interest rates and movement of such factors
may cause significant price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the
reference factor underlying the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not
be able to readily close out its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
11
Portfolio
Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Richard Ose, Gary Jones and
Gregory Meisenger (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since October 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Richard
Ose, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2014. He has been responsible
for the management of certain funds in the Invesco family of ETFs since October 2013 and has been associated with the Adviser since 2011.
■
Gary
Jones, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since January 2012. He has been responsible
for the management of certain funds in the Invesco family of ETFs since January 2012 and has been associated with the Adviser since 2010.
■
Gregory
Meisenger, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible
for the management of certain funds in the Invesco family of ETFs since May 2018 and has been associated with the Adviser since March
2018.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.50% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not
apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August 31,
2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PCY.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not
12
considered a registered
owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any other stocks that you hold in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid monthly by the Fund. The Fund also intends to distribute its net realized
capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to comply
with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and to avoid
a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund
Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
13
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as
part of the issue) and
the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly, an AP that redeems a Creation
Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference between the AP's basis in the
Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of the securities received (plus
any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized upon an exchange of securities
for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules governing “wash sales”
or on the ground that there has been no significant change in the AP's economic position. An AP exchanging securities should consult its
own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are
14
exchange-traded are valued
at the last trade price or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and
non-U.S. banks and financial institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including
convertible securities) normally are valued on the basis of prices provided by independent pricing services. Pricing services generally
value fixed-income securities assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the
same securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be
adjusted accordingly. Futures contracts are valued at the daily settlement price set by an exchange on which they are principally traded.
U.S. exchange-traded options are valued at the mean between the last bid and asked prices from the exchange on which they principally
trade. Non-U.S. exchange-traded options are valued at the final settlement price set by the exchange on which they trade. Options not
listed on an exchange and swaps generally are valued using pricing provided from independent pricing services. Unlisted securities will
be valued using prices provided by independent pricing services or by another method that the Adviser, in its judgment, believes better
reflects the security’s fair value in accordance with the Valuation Procedures. Foreign exchange-traded equity securities are valued
at their market value if market quotations are available and reliable. The Adviser may use various pricing services to obtain market quotations
as well as fair value prices. The Adviser may discontinue the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley Ronon Stevens
& Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington, D.C. 20006,
serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$17.12
|
$26.76
|
$26.89
|
$29.12
|
$26.20
|
|
Net
investment income(a)
|
1.30
|
1.25
|
1.23
|
1.28
|
1.41
|
|
Net
realized and unrealized gain (loss) on investments |
0.76
|
(9.61)
|
(0.10)
|
(2.20)
|
2.93
|
|
Total
from investment operations |
2.06
|
(8.36)
|
1.13
|
(0.92)
|
4.34
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.29)
|
(1.28)
|
(1.26)
|
(1.31)
|
(1.42)
|
|
Net
asset value at end of year |
$17.89
|
$17.12
|
$26.76
|
$26.89
|
$29.12
|
|
Market
price at end of year(b)
|
$17.83
|
$16.88
|
$26.73
|
$26.81
|
$29.13
|
|
Net
Asset Value Total Return(c)
|
11.89%
|
(31.97)%
|
4.17%
|
(3.07)%
|
16.91%
|
|
Market
Price Total Return(c)
|
13.12%
|
(32.83)%
|
4.38%
|
(3.38)%
|
17.28%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$1,284,232
|
$1,429,380
|
$2,723,916
|
$2,675,446
|
$3,535,387
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.50%
|
0.50%
|
0.50%
|
0.50%
|
0.50%
|
|
Net
investment income |
6.84%
|
5.73%
|
4.47%
|
4.63%
|
5.03%
|
|
Portfolio
turnover rate(d)
|
32%
|
40%
|
41%
|
28%
|
28%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
DBIQ Emerging Markets USD Liquid Balanced Index is a trademark of
DB and has been licensed for use for certain purposes by the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by DB, its affiliates, or its third party licensors. Deutsche Bank®
and DBIQ Emerging Markets USD Liquid Balanced Index are marks of Deutsche Bank Securities Inc. and have been licensed for use for certain
purposes by the Adviser.
DB
makes no representation or warranty, express or implied, to the owners
of Shares of the Fund or any member of the public regarding the advisability of investing in securities generally or in Shares of the
Fund particularly. As the Index Provider for the Fund, DB’s only relationship to the Distributor, the Adviser or the Trust is through
the licensing of certain trademarks and trade names of DB and the Underlying Index.
The
Underlying Index is selected and calculated without regard to the Distributor,
the Adviser, the Trust or any holders of Shares of the Fund. DB has no obligation to take the needs of the Distributor, the Adviser, the
Trust or the owners of Shares of the Fund into consideration when determining, composing or calculating the Underlying Index. DB is not
responsible for and has not participated in the determination of the prices and amount of Shares of the Fund or the timing of the issuance
or sale of Shares of the Fund or in the determination of any financial calculations relating thereto. DB has no obligation or liability
in connection with the administration of the Trust or marketing of the Shares of the Fund. DB does not guarantee the accuracy, timeliness,
and/or the completeness of the Underlying Index or any data included therein, and DB shall have no liability for any errors, omissions,
delays, or interruptions therein. DB makes no warranty, express or implied, as to results to be obtained by the Distributor, the Adviser,
the Trust or owners of Shares of the Fund, or any other person or entity, from the use of the Underlying Index or any data included therein.
DB
MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING INDEX, OR ANY DATA INCLUDED
THEREIN, OR THE FUND, THE TRUST, OR THE SHARES OF THE FUND. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DB HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE UNDERLYING INDEX
OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS
OR ARRANGEMENTS BETWEEN DEUTSCHE BANK SECURITIES INC. AND THE ADVISER.
No
purchaser, seller or holder of this security, or any other person or entity,
should use or refer to any DB trade name, trademark or service mark to sponsor, endorse, market or promote this product without first
contacting DB to determine whether DB’s permission is required. Under no
circumstances may any
person or entity claim any affiliation with DB without the written permission of DB.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the
17
Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year.
If you have questions
about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder
inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
FTSE RAFI Developed Markets ex-U.S. ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco FTSE RAFI Developed Markets ex-U.S. ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the FTSE RAFITM Developed
ex U.S. 1000 Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, FTSE
International Limited (“FTSE”) in conjunction with Research Affiliates LLC (“RA” together with FTSE, the “Index
Provider”), compiles, maintains and calculates the Underlying Index, which is comprised of companies located in countries that are
classified as “developed” within the country classification definition of FTSE, excluding the United States.
The
Underlying Index is designed to track the performance of non-U.S.-listed
companies domiciled in developed markets countries with the largest cumulative scores (“Fundamental Value”), selected from
the constituents of the FTSE Developed ex US Total Cap Index as determined by the Index Provider. The Underlying Index selects and weights
companies based on their Fundamental Values, which are derived from the following four fundamental measures of firm size: book value,
cash flow, sales and dividends.
As
of December 31, 2023,
the Underlying Index was comprised of 1,027 constituents representing 34
countries and with market capitalizations ranging from $138.1
million to $406.6
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
3
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
FTSE
RAFI™ Developed ex U.S. 1000 Index (Net) (reflects
reinvested dividends net of withholding
taxes,
but reflects no deduction for fees, expenses |
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)1
|
|
|
|
|
|
| ||||
1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a
4
representative sample
of securities that have, in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance
attributes and other characteristics. These include industry weightings, market capitalization, return variability, earnings valuation,
yield and other financial characteristics of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings
in the Fund on a number of factors, including asset size of the Fund, and generally expects the Fund to hold less than the total number
of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund in as many securities as it believes
necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking
error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
FTSE RAFITM
Developed ex US 1000 Index
The
Underlying Index is comprised of companies selected from the constituents of the FTSE Developed ex US Total Cap Index based on their Fundamental
Values (as described further below).
The
Fundamental Value of each eligible constituent is calculated based on
the following factors:
(a)
The
percentage representation of each security using the issuer’s sales averaged over the prior five years.
(b)
The
percentage representation of each security using the issuer’s cash flow averaged over the prior five years.
(c)
The
percentage representation of each security using the issuer’s book value as of the review date.
(d)
The
percentage representation of each security using the issuer’s total dividend distributions averaged over the prior five years. (A
security that has not paid a dividend in the past five years will have a percentage representation of zero.)
The
Index Provider divides the Fundamental Value of each company by its
free-float adjusted market capitalization and ranks the securities in descending order of their Fundamental Value. The 1,000 securities
with the largest adjusted Fundamental Values are included in the Underlying Index and assigned a weight proportional to their Fundamental
Value.
As
of December 31, 2023,
the following countries were classified as developed markets by FTSE: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South Korea,
Spain, Sweden, Switzerland, the UK and the United States.
The
Underlying Index is rebalanced annually, after the close of business on
the third Friday of March, based on data at the close of business on the last trading day in January. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
All
FTSE RAFITM
Index values are accessible on the FTSE Russell website at www.ftserussell.com.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may
impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes,
5
currency blockage and/or
transfer restrictions and higher transactional costs. Each country has different laws specific to that country that impact investment,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small-
and mid-capitalization companies may be more volatile and thinly
traded (that is, less liquid) than those of more established companies. These securities may have returns that vary, sometimes significantly,
from the overall securities market. Often small-
and mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small-
and mid-capitalization companies are typically less financially
stable than larger, more established companies, and they may depend on a small number of
essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization companies also normally have less diverse
product lines than large capitalization companies and are more susceptible to adverse developments concerning their products. As such,
small- and mid-capitalization
companies typically are more likely to be adversely affected than large capitalization companies by changes in earnings results, business
prospects, investor expectations or poor economic or market conditions.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Asia
Pacific Investment Risk. The level of development of the economies
of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined,
if an economic recession is experienced by any of these countries, it will likely adversely impact the economic performance of other countries
in the region. Certain economies in the region may be adversely affected by increased competition, high inflation rates, undeveloped financial
services sectors, currency fluctuations or restrictions, political and social instability and increased economic volatility. In addition,
certain countries in the Asia Pacific region in which the Fund may invest are large debtors to commercial banks and foreign governments.
The recent economic crisis has reduced the willingness of certain lenders to extend credit to these Asia Pacific countries and have made
it more difficult for such borrowers to obtain financing on attractive terms or at all. These developments may also have a negative effect
on the broader economy of such Asia Pacific countries, including issuers in which the Fund may invest. Due to heavy reliance on international
trade, a decrease in demand (due to recession or otherwise in the United States, Europe or Asia) would adversely affect economic performance
in the region.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity
6
measures
and reforms, may not produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have
other unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional
adverse effects on economies, financial markets, and asset valuations around the world. The markets of a number of countries in Eastern
Europe remain relatively undeveloped and can be particularly sensitive to political and economic developments. Recent security concerns
related to immigration, war and geopolitical risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Financials
Sector Risk. Financial services companies are subject to extensive
government regulation and, as a result, their profitability may be affected by new regulations or regulatory interpretations. Changes
in interest rates can have a disproportionate effect on the financials sector, and financial services companies whose securities the Fund
may purchase may themselves have concentrated portfolios, which makes them vulnerable to economic conditions that affect that sector.
Financial services companies have also been affected by increased competition, which could adversely affect the profitability or viability
of such companies. In addition, the financials sector is undergoing numerous changes, including continuing consolidations, development
of new products and structures and changes to its regulatory framework. Increased government involvement in financial institutions, including
measures such as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders
in such institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or
region,
which may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue
to do so. Deterioration of credit markets can have an adverse impact on a broad range of financial markets, and thereby cause certain
financial services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation of
their assets and even ceased operations.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of
7
exchange should the Fund
desire immediately to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forwards, futures
or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities
it holds. To the extent
the Fund calculates its NAV based on fair value prices, the Fund’s ability to track the Underlying Index may be adversely affected.
Since the Underlying Index is not subject to the tax diversification requirements to which the Fund must adhere, the Fund may be required
to deviate its investments from the securities contained in, and relative weightings of, the Underlying Index. The Fund may not invest
in certain securities included in the Underlying Index due to liquidity constraints. Liquidity constraints also may delay the Fund’s
purchase or sale of securities included in the Underlying Index. For tax efficiency purposes, the Fund may sell certain securities to
realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
8
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”)
is open) for additions
to, and deletions from, the Underlying Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks.
9
Cybersecurity incidents
involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer agent and
financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial losses,
impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory
fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse
consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with
which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply
with the eligibility
requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune times or for prices other
than at current market values or may elect not to sell such securities on the day that they are removed from the Underlying Index, due
to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return and the return of the Underlying
Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in
10
developed markets. Thus,
there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares
before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the
11
Exchange necessary to
maintain the listing of the Fund will continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are
not priced, and therefore, if the Fund holds securities that are primarily listed on such exchanges, the value of such securities in the
Fund’s portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with
other team members to
focus on certain asset classes, implementing investment strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.45% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
12
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PXF.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
13
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
14
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
15
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
16
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$37.62
|
$48.20
|
$34.17
|
$40.99
|
$40.04
|
|
Net
investment income(a)
|
1.54
|
1.40
|
1.42
|
0.94
|
1.45
|
|
Net
realized and unrealized gain (loss) on investments |
4.15
|
(9.83)
|
13.72
|
(6.85)
|
1.10
|
|
Total
from investment operations |
5.69
|
(8.43)
|
15.14
|
(5.91)
|
2.55
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.49)
|
(2.15)
|
(1.11)
|
(0.92)
|
(1.60)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.01
|
0.00(b)
|
|
Net
asset value at end of year |
$41.82
|
$37.62
|
$48.20
|
$34.17
|
$40.99
|
|
Market
price at end of year(c)
|
$42.17
|
$37.71
|
$48.22
|
$34.25
|
$40.86
|
|
Net
Asset Value Total Return(d)
|
15.00%
|
(17.95)%
|
44.49%
|
(14.26)%
|
6.58%
|
|
Market
Price Total Return(d)
|
15.68%
|
(17.81)%
|
44.22%
|
(13.80)%
|
6.41%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$1,478,477
|
$1,130,538
|
$1,200,189
|
$871,403
|
$1,246,076
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.45%
|
0.45%
|
0.45%
|
0.45%
|
0.45%
|
|
Net
investment income |
3.52%
|
3.24%
|
3.09%
|
2.57%
|
3.64%
|
|
Portfolio
turnover rate(e)
|
12%
|
16%
|
17%
|
11%
|
15%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
17
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Underlying Index is a trademark of FTSE and RA and has been licensed
for use for certain purposes by the Adviser.
Disclaimers
The Fund is not in any way sponsored, endorsed,
sold or promoted by FTSE International Limited (“FTSE”) or by the London Stock Exchange Group Companies (“LSEG”)
or by Research Affiliates LLC (“RA”) (collectively the “Licensor Parties”), and none of the Licensor Parties make
any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the
use of the FTSE RAFITM
Developed ex U.S. 1000 Index (the “Underlying Index”)
and/or the figure at which the Underlying Index stands at any particular time on any particular day or otherwise. The Index is compiled
and calculated by FTSE in conjunction with RA.
None
of the Licensor Parties have provided or will provide any financial or
investment advice or recommendation in relation to an Underlying Index to the Adviser or its clients. None of the Licensor Parties shall
be (a) liable (whether in negligence or otherwise) to any person for any error in the Underlying Index or (b) under any obligation to
advise any person of any error therein.
FTSE®
is a trademark of London Stock Exchange Group (“LSEG”). The trade names Fundamental Index and RAFI are registered trademarks
of RA.
Any
intellectual property rights in the index values and constituent list vests
in FTSE. The Fundamental Index®
and RAFI®
trade names are the exclusive property of RA. The Adviser has obtained full license from FTSE to use such intellectual property rights
in the creation of these products.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed
calendar quarters since
that year (or the life of the Fund, if shorter) is available on the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and
18
Semi-Annual Reports to
Shareholders. In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you
wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
19
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco FTSE RAFI Developed Markets ex-U.S. Small-Mid ETF (the “Fund”) seeks to track the investment results (before fees
and expenses) of the FTSE RAFITM Developed
ex US Mid Small 1500 Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, FTSE
International Limited (“FTSE”) in conjunction with Research Affiliates LLC (“RA” together with FTSE, the “Index
Provider”), compiles, maintains and calculates the Underlying Index, which is comprised of securities of small- and mid-capitalization
companies that are classified as “developed” within the country classification definition of FTSE, excluding the United States.
The
Underlying Index is designed to track the performance of the small- and
mid-capitalization companies in developed markets based on their cumulative scores (“Fundamental Value”), selected from the
constituents of the FTSE Developed ex US Total Cap Index, as determined by the Index Provider. The Underlying Index selects and weights
companies based on their Fundamental Values, which are derived from the following four fundamental measures of firm size: book value,
cash flow, sales and dividends.
As
of December 31, 2023,
the Underlying Index was comprised of 1,490
constituents representing 45
countries and with market capitalizations ranging from $36.4
million to $77.6
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
additional indexes
with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
3
|
|
Period
Ended |
Returns
|
|
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Average Annual Total Returns (for the periods ended December 31, 2023)
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Inception
Date
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1
Year
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5
Years
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10
Years
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Return
Before Taxes |
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% |
% |
% |
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Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale of Fund
Shares
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FTSE
RAFI™ Developed ex U.S. Mid-Small 1500
Index
(Net) withholding
taxes, but reflects no deduction for |
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MSCI
World ex USA IMI Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)1
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MSCI
EAFE®
Small Cap Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)
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1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
September
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
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|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
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Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase
Shares (bid) and the
lowest price a seller is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask
spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a
4
number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
FTSE RAFITM
Developed ex-US Mid-Small 1500 Index
The
Underlying Index is comprised of small- and medium-capitalization companies selected from the constituents of the FTSE Developed ex US
Total Cap Index based on their Fundamental Values (as described further below).
The
Fundamental Value of each eligible constituent is calculated based on
the following factors:
(a)
The
percentage representation of each security using the issuer’s sales averaged over the prior five years.
(b)
The
percentage representation of each security using the issuer’s cash flow averaged over the prior five years.
(c)
The
percentage representation of each security using the issuer’s book value as of the review date.
(d)
The
percentage representation of each security using the issuer’s total dividend distributions averaged over the prior five years. (A
security that has not paid a dividend in the past five years will have a percentage representation of zero.)
The
Index Provider divides the Fundamental Value of each company by its
free-float adjusted market capitalization and ranks the securities in descending order of their Fundamental Value. The 1,500 securities
that have a ranking of 1,001 to 2,500 are included in the Underlying Index and assigned a weight proportional to their Fundamental Value.
As
of December 31, 2023,
the following countries were classified as developed markets by FTSE: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South Korea,
Spain, Sweden, Switzerland, the UK and the United States.
The
Underlying Index is rebalanced annually, after the close of business on
the third Friday of March, based on data at the close of business on the last trading day in January. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
All
FTSE RAFITM
Index values are accessible on the FTSE Russell website at www.ftserussell.com.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate
that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the Underlying
Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically related
to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn in
the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or transfer restrictions and higher
transactional costs. Each country has different laws specific to that country that impact investment, which may increase the risks to
which investors are subject. Country-specific rules or legislation addressing investment-related
5
transactions may inhibit
or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an
unfavorable earnings
report, may depress the value of common stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make
anticipated dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Japan
Investment Risk. Japan may be subject to political, economic, nuclear,
labor, natural disaster, and regional and global conflicts risks, among others. Any of these risks, individually or in the aggregate,
can impact an investment made in Japan. The growth of Japan’s economy has recently lagged that of its Asian neighbors and other
major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs,
other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. The Japanese economy
has experienced the effects of the global economic slowdown similar to the United States and Europe, and downturns in the economies of
Japan’s key trading partners, such as the United States, China and/or countries in Southeast Asia, could also have a negative impact
on the Japanese economy as a whole. Japan has a limited supply of natural resources, and is heavily dependent on oil imports, and higher
commodity prices could therefore have a negative impact on the Japanese economy.
The
Japanese economy faces additional concerns, including a financial
system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations,
a changing corporate governance structure, and large government deficits. These issues may cause a continued slowdown of the Japanese
economy.
Moreover,
Japan has an aging workforce and has experienced a significant
population decline in recent years. Japan’s labor market appears to be undergoing fundamental structural changes as a result, which
may adversely affect its economic competitiveness in the world marketplace.
European
Investment Risk. Europe
includes both developed and emerging markets.
Most countries in Western Europe,
and a number of countries in Eastern Europe,
are members of the EU and the EMU.
The EMU,
which is authorized to direct monetary policies,
including policies related
to money supply and interest rates for the euro
(the common currency of certain EU countries) requires compliance
by member states with restrictions on inflation rates, deficits,
interest rates,
debt levels and fiscal and monetary controls,
each of which may significantly affect every country in Europe.
Decreasing imports or exports,
changes in governmental or EU regulations on
trade, changes in the
exchange rate of the euro, the default or threat of default by
an EU
member country on
its sovereign debt, and/or economic recessions
in an EU member country may have significant adverse effects on the economies of EU member countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange
6
rate
of the euro and may continue to significantly affect every country in Europe, including EU member countries that do not use the euro and
non-EU member countries. Responses to financial problems by European
governments, central banks, and others, including austerity measures and reforms, may not produce the desired results, may limit future
growth and economic recovery, may result in social unrest, or have other unintended consequences. Further defaults or restructurings by
governments and other entities of their debt could have additional adverse effects on economies, financial markets, and asset valuations
around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped and can be particularly sensitive
to political and economic developments. Recent security concerns related to immigration, war and geopolitical risk, and terrorism could
have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities
of the foreign company
to trade at a discount or premium to the market price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored”
facilities. A sponsored facility is established jointly by a depositary and the issuer of the underlying security. A depositary may establish
an unsponsored facility without participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses
and may be less liquid. Holders of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security
or to pass through voting rights to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may
7
increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under
corporate and regulatory
ownership definitions, there may be limits on the aggregate amount of investment by affiliated investors that may not be exceeded, or
that may not be exceeded without the grant of a license or other regulatory or corporate consent, or, if exceeded, may cause the Adviser,
the Fund or other client accounts to suffer disadvantages or business restrictions. As a result, the Fund may be restricted in its ability
to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The
8
Fund’s NAV is calculated
at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the
Shares fluctuates continuously throughout trading hours on the exchange, based on both the relative market supply of, and demand for,
the Shares and the underlying value of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate
from the Fund’s NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser
cannot predict whether the Shares will trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly
with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations
and redemptions, including disruptions at market makers, APs, or other market participants, or periods of significant market volatility
or stress, may result in trading prices for the Shares that differ significantly from the value of the Fund’s underlying holdings,
with the result that investors may pay significantly more or receive significantly less than the underlying value of the Shares bought
or sold. This can be reflected as a spread between the bid and ask prices for the Fund quoted during the day or a premium or discount
in the closing price from the Fund’s NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack
of an active market for such Shares or the Fund’s underlying investments, which may contribute to the Shares trading at a premium
or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing
Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
9
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that
any large shareholder
would not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s
liquidity and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP,
rather than executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not
otherwise do so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may
accelerate the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments
to meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money
10
market
fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per share (i.e.,
in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money market funds
may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments
and
the price of the underlying securities. Because futures contracts
project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the
11
Shares’ in-kind
redemption mechanism generally will not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since September 2007. He has been responsible for the management of certain funds in the Invesco family of
ETFs since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.49% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PDN.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
12
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting
trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves the right not to accept
orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise are not in the best interests
of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent purchases and redemptions of
Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
13
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special
certification
requirements to avoid U.S. backup withholding and claim any treaty benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
14
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the
passage of time between
when the security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s
last market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency,
(ii) events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$26.66
|
$38.13
|
$28.93
|
$30.67
|
$29.48
|
|
Net
investment income(a)
|
0.79
|
0.81
|
0.65
|
0.60
|
0.70
|
|
Net
realized and unrealized gain (loss) on investments |
1.63
|
(11.23)
|
9.25
|
(1.70)
|
1.24
|
|
Total
from investment operations |
2.42
|
(10.42)
|
9.90
|
(1.10)
|
1.94
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.86)
|
(1.06)
|
(0.70)
|
(0.64)
|
(0.75)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.01
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
|
Net
asset value at end of year |
$28.22
|
$26.66
|
$38.13
|
$28.93
|
$30.67
|
|
Market
price at end of year(c)
|
$28.42
|
$26.68
|
$38.41
|
$28.94
|
$30.42
|
|
Net
Asset Value Total Return(d)
|
8.88%
|
(27.72)%
|
34.34%
|
(3.36)%
|
6.72%
|
|
Market
Price Total Return(d)
|
9.58%
|
(28.21)%
|
35.26%
|
(2.53)%
|
5.85%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$475,466
|
$489,162
|
$434,660
|
$308,106
|
$328,155
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.49%
|
0.49%
|
0.49%
|
0.49%
|
0.49%
|
|
Net
investment income |
2.58%
|
2.55%
|
1.77%
|
2.09%
|
2.36%
|
|
Portfolio
turnover rate(e)
|
31%
|
32%
|
31%
|
26%
|
27%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Underlying Index is a trademark of FTSE and RA and has been licensed
for use for certain purposes by the Adviser.
Disclaimers
The Fund is not in any way sponsored, endorsed,
sold or promoted by FTSE International Limited (“FTSE”) or by the London Stock Exchange Group Companies (“LSEG”)
or by Research Affiliates LLC (“RA”) (collectively the “Licensor Parties”), and none of the Licensor Parties make
any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the
use of the FTSE RAFITM
Developed ex US Mid-Small 1500 Index (the “Underlying Index”)
and/or the figure at which the Underlying Index stands at any particular time on any particular day or otherwise. The Index is compiled
and calculated by FTSE in conjunction with RA.
None
of the Licensor Parties have provided or will provide any financial or
investment advice or recommendation in relation to an Underlying Index to the Adviser or its clients. None of the Licensor Parties shall
be (a) liable (whether in negligence or otherwise) to any person for any error in the Underlying Index or (b) under any obligation to
advise any person of any error therein.
FTSE®
is a trademark of London Stock Exchange Group (“LSEG”). The trade names Fundamental Index and RAFI are registered trademarks
of RA.
Any
intellectual property rights in the index values and constituent list vests
in FTSE. The Fundamental Index®
and RAFI®
trade names are the exclusive property of RA. The Adviser has obtained full license from FTSE to use such intellectual property rights
in the creation of these products.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed
calendar quarters since
that year (or the life of the Fund, if shorter) is available on the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and
17
Semi-Annual Reports to
Shareholders. In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you
wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
FTSE RAFI Emerging Markets ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco FTSE RAFI Emerging Markets ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the
FTSE RAFITM Emerging
Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, FTSE
International Limited (“FTSE”) in conjunction with Research Affiliates LLC (“RA” together with FTSE, the “Index
Provider”), compiles, maintains and calculates the Underlying Index, which is comprised of securities of companies located in countries
that are classified as emerging markets within the country classification definition of FTSE. The Underlying Index includes securities
of companies selected from the constituents of the FTSE Emerging Total Cap Index. The Underlying Index selects and weights its component
securities based on their cumulative score (“Fundamental Value”), which is derived from the following four fundamental measures
of firm size: book value, cash flows, sales and dividends.
As
of December 31, 2023,
the Underlying Index was comprised of 397
constituents representing 15
countries and with market capitalizations ranging from $222.8
million to $2.1
trillion.
While
the Fund generally seeks to invest in all of the securities comprising
the Underlying Index in proportion to their weightings in the
Underlying Index, at
times the composition of the Underlying Index may make such “full replication” impracticable. In such circumstances, the Fund
will utilize a “sampling” methodology to seek to achieve its investment objective.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
25% or more of
the value of its total
assets) in securities of issuers in any one industry or group of industries only to the extent that the Underlying Index reflects a concentration
in that industry or group of industries. The Fund will not otherwise concentrate its investments in securities of issuers in any one industry
or group of industries. As of October 31, 2023,
the Fund had significant exposure to the financials sector. The Fund’s portfolio holdings, and the extent to which it concentrates
its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
FTSE
RAFI™ Emerging Index (Net) reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes) |
|
|
|
|
|
| ||||
|
MSCI
Emerging Markets Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)
|
|
|
|
|
|
| ||||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
September
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less
4
than NAV (at a discount).
An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid)
and the lowest price a seller is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask
spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield
and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
FTSE RAFITM
Emerging Index
The
Index Provider selects component securities for the Underlying Index from among the companies with the highest-ranking Fundamental Value,
based on the factors set forth below, within the FTSE Emerging Total Cap Index, subject to the country eligibility rule described below.
A
country will be eligible for inclusion in the Underlying Index if its fundamental
country weight in the FTSE Emerging All Cap Index exceeds 1.5% or, for existing constituent countries in the Underlying Index, exceeds
0.55%.
The
Fundamental Value of each eligible constituent is calculated based on
the following factors:
(a)
The
percentage representation of each security using the issuer’s sales averaged over the prior five years.
(b)
The
percentage representation of each security using the issuer’s cash flow averaged over the prior five years.
(c)
The
percentage representation of each security using the issuer’s book value as of the review date.
(d)
The
percentage representation of each security using the issuer’s total dividend distributions averaged over the prior five years. (A
security that has not paid a dividend in the past five years will have a percentage representation of zero.)
The
Index Provider divides the Fundamental Value of each company by its
free-float adjusted market-capitalization and ranks the securities in descending order of their Fundamental Value. The 350 securities
with the largest adjusted Fundamental Values are included in the Underlying Index and assigned a weight proportional to their Fundamental
Value.
As
of December 31, 2023,
the following countries were classified as emerging markets by FTSE: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary,
Iceland, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Philippines, Qatar, Romania, Saudi Arabia, South Africa, Taiwan, Thailand,
Turkey, and the United Arab Emirates.
The
Underlying Index is rebalanced annually, after the close of business on
the third Friday of March, based on data at the close of business on the last trading day in January. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
All
FTSE RAFITM
Index values are accessible on the FTSE Russell website at www.ftserussell.com.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may
5
impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information,
and inconsistent and
less stringent regulatory, disclosure, accounting, auditing and financial reporting requirements and standards of practice, including
recordkeeping standards, comparable to those applicable to issuers in more developed markets. As a result, the nature and quality of such
information may vary. The ability to conduct adequate due diligence in emerging markets may be limited. In addition, certain emerging
market countries may impose material limitations on Public Company Accounting Oversight Board (“PCAOB”) inspection, investigation
and enforcement capabilities which can hinder the PCAOB’s ability to engage in independent oversight or inspection of accounting
firms located in or operating in certain emerging markets. There is no guarantee that the quality of financial reporting or the audits
conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder
6
communications to the
holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
China
Investment Risk. Investments in companies located or operating
in Greater China (normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan) involve risks
and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control
over the economy; political, legal and regulatory uncertainty; nationalization, expropriation, or confiscation of property; lack
of willingness or ability of the Chinese government to support the economies and markets of the Greater China region; lack of publicly
available information and difficulty in obtaining information necessary
for investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal
remedies for shareholders; alteration or discontinuation of economic reforms; military conflicts
and the risk of war, either internal or with other countries; public
health emergencies resulting in market closures, travel restrictions, quarantines or other interventions;
inflation, currency fluctuations and fluctuations in inflation and interest rates that may have negative effects on the economy and securities
markets of Greater China; and Greater China’s dependency on the economies of other Asian countries, many of which are developing
countries. Events in any one country within Greater China may impact the other countries in the region or Greater China as a whole. For
example, changes to their political and economic relationships with mainland China could adversely impact the Fund’s investments
in Taiwan and Hong Kong. Further, health events
may cause uncertainty and volatility in the Chinese economy, especially
in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, any difficulties
of the PCAOB to inspect audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work
of U.S. reporting companies may impose significant additional risks associated with investments in China.
Investments
in Chinese companies may be made through a special structure known
as a variable interest entity (“VIE”) that is designed to provide foreign investors, such as the Fund, with exposure to Chinese
companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional
risks because the investment is made through an intermediary shell company that has entered into service and other contracts with the
underlying Chinese operating company in order to provide investors with exposure to the operating company, and
therefore does not represent equity ownership in the operating
company. As a result, such investment may limit the rights of an investor with respect to the underlying Chinese operating company. VIEs
allow foreign shareholders
to exert a degree of control over, and obtain economic benefits
arising from, the VIE without formal legal ownership. However, the contractual arrangements between the shell company and the operating
company may not be as effective in providing operational control as direct equity ownership, and a foreign investor’s rights may
be limited by, for example, actions of the Chinese government which could determine that the underlying contractual arrangements on which
control of the VIE is based are invalid. The contractual arrangement on which the VIE
structure
is based would likely be subject to Chinese law and jurisdiction, which could raise questions about how recourse is sought.
Investments
through VIEs may be affected by conflicts of interest and duties
between the legal owners of the VIE and the stockholders of the listed holding company, which could adversely impact the value of investments.
VIEs are not formally recognized under Chinese law. Recently, the Chinese government provided new guidance to and placed restrictions
on China-based companies raising capital offshore, including through VIEs, and investors face uncertainty about future actions by the
Chinese government that could significantly affect the operating company’s financial performance and the enforceability of the contractual
arrangements underlying the VIE structure.
Certain
securities issued by companies located or operating in Greater
China, such as China A-shares, are subject to trading restrictions and suspensions, quota limitations and sudden changes in those limitations,
and operational, clearing and settlement risks. Significant portions of the Chinese securities markets may become rapidly illiquid, as
Chinese issuers have the ability to suspend the trading of their equity securities, and have shown a willingness to exercise that option
in response to market volatility and other events. The liquidity of Chinese securities may shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic
growth. As a result, a reduction in spending on Chinese products and services, the institution of tariffs,
sanctions, capital controls, embargoes, trade wars,
or other trade barriers (or the threat thereof), or a downturn in any of the economies of China’s key trading partners may have
an adverse impact on the Chinese economy. The ongoing trade dispute and imposition of tariffs between China and the United States continues
to introduce uncertainty into the Chinese economy and may result in reductions in international trade, the oversupply of certain manufactured
goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on the Fund’s performance. Events such as these and their consequences are difficult
to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future. In addition,
actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting
their operations in the U.S., may negatively impact the value of such securities held by the Fund.
Additionally,
developing countries, such as those in Greater China, may subject
the Fund’s investments to a number of tax rules, and the application of many of those rules may be uncertain. Moreover, China has
implemented a number of tax reforms in recent years, and may amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law could reduce the after-tax profits of the Fund, directly or indirectly,
including by reducing the after-tax profits of companies in China in which the Fund invests. Chinese taxes that may apply to the Fund’s
investments include income tax or withholding tax on dividends, interest or gains earned by the Fund, business tax and stamp duty. Uncertainties
in Chinese tax rules could result in unexpected tax liabilities for the Fund.
Asia
Pacific Investment Risk. The level of development of the economies
of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined,
if an economic recession is experienced by any of these countries, it will likely adversely impact the economic performance of other countries
in the region. Certain economies in the region may be adversely affected by increased competition, high inflation rates, undeveloped financial
services sectors, currency fluctuations or restrictions, political and social instability and increased
7
economic
volatility. In addition, certain countries in the Asia Pacific region in which the Fund may invest are large debtors to commercial banks
and foreign governments. The recent economic crisis has reduced the willingness of certain lenders to extend credit to these Asia Pacific
countries and have made it more difficult for such borrowers to obtain financing on attractive terms or at all. These developments may
also have a negative effect on the broader economy of such Asia Pacific countries, including issuers in which the Fund may invest. Due
to heavy reliance on international trade, a decrease in demand (due to recession or otherwise in the United States, Europe or Asia) would
adversely affect economic performance in the region.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Financials
Sector Risk. Financial services companies are subject to extensive
government regulation and, as a result, their profitability may be affected by new regulations or regulatory interpretations. Changes
in interest
rates can have a disproportionate effect on the financials sector, and financial services companies whose securities the Fund may purchase
may themselves have concentrated portfolios, which makes them vulnerable to economic conditions that affect that sector. Financial services
companies have also been affected by increased competition, which could adversely affect the profitability or viability of such companies.
In addition, the financials sector is undergoing numerous changes, including continuing consolidations, development of new products and
structures and changes to its regulatory framework. Increased government involvement in financial institutions, including measures such
as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders in such
institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or region, which
may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue to
do so. Deterioration of credit markets can have
an adverse impact on a broad range of financial markets, and thereby
cause
certain financial services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation
of their assets and even ceased operations.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of
economic decline and
cyclical change. An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general
movements in the stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks
that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small-
and mid-capitalization companies may be more volatile and thinly
traded (that is, less liquid) than those of more established companies. These securities may have returns that vary, sometimes significantly,
from the overall securities market. Often small-
and mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small-
and mid-capitalization companies are typically less financially
stable than larger, more established companies, and they may depend on a small number of essential personnel, making them more vulnerable
to loss of personnel. Small-
and mid-capitalization companies also normally have less diverse
product lines than large capitalization companies and are more susceptible to adverse developments concerning their products. As such,
small- and mid-capitalization
companies typically are more likely to be adversely affected than large capitalization companies by changes in earnings results, business
prospects, investor expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs
8
of such facilities, and
the depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Sampling
Risk. To the extent the Fund utilizes a representative sampling
methodology,
the Fund may hold a smaller number of securities than are in the Underlying Index. As a result, an adverse development to an issuer of
securities that the Fund holds could result in a greater decline in the Fund’s NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the chance that the securities selected for the Fund, in the aggregate,
will not provide investment performance matching that of the Fund’s Underlying Index, thereby increasing tracking error.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S.
security held by the
Fund. In certain circumstances, market quotations may not be readily available for some securities, and those securities may be fair valued.
The value established for a security through fair valuation may be different from what would be produced if the security had been valued
using market quotations. Fund securities that are valued using techniques other than market quotations, including “fair valued”
securities, may be subject to greater fluctuations in their value from one day to the next than would be the case if market quotations
were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value established for it at any time,
and it is possible that the Fund would incur a loss because a security is sold at a discount to its established value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or
9
business restrictions.
As a result, the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s
affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result,
the trading prices of
the Shares may deviate from the Fund’s NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT
TO NAV. The Adviser cannot predict whether the Shares will trade below, at or above the Fund’s NAV. Exchange prices are not expected
to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions
to creations and redemptions, including disruptions at market makers, APs, or other market participants, or periods of significant market
volatility or stress, may result in trading prices for the Shares that differ significantly from the value of the Fund’s underlying
holdings, with the result that investors may pay significantly more or receive significantly less than the underlying value of the Shares
bought or sold. This can be reflected as a spread between the bid and ask prices for the Fund quoted during the day or a premium or discount
in the closing price from the Fund’s NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack
of an active market for such Shares or the Fund’s underlying investments, which may contribute to the Shares trading at a premium
or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
10
Securities
Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as
expected with the underlying
asset being hedged, and it is possible that the hedge therefore may not succeed. In addition, given their complexity, derivatives may
be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed
11
directly with the Fund
in the form of redemptions through an AP, rather than executed in the secondary market. These redemptions may also force the Fund to sell
portfolio securities when it might not otherwise do so, which may negatively impact the Fund’s NAV and increase the Fund’s
brokerage costs. Further, such sales may accelerate the realization of taxable income and/or gains to shareholders, or the Fund may be
required to sell its more liquid Fund investments to meet a large redemption, in which case the Fund’s remaining assets may be less
liquid, more volatile, and more difficult to price. To the extent the Fund permits cash purchases, large purchases of Shares may adversely
affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger
cash position than it ordinarily would. To the extent these large shareholders transact in shares on the secondary market, such transactions
may account for a large percentage of the trading volume on the Fund’s exchange and may, therefore, have a material upward or downward
effect on the market price of the Shares. To the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion
of its assets in cash in anticipation of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a
$1.00
stable share price. Money market funds may also impose liquidity fees in
certain circumstances, including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying
12
Index.
In the event of adverse price movements, the Fund would remain required to make daily cash payments to maintain its required margin. There
is no assurance that a liquid secondary market will exist for any particular futures contract at any particular time. Futures
markets are highly volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage
risk and liquidity risk. The risk of loss in trading futures contracts
potentially is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying
Index. The Fund also
may be required to distribute any such gains to its shareholders to avoid adverse federal income tax consequences. For information concerning
the tax consequences of distributions, see the section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since September 2007. He has been responsible for the management of certain funds in the Invesco family of
ETFs since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
13
responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.49% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PXH.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption
request is received,
in accordance with the process set forth in the Fund’s SAI and in the agreement between the AP and the Fund’s distributor.
However, the Fund reserves the right, including under stressed market conditions, to take up to seven days after the receipt of a redemption
request to pay an AP, all as permitted by the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s)
prevent the Fund from delivering such foreign investments to an AP in response to a redemption request, the Fund may take up to 15 days
after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to
14
accept orders from APs
that the Adviser has determined may be disruptive to the management of the Fund, or otherwise are not in the best interests of the Fund.
For these reasons, the Board has not adopted policies and procedures with respect to frequent purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30%
15
withholding
tax is imposed on income dividends made by the Fund to certain foreign entities, referred to as foreign financial institutions or non-financial
foreign entities, that fail to comply (or be deemed compliant) with extensive reporting and withholding requirements designed to inform
the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. After December 31, 2018, FATCA withholding also would have
applied to certain capital gain distributions, return of capital distributions and the proceeds arising from the sale of Shares; however,
based on proposed regulations issued by the IRS, which can be relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). The Fund may disclose the information that it receives from its shareholders to
the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar laws. Withholding also may be required
if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate certifications or other documentation
concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the
16
passage of time between
when the security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s
last market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency,
(ii) events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$15.84
|
$22.43
|
$17.51
|
$20.95
|
$20.02
|
|
Net
investment income(a)
|
0.84
|
1.06(b)
|
0.92
|
0.59
|
0.72
|
|
Net
realized and unrealized gain (loss) on investments |
1.45
|
(6.37)
|
4.63
|
(3.40)
|
0.92
|
|
Total
from investment operations |
2.29
|
(5.31)
|
5.55
|
(2.81)
|
1.64
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.87)
|
(1.29)
|
(0.64)
|
(0.63)
|
(0.71)
|
|
Transaction
fees(a)
|
0.00(c)
|
0.01
|
0.01
|
0.00(c)
|
0.00(c)
|
|
Net
asset value at end of year |
$17.26
|
$15.84
|
$22.43
|
$17.51
|
$20.95
|
|
Market
price at end of year(d)
|
$17.25
|
$15.85
|
$22.34
|
$17.51
|
$20.93
|
|
Net
Asset Value Total Return(e)
|
14.21%
|
(24.47)%
|
31.79%
|
(13.44)%
|
8.31%
|
|
Market
Price Total Return(e)
|
14.09%
|
(24.14)%
|
31.28%
|
(13.36)%
|
8.14%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$1,094,569
|
$1,206,241
|
$1,360,503
|
$969,844
|
$1,277,150
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.49%
|
0.49%
|
0.49%(f)
|
0.49%(f)
|
0.49%(f)
|
|
Net
investment income |
4.57%
|
5.39%(b)
|
4.11%
|
3.14%
|
3.48%
|
|
Portfolio
turnover rate(g)
|
21%
|
36%
|
34%
|
22%
|
29%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.63 and 3.19%, respectively. |
|
(c)
|
Amount
represents less than $0.005. |
|
(d)
|
The
mean between the last bid and ask prices. |
|
(e)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(f)
|
In
addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of
the investment companies in which the Fund invests.
Estimated
investment companies' expenses are not expenses that are incurred directly by the Fund. They are expenses that are incurred directly by
the investment companies and are deducted
from
the value of the investment companies the Fund invests in. The effect of the estimated investment companies' expenses that the Fund bears
indirectly is included in the Fund's total return. |
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
Underlying Index is a trademark of FTSE and RA and has been licensed
for use for certain purposes by the Adviser.
Disclaimers
The Fund is not in any way sponsored, endorsed,
sold or promoted by FTSE International Limited (“FTSE”) or by the London Stock Exchange Group Companies (“LSEG”)
or by Research Affiliates LLC (“RA”) (collectively the “Licensor Parties”), and none of the Licensor Parties make
any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the
use of the FTSE RAFITM Emerging
Index (the “Underlying Index”) and/or the figure at which the Underlying Index stands at any particular time on any particular
day or otherwise. The Index is compiled and calculated by FTSE in conjunction with RA.
None
of the Licensor Parties have provided or will provide any financial or
investment advice or recommendation in relation to an Underlying Index to the Adviser or its clients. None of the Licensor Parties shall
be (a) liable (whether in negligence or otherwise) to any person for any error in the Underlying Index or (b) under any obligation to
advise any person of any error therein.
FTSE®
is a trademark of London Stock Exchange Group (“LSEG”). The trade names Fundamental Index and RAFI are registered trademarks
of RA.
Any
intellectual property rights in the index values and constituent list vests
in FTSE. The Fundamental Index®
and RAFI®
trade names are the exclusive property of RA. The Adviser has obtained full license from FTSE to use such intellectual property rights
in the creation of these products.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed
calendar quarters since
that year (or the life of the Fund, if shorter) is available on the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and
19
Semi-Annual Reports to
Shareholders. In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you
wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Global Clean Energy ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Global Clean Energy ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the WilderHill
New Energy Global Innovation Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, WilderHill
New Energy Finance LLC (the “Index Provider”) compiles and maintains the Underlying Index, which is comprised of securities
of companies that are located in developed and emerging markets throughout the world and that are engaged in the business of the advancement
of cleaner energy and conservation.
The
Underlying Index is comprised primarily of companies whose technologies
focus on the generation and use of cleaner energy, conservation and efficiency, and the advancement of renewable energy in general, as
determined by the Index Provider. The Underlying Index includes companies in wind, solar, biofuels, hydro, wave, tidal, geothermal and
other relevant renewable energy businesses and those involved in energy conversion, storage, conservation, efficiency, materials relating
to those activities, carbon and greenhouse gas reduction, pollution control, emerging hydrogen and fuel cells.
As
of December 31, 2023,
the Underlying Index was comprised of 108
securities with market capitalizations ranging from $104.2
million to $32.1
billion based in the following countries: Austria, Canada, Chile, China, Denmark, France, Germany, Ireland, Israel, Italy, Japan, the
Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom (“UK”),
and the United States.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
25% or more of
the value of its total
assets) in securities of issuers in any one industry or group of industries only to the extent that the Underlying Index reflects a concentration
in that industry or group of industries. The Fund will not otherwise concentrate its investments in securities of issuers in any one industry
or group of industries. As of October 31, 2023,
the Fund had significant exposure to the clean energy-related industry,
the utilities sector and
the industrials sector. The Fund’s portfolio holdings, and the extent to which it concentrates its investments, are likely
to change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
4
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
-
|
% |
% |
|
Return
After Taxes on Distributions |
|
-
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
-
|
|
|
|
| ||||
|
WilderHill
New Energy Global Innovation Index
|
|
-
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
|
|
|
| ||||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of
5
their removal from the
Underlying Index, or (iv) purchasing securities not included in the Underlying Index in anticipation of their addition to the Underlying
Index.
Additional
information about the construction of the Underlying Index is set
forth below.
WilderHill New Energy Global
Innovation Index
The
Underlying Index is mainly comprised of companies in wind, solar, biofuels, hydro, wave, tidal, geothermal and other relevant renewable
energy businesses. The Underlying Index also includes companies in the energy conversion, storage, conservation, efficiency, materials
relating to those activities, carbon and greenhouse gas reduction, pollution control, emerging hydrogen and fuel cells business. The inclusion
of a company is based on meaningful exposure to clean energy with a company being required to have the primary part of its business activities
focused on new energy innovation, with limited fossil fuel exposure absent an emphasis on decarbonization. Accordingly, the small and
medium capitalization companies contained in the Underlying Index may have a leading role in Underlying Index composition. Larger companies
with diversified businesses may be included in the Underlying Index, but only when they have significant exposure to clean or renewable
energy, as determined by a proprietary methodology.
To
be included in the Underlying Index, an eligible security must:
(1)
have
a primary listing on an exchange in one of the countries that are part of the Developed Markets as defined by the Solactive Country Classification,
plus South Korea, Taiwan and China (limited to China A-Shares through the Stock Connect program);
(2)
have
a three-month average market capitalization of at least $100 million, as measured over the preceding three-month period;
(3)
have
a minimum average daily trading value of $1 million over the preceding three-month period for new components; and
(4)
have
a minimum average daily trading value of $750,000 over the preceding three-month period for existing components.
The
Underlying Index excludes from the eligible universe securities of companies
based on their specific business activities and non-compliance with environmental criteria set forth in the United Nations Global Compact
(“UNGC”) Principles, using information provided by Sustainalytics, a globally recognized independent provider of environmental,
social and governance (“ESG”) research, ratings, and data. The UNGC is an arrangement by which companies voluntarily and publicly
commit to a set of principles drawn from key UN Conventions and Declarations. The principles of the UNGC represent a set of values that
the UN believes responsible businesses should incorporate into their operations in order to meet fundamental responsibilities in the areas
of human rights, labor, the environment, and anti-corruption.
As
new energy technologies are developed, companies involved in such technologies
may be added to the Underlying Index when significant to the clean energy-related industry. The Underlying Index uses an equal-weighting
methodology.
The
Underlying Index is rebalanced quarterly on the last calculation day of
February, May, August and November. If that day is not a trading day, the rebalance day will be the immediately following trading day.
Apart from scheduled rebalances, the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in
order, for example, to reflect corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market
movements
and over longer periods during market downturns. You should anticipate that the value of the Shares will decline, more or less, in correlation
with any decline in value of the securities in the Underlying Index. The value of a security may decline due to general market conditions,
economic trends or events that are not specifically related to the issuer of the security or due to factors that affect a particular industry
or group of industries. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Additionally,
natural or environmental disasters, widespread disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
ESG
Investing Strategy Risk. The stocks of companies with favorable
ESG attributes may underperform the stock market as a whole. As a result, the Fund may underperform other funds that do not screen companies
based on ESG attributes. The criteria used to select companies for investment may result in the Fund investing in securities, industries
or sectors that underperform the market as a whole or underperform other funds screened for ESG standards.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could
6
negatively
affect supply and demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence
of technologies; and increased competition or new product introductions that may affect the profitability or viability of companies in
an industry. In addition, at times, such industry or industry group may be out of favor and underperform other industries or the market
as a whole. Information about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Clean
Energy Industry Risk. The clean energy industry can be significantly
affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants
and general economic conditions. Further, the clean energy industry can be significantly affected by intense competition and legislation.
The clean energy industry can be significantly affected by fluctuations in energy prices and supply and demand of alternative energy fuels,
energy conservation, the success of exploration projects and tax and other government regulations. The industry also can be significantly
affected by the supply of, and demand for, specific products or services, the supply of, and demand for, oil and gas, the price of oil
and gas, production spending, government regulation, world events and economic conditions.
Securities
of the companies involved in this industry have been significantly
more volatile than securities of companies operating in other, more established industries. Certain valuation methods currently used to
value companies involved in the alternative power and power technology sectors, particularly those companies that have not yet traded
profitably, have not been in widespread use for a significant period of time. As a result, the use of these valuation methods may serve
to increase further the volatility of certain alternative power and power technology company share prices.
This
industry sector is relatively nascent and under-researched in comparison
to more established and mature sectors and should therefore be regarded as having greater investment risk. Changes in U.S., European and
other governments’ policies towards alternative power and power technology also may have an adverse effect on the Fund’s performance.
The
Fund may invest in the shares of companies with a limited operating
history, some of which may have never traded profitably. Investing in young companies with a short operating history generally is riskier
than investing in companies with a longer operating history.
The
Fund, being composed of securities issued by companies operating
in a limited number of industries, will carry greater risk and may be more volatile than a portfolio composed of securities issued by
companies operating in a wide variety of different industries.
The
price of crude oil, natural gas, electricity produced from traditional
hydro power and that generated from nuclear power and possibly other as yet undiscovered energy sources could potentially have a negative
impact on the competitiveness of renewable energies.
Industrials
Sector Risk. Changes in government regulation, world events and
economic conditions may adversely affect the companies in the industrials sector. In addition, these companies are at risk for environmental
damage claims. Industrial companies also may be adversely affected by commodity price volatility, changes in exchange rates, imposition
of import controls, increased competition, depletion of resources, technological developments, labor relations and changes in the supply
of and demand for their specific products or services or for industrials sector products in general.
Utilities
Sector Risk. The risks inherent in the utilities sector include
a variety of factors that may adversely affect the business or operations of utility companies, including high interest costs associated
with capital construction and improvement programs; difficulty in raising adequate capital on reasonable terms in periods of high inflation
and unsettled
capital
markets; governmental regulation of rates that the utility company can charge to customers; costs associated with compliance with, and
adjusting to changes to, environmental and other regulations; effects of economic slowdowns and surplus capacity; and increased competition
from other providers of utility services. Utilities companies may also be adversely affected by increased costs associated with the reduced
availability of certain types of fuel, as well as occasionally reduced availability and high costs of natural gas for resale. Energy conservation
and changes in climate policy may also have a significant adverse impact on the revenues and expenses of utility companies. The effects
of a national energy policy and lengthy delays, increased costs and other problems associated with the design, construction, licensing,
regulation and operation of nuclear facilities for electric generation, which may include the problems associated with the use of radioactive
materials and the disposal of radioactive wastes, may also negatively impact these companies.
Technological
innovations may render existing plants, equipment or products obsolete,
and companies may experience difficulty in obtaining regulatory approval of new technologies and may be affected by the potential impact
of terrorist activities on the utility industry and its customers, as well as the impact of natural or man-made disasters. Any such event
could have serious consequences for the general population of the affected area and may adversely impact the Fund's portfolio securities
performance.
Issuers
in the utilities sector also may be subject to regulation by various
governmental authorities and may be affected by the imposition of special tariffs and changes in tax laws, regulatory policies and accounting
standards. Certain utility companies have experienced full or partial deregulation in recent years. Deregulation may subject utilities
companies to greater competition and may adversely affect their profitability. As deregulation allows utility companies to diversify outside
of their original geographic regions and their traditional lines of business, utility companies may engage in riskier ventures. In addition,
deregulation may eliminate restrictions on the profits of certain utility companies, but may also subject these companies to greater risk
of loss. There is no assurance that regulatory authorities will grant rate increases in the future, or that such increases will be adequate
to permit the payment of dividends on stocks issued by a utility company.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price
7
over short periods of
time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common stock; similarly, the common
stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer
experiences a decline in its financial condition.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on PCAOB inspection,
investigation and enforcement capabilities which can hinder the PCAOB’s ability to engage in independent oversight or inspection
of accounting firms located in or operating in certain emerging markets. There is no guarantee that the quality of financial reporting
or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related
transactions may inhibit
or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
8
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
China
Investment Risk. Investments in companies located or operating
in Greater China (normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan) involve risks
and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control
over the economy; political, legal and regulatory uncertainty; nationalization, expropriation, or confiscation of property; lack
of willingness or ability of the Chinese government to support the economies and markets of the Greater China region; lack of publicly
available information and difficulty in obtaining information necessary
for investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal
remedies for shareholders; alteration or discontinuation of economic reforms; military conflicts
and the risk of war, either internal or with other countries; public
health emergencies resulting in market closures, travel restrictions, quarantines or other interventions;
inflation, currency fluctuations and fluctuations in inflation and interest rates that may have
negative
effects on the economy and securities markets of Greater China; and Greater China’s dependency on the economies of other Asian countries,
many of which are developing countries. Events in any one country within Greater China may impact the other countries in the region or
Greater China as a whole. For example, changes to their political and economic relationships with mainland China could adversely impact
the Fund’s investments in Taiwan and Hong Kong. Further, health events
may cause uncertainty and volatility in the Chinese economy, especially
in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, any difficulties
of the PCAOB to inspect audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work
of U.S. reporting companies may impose significant additional risks associated with investments in China.
Investments
in Chinese companies may be made through a special structure known
as a variable interest entity (“VIE”) that is designed to provide foreign investors, such as the Fund, with exposure to Chinese
companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional
risks because the investment is made through an intermediary shell company that has entered into service and other contracts with the
underlying Chinese operating company in order to provide investors with exposure to the operating company, and
therefore does not represent equity ownership in the operating
company. As a result, such investment may limit the rights of an investor with respect to the underlying Chinese operating company. VIEs
allow foreign shareholders
to exert a degree of control over, and obtain economic benefits
arising from, the VIE without formal legal ownership. However, the contractual arrangements between the shell company and the operating
company may not be as effective in providing operational control as direct equity ownership, and a foreign investor’s rights may
be limited by, for example, actions of the Chinese government which could determine that the underlying contractual arrangements on which
control of the VIE is based are invalid. The contractual arrangement on which the VIE structure is based would likely be subject to Chinese
law and jurisdiction, which could raise questions about how recourse is sought.
Investments
through VIEs may be affected by conflicts of interest and duties
between the legal owners of the VIE and the stockholders of the listed holding company, which could adversely impact the value of investments.
VIEs are not formally recognized under Chinese law. Recently, the Chinese government provided new guidance to and placed restrictions
on China-based companies raising capital offshore, including through VIEs, and investors face uncertainty about future actions by the
Chinese government that could significantly affect the operating company’s financial performance and the enforceability of the contractual
arrangements underlying the VIE structure.
Certain
securities issued by companies located or operating in Greater
China, such as China A-shares, are subject to trading restrictions and suspensions, quota limitations and sudden changes in those limitations,
and operational, clearing and settlement risks. Significant portions of the Chinese securities markets may become rapidly illiquid, as
Chinese issuers have the ability to suspend the trading of their equity securities, and have shown a willingness to exercise that option
in response to market volatility and other events. The liquidity of Chinese securities may shrink or disappear suddenly and without warning
as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic
growth. As a result, a reduction in spending on Chinese products and services, the institution of tariffs,
sanctions, capital controls, embargoes, trade wars,
or other trade barriers (or the threat thereof), or a downturn in any of the economies of China’s key trading partners may have
an adverse impact on the Chinese economy. The ongoing trade dispute and imposition of tariffs between China and the
9
United
States continues to introduce uncertainty into the Chinese economy and may result in reductions in international trade, the oversupply
of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments
of China’s export industry, which could have a negative impact on the Fund’s performance. Events such as these and their consequences
are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future.
In addition, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise
restricting their operations in the U.S., may negatively impact the value of such securities held by the Fund.
Additionally,
developing countries, such as those in Greater China, may subject
the Fund’s investments to a number of tax rules, and the application of many of those rules may be uncertain. Moreover, China has
implemented a number of tax reforms in recent years, and may amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law could reduce the after-tax profits of the Fund, directly or indirectly,
including by reducing the after-tax profits of companies in China in which the Fund invests. Chinese taxes that may apply to the Fund’s
investments include income tax or withholding tax on dividends, interest or gains earned by the Fund, business tax and stamp duty. Uncertainties
in Chinese tax rules could result in unexpected tax liabilities for the Fund.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility
and adverse trends due to concerns about rising government debt levels of several European countries, including Greece, Spain, Ireland,
Italy and Portugal. A default or debt restructuring by any European country would adversely impact holders of that country's debt and
sellers of credit default swaps linked to that country's creditworthiness. These events have adversely affected the exchange rate of the
euro and may continue to significantly affect every country in Europe, including EU member countries that do not use the euro and non-EU
member countries. Responses to financial problems by European governments, central banks, and others, including austerity measures and
reforms, may not produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other
unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional adverse
effects on economies, financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe
remain relatively undeveloped and can be particularly sensitive to political and economic developments. Recent security concerns related
to immigration, war and geopolitical risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s departure from the EU, referred to as “Brexit”, could have wide ranging implications for the
UK’s economy, including: possible inflation or recession, depreciation of the British
pound,
or disruption to Britain’s trading arrangements with the rest of Europe. The UK is one of Europe’s largest economies; its
departure from the EU also may negatively impact the EU and Europe as a whole, such as by causing volatility within the union, triggering
prolonged economic downturns in certain European countries or sparking additional member states to contemplate departing the EU (thereby
perpetuating political instability in the region). An exit by other member states will likely result in increased volatility, illiquidity
and potentially lower economic growth in the affected markets, which will adversely affect the Fund’s investments.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected.
10
Since the Underlying
Index is not subject to the tax diversification requirements to which the Fund must adhere, the Fund may be required to deviate its investments
from the securities contained in, and relative weightings of, the Underlying Index. The Fund may not invest in certain securities included
in the Underlying Index due to liquidity constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities
included in the Underlying Index. For tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate
from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares
and their underlying
NAV. In addition, an exchange or market may issue trading halts on specific securities or financial instruments. As a result, the ability
to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s creation/redemption process,
potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being unable to trade certain securities
or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately
price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
11
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian,
transfer agent and financial
intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, impediments
to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse consequences
could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with which the Fund
engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers, dealers, insurance
companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices
12
other than at current
market values or may elect not to sell such securities on the day that they are removed from the Underlying Index, due to market conditions
or otherwise. Due to these factors, the variation between the Fund’s annual return and the return of the Underlying Index may increase
significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because
of failures of or defects
in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares before
receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a
13
specified
period of time. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in
the underlying futures contract at a specified price at any time prior to the expiration date of the option. Exchanges
can limit the number of futures or options positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the
markets for options and the underlying instruments.
Options are also particularly subject to leverage risk and can
be subject to liquidity risk. Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days
when Shares are not priced,
and therefore, if the Fund holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s
portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
14
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.75% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PBD.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
15
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
16
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
17
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
18
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$18.97
|
$31.28
|
$22.89
|
$12.66
|
$10.97
|
|
Net
investment income(a)
|
0.29
|
0.25
|
0.16
|
0.19
|
0.21
|
|
Net
realized and unrealized gain (loss) on investments |
(5.30)
|
(12.25)
|
8.37
|
10.30
|
1.72
|
|
Total
from investment operations |
(5.01)
|
(12.00)
|
8.53
|
10.49
|
1.93
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.56)
|
(0.31)
|
(0.14)
|
(0.26)
|
(0.24)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
|
Net
asset value at end of year |
$13.40
|
$18.97
|
$31.28
|
$22.89
|
$12.66
|
|
Market
price at end of year(c)
|
$13.41
|
$18.89
|
$31.31
|
$22.92
|
$12.56
|
|
Net
Asset Value Total Return(d)
|
(27.24)%
|
(38.52)%
|
37.31%
|
84.06%
|
17.86%
|
|
Market
Price Total Return(d)
|
(26.86)%
|
(38.83)%
|
37.26%
|
85.77%
|
17.16%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$131,693
|
$216,728
|
$399,619
|
$124,178
|
$49,675
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.75%
|
0.75%
|
0.75%
|
0.75%
|
0.77%(e)
|
|
Net
investment income |
1.56%
|
1.09%
|
0.52%
|
1.20%
|
1.74%(e)
|
|
Portfolio
turnover rate(f)
|
64%
|
67%
|
74%
|
56%
|
59%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.02%. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
19
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by WilderHill New Energy Finance LLC (“WilderHill”) and WilderHill does not make any representation regarding
the advisability of investing in Shares.
WilderHill
makes no representation or warranty, express or implied, to the
owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly.
WilderHill’s only relationship to the Distributor, the Adviser or the Trust is the licensing of certain WilderHill trademarks and
trade names of WilderHill and WilderHill New Energy Global Innovation Index, which is composed by WilderHill without regard to the Distributor,
Adviser or the Trust.
The
Underlying Index is selected and calculated without regard to the Distributor,
the Adviser, the Trust or any holders of Shares. WilderHill has no obligation to take the needs of the Distributor, the Adviser, the Trust
or the owners of Shares into consideration in determining, composing or calculating the Underlying Index.
WilderHill
is not responsible for and has not participated in the determination
of the prices and amount of Shares or the timing of the issuance or sale of Shares or in the determination of any financial calculations
relating thereto. WilderHill has no obligation or liability in connection with the administration of the Trust or marketing of the Shares.
WilderHill does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein, and WilderHill
shall have no liability for any errors, omissions, or interruptions therein. WilderHill makes no warranty, express or implied, as to results
to be obtained by the Distributor, the Adviser, the Trust or owners of Shares, or any other person or entity, from the use of the Underlying
Index, trading based on the Underlying Index, any data included therein in connection with the Fund or for any other use. WilderHill expressly
disclaims all warranties and conditions of merchantability, title or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein, the Fund, the Trust or the Shares except as set forth in the license agreement with the Adviser. Without
limiting any of the foregoing, in no event shall WilderHill have any liability for any special, punitive, indirect or consequential damages
(including lost profits) resulting from the use of the Underlying Index or any data included therein, even if notified of the possibility
of such damages.
There
is no relationship between WilderHill New Energy Finance LLC and
the Adviser other than licenses by WilderHill New Energy Finance LLC to the Adviser of certain WilderHill New Energy Finance LLC trademarks
and trade names, for use by the Adviser. Such trademarks, trade names and indices have been created and developed by WilderHill New Energy
Finance LLC without regard to the Adviser, its business, the Fund and/or any prospective investor.
The
Underlying Index is calculated and published by Solactive AG. The Fund
is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit
guarantee
or assurance either with
regard to the results of using the Underlying Index and/or Index trade mark or the Index Price at any time or in any other respect. Solactive
AG uses its best efforts to ensure that the Underlying Index is calculated correctly. Irrespective of its obligations towards the Fund,
Solactive AG has no obligation to point out errors in the Underlying Index to third parties, including but not limited to investors and/or
financial intermediaries of the Fund. Neither publication of the Underlying Index by Solactive AG nor the licensing of the Underlying
Index or Index trade mark for the purpose of use in connection with the Fund constitutes a recommendation by Solactive AG to invest capital
in the Fund nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in the Fund.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
20
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This
means that the SAI legally
is a part of this prospectus. Additional information about the Fund’s investments also is available in the Fund’s Annual and
Semi-Annual Reports to Shareholders. In the Fund’s current Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during the last fiscal year. If you have questions about the
Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries,
please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
21
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Global ex-US High Yield Corporate Bond ETF (formerly,
Invesco Global Short Term High
Yield
Bond ETF) |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Global ex-US High Yield Corporate Bond ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the ICE USD Global High Yield Excluding US Issuers Constrained Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 80% of its total assets in the components of the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, ICE Data
Indices, LLC (the “Index Provider”) compiles, maintains and calculates the Underlying Index, which is composed of U.S. dollar
denominated below investment grade corporate debt (commonly referred to as “high yield securities” or “junk bonds”)
publicly issued in the U.S. domestic and eurobond markets by non-U.S. issuers. To be eligible for inclusion in the Underlying Index, a
security must: (i) have a country of risk associated with a country other than the United States, including both developed and emerging
markets countries; (ii) have a composite rating (based on an average of the ratings of Moody's Investor Services (Moody's), S&P Global
Ratings (“S&P”) and Fitch Ratings Inc. (“Fitch”)) no greater than BB1 and no lower than CCC3; (iii) have at
least one day until final maturity; (iv) have at least 18 months to final maturity at the time of issuance; (v) have a fixed coupon schedule;
and (vi) have a minimum amount outstanding of $500 million. Eurodollar bonds (USD bonds not issued in the U.S. domestic market) and Rule
144A securities (both with and without registration rights) qualify for inclusion in the Underlying Index.
As
of December
31, 2023, the Underlying Index was comprised of 542
constituents.
The
Fund does not purchase all of the securities in the Underlying Index;
instead, the Fund utilizes a “sampling” methodology to seek to achieve its investment objective.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
additional indices
with characteristics relevant to the Fund. The Fund's performance reflects fee waivers, if any, absent which performance
would have been lower. Although the information shown
in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before
and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
3
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
ICE
USD Global High Yield Excluding US Issuers
Constrained
Index |
|
|||
|
| ||||
|
Blended
- Invesco Global
ex-US
High Yield Corporate
Bond
Benchmark
(reflects no deduction for fees,
expenses
or taxes)2
|
|
|
|
|
|
| ||||
|
Bloomberg
Global Aggregate Index (reflects no
deductionfor
fees, expenses or taxes)3
|
|
|
-
|
|
|
| ||||
|
ICE
BofA 0-5 Year U.S. High Yield Constrained Index
(reflects
no deduction for fees, expenses or taxes)3
|
|
|
|
|
|
| ||||
1
2
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2013 |
|
| ||
|
Richard
Ose |
Senior
Portfolio Manager of the
Adviser
|
June
2013 |
|
| ||
|
Gary
Jones |
Portfolio
Manager of the Adviser |
June
2013 |
|
| ||
|
Gregory
Meisenger |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less
than NAV (at a discount).
An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid)
and the lowest price a seller is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask
spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor
or its related companies may pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary
more knowledgeable about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary
and your salesperson or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or
visit your financial intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund's annual return
and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments,
while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index.
As an index fund, the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund, because of the practical difficulties and expense of purchasing
all of the securities in the Underlying Index, does not purchase all of the securities in the Underlying Index; instead, the Fund utilizes
a sampling methodology to seek to achieve its investment objective. A “sampling” methodology means that the Adviser uses a
quantitative analysis to select securities from the Underlying Index universe to obtain a representative sample of securities that have,
in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and
other characteristics. These include duration, maturity, credit quality, yield and coupon. When employing a sampling methodology, the
Adviser bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the
Fund to hold less than the total number of securities in the Underlying
4
Index. However, the Adviser
reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund's investment objective.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
ICE USD Global High Yield
Excluding US Issuers Constrained Index
The
Index Provider compiles, maintains and calculates the Underlying Index, which is composed of U.S. dollar denominated below investment
grade corporate debt (commonly referred to as “high yield securities” or “junk bonds”) publicly issued in the
U.S. domestic and eurobond markets by non-U.S. issuers. To be eligible for inclusion in the Underlying Index, a security must: (i) have
a country of risk associated with a country other than the United States, including both developed and emerging markets countries; (ii)
have a composite rating (based on an average of the ratings of Moody's, S&P and Fitch) no greater than BB1 and no lower than CCC3;
(iii) have at least one day until final maturity; (iv) have at least 18 months to final maturity at the time of issuance; (v) have a fixed
coupon schedule; and (vi) have a minimum amount outstanding of $500 million. Eurodollar bonds (USD bonds not issued in the U.S. domestic
market) and Rule 144A securities (both with and without registration rights) qualify for inclusion in the Underlying Index.
Underlying
Index constituents are market capitalization weighted, provided
the total allocation to an individual issuer does not exceed 2% of the weight of the Underlying Index. When
an issuer exceeds 2% of the weight of the Underlying Index, the face value of each of the issuer's bonds is adjusted on a pro-rata basis
to reduce the issuer's weight to 2%, and the face values of bonds of issuers that fall below the 2% limit are increased on a pro-rata
basis. In the event that there are fewer than 50 constituents in
the Underlying Index, each constituent is equally weighted. Accrued interest is calculated assuming next-day settlement. Cash flows from
bond payments that are received during the month are retained in the Underlying Index until the end of the month and then are removed
as part of the rebalancing. Cash does not earn any reinvestment income while it is held in the Underlying Index.
The
Underlying Index is rebalanced on the last calendar day of each month,
based on information available up to and including the third business day before the last business day of the month. New issues must settle
on or before the following calendar month end in order to qualify for the coming month. No changes are made to constituent holdings other
than on month end rebalancing dates.
The
Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying
Index. The value of a
security may decline due to general market conditions, economic trends or events that are not specifically related to the issuer of the
security or due to factors that affect a particular industry or group of industries. During a general downturn in the securities markets,
multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread disease or other public
health issues, war, military conflicts, acts of terrorism, economic crises or other events could result in increased premiums or discounts
to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events,
have had, and could continue to have, severe negative effects on
regional and global economic and financial markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative
impacts may be particularly acute in certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Non-Investment
Grade Securities Risk. The risk of investing in non-investment
grade securities is a form of credit risk. Securities that are rated non-investment grade (commonly known as “junk bonds”
or “high yield bonds”) and unrated securities of comparable credit quality are regarded as having predominantly speculative
characteristics with respect to the capacity to pay interest and repay principal. Non-investment grade securities may be more susceptible
to real or perceived adverse economic and competitive industry conditions than higher grade securities. The prices of non-investment grade
securities have been found to be less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. Yields on non-investment grade securities will fluctuate. If the issuer of non-investment
grade securities defaults, the Fund may incur additional expenses to seek recovery. The secondary markets in which non-investment grade
securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading markets
could adversely affect the price at which the Fund could sell a particular non-investment grade security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer, and could adversely
affect and cause
5
large fluctuations in
the NAV of the Shares. Adverse publicity and investor perceptions may decrease the values and liquidity of non-investment grade securities.
Fixed-Income
Securities Risk. The Fund invests in fixed-income securities, which
are subject to interest rate risk and credit risk. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. Fixed-income
securities with longer maturities typically are more sensitive to changes in interest rates, making them more volatile than securities
with shorter maturities. Credit risk refers to the possibility that the issuer of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt. Debt instruments are subject to varying degrees of credit risk, which may be
reflected in credit ratings. There is a possibility that the credit rating of a fixed-income security may be downgraded after purchase,
which may occur quickly and without advance warning following sudden market downturns or unexpected developments involving an issuer,
and which may adversely affect the liquidity and value of the security. Securities issued by the U.S. government
historically have been subject to limited credit risk; however, the actual or threatened failure of the U.S. government
to pay its obligations will increase credit risks and securities issued by U.S. government
agencies are not necessarily backed by the full faith and credit of the U.S. government.
Due to recent events in the fixed-income markets, including the Federal Reserve Board (“FRB”) ending its quantitative easing
program, the Fund is subject to heightened interest rate risk as a result of a rise in interest rates. In addition, the Fund is subject
to the risk that interest rates may exhibit increased volatility, which could cause the Fund’s NAV to fluctuate more. A decrease
in fixed-income market maker capacity may act to decrease liquidity in the fixed-income markets and act to further increase volatility,
affecting the Fund’s returns.
Foreign
Fixed-Income Investment Risk. Investments in fixed-income securities
of non-U.S. issuers are subject to the same risks as other debt securities, notably credit risk, market risk, interest rate risk and liquidity
risk, while also facing risks beyond those associated with investments in U.S. securities including, among others, greater market volatility,
the availability of less reliable financial information, higher transactional costs, taxation by foreign governments, decreased market
liquidity and political instability. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing,
financial reporting and record keeping than are U.S. issuers, and therefore, not all material information regarding these issuers will
be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability
to invest in foreign securities or may prevent the Fund from repatriating its investments.
Emerging
Markets Investment Risk. Investments in the securities of issuers
in emerging market countries involve risks often not associated with investments in the securities of issuers in developed countries.
Securities in emerging markets may be subject to greater price fluctuations than securities in more developed markets. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in emerging market securities,
and emerging market securities may have relatively low market liquidity, decreased publicly available information about issuers, and inconsistent
and potentially less stringent accounting, auditing and financial reporting requirements and standards of practice comparable to those
applicable to domestic issuers. Emerging market securities also are subject to the risks of expropriation, nationalization or other adverse
political or economic developments and the difficulty of enforcing obligations in other countries. Investments in emerging market securities
also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or transfer restrictions. Emerging markets usually
are subject to greater market volatility, lower trading volume, political and economic instability, uncertainty regarding the existence
of trading markets and more governmental limitations on foreign
investment than are more
developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore, laws regarding foreign
investment in emerging market securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably.
In addition, the enforcement of systems of taxation at federal, regional and local levels in emerging market countries may be inconsistent
and subject to sudden change.
Changing
Fixed-Income Market Conditions Risk. Increases in the federal funds
and equivalent foreign interest rates or other changes to monetary policy or regulatory actions may expose fixed-income markets to heightened
volatility and reduced liquidity for certain fixed-income investments, particularly those with longer maturities. It is difficult to predict
the impact of interest rate changes on various markets. In addition, decreases in fixed-income dealer market-making capacity may also
potentially lead to heightened volatility and reduced liquidity in the fixed-income markets. As a result, the value of the Fund's investments
and share price may decline. Changes in central bank policies could also result in higher than normal redemptions by APs (as defined herein),
which could potentially increase the Fund's portfolio turnover rate and transaction costs and potentially lower the Fund’s performance
returns.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector, industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Restricted
Securities Risk. The Fund may invest in restricted securities,
including those that may be resold only in accordance with Regulation S under the Securities Act. Regulation S securities are securities
of U.S. and non-U.S. issuers initially offered and sold outside the United States without registration with the SEC. Accordingly, the
liquidity of the market for specific Regulation S securities may vary. Delay or difficulty in selling such securities may result in a
loss to the Fund.
Rule
144A Securities and Other Exempt Securities Risk. The Fund may
invest in Rule 144A securities and other types of exempt securities, which are not registered for sale pursuant to an exemption from registration
under the Securities Act of 1933, as amended. These securities are also known as privately issued securities, and typically may be resold
only to qualified
6
institutional buyers,
or in a privately negotiated transaction, or to a limited number of purchasers, or in limited quantities after they have been held for
a specified period of time and other conditions are met for an exemption from registration. Although such securities may be determined
to be liquid in accordance with the requirements of Rule 22e-4 under the Investment Company Act of 1940, as amended (the “1940 Act”),
if there are an insufficient number of qualified institutional buyers interested in purchasing such securities at a particular time, the
Fund may have difficulty selling such securities at a desirable time or price. As a result, the Fund’s investment in such securities
may be subject to increased liquidity risk. In addition, the issuers of Rule 144A securities may require their qualified institutional
buyers (such as the Fund) to keep certain offering information confidential, which could adversely affect the ability of the Fund to sell
such securities.
Call
Risk.
If interest rates fall, it is possible that issuers of callable
securities with high interest coupons will “call” (or prepay) their bonds before their maturity date. If an issuer exercises
such a call during a period of declining interest rates, the Fund may have to replace such called security with a lower yielding security.
If that were to happen, the Fund’s net investment income could fall.
Reinvestment
Risk. Reinvestment risk is the risk that the Fund will not be able
to reinvest income or principal at the same return it is currently earning. Reinvestment risk is greater during periods of declining interest
rates, as prepayments often occur faster. This may require the Fund to reinvest the proceeds at an earlier date, and it may be able to
do so only at lower yields, thereby reducing its return.
Liquidity
Risk. Liquidity risk exists when a particular investment is difficult
to purchase or sell. If the Fund invests in illiquid securities or current portfolio securities become illiquid, it may reduce the returns
of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. In the event that the Fund
voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those
assets.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in pursuing its investment objective, which may result in a high portfolio turnover rate. A portfolio turnover rate of 200%,
for example, is equivalent to the Fund buying and selling all of its securities two times during the course of a year. A high portfolio
turnover rate (such as 100% or more) could result in high brokerage costs for a fund. While a high portfolio turnover rate can result
in an increase in taxable capital gain distributions to the Fund’s shareholders, the Fund will seek to utilize the in-kind creation
and redemption mechanism (described below) to minimize realization of capital gains to the extent possible.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance
that the Fund could sell
a portfolio security for the value established for it at any time, and it is possible that the Fund would incur a loss because a security
is sold at a discount to its established value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Sampling
Risk. The Fund’s use of a representative sampling methodology
could result in the Fund holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development
to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the risk that the securities selected for the Fund, in the aggregate,
will not provide investment performance matching that of the Underlying Index, thereby increasing tracking error.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or
7
other regulatory or corporate
consent, or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As
a result, the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s
affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the
exchange, based on both
the relative market supply of, and demand for, the Shares and the underlying value of the Fund’s portfolio holdings. As a result,
the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING
AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will trade below, at or above the Fund’s NAV. Exchange
prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors.
In addition, disruptions to creations and redemptions, including disruptions at market makers, APs, or other market participants, or periods
of significant market volatility or stress, may result in trading prices for the Shares that differ significantly from the value of the
Fund’s underlying holdings, with the result that investors may pay significantly more or receive significantly less than the underlying
value of the Shares bought or sold. This can be reflected as a spread between the bid and ask prices for the Fund quoted during the day
or a premium or discount in the closing price from the Fund’s NAV. Additionally, APs may be less willing to create or redeem the
Shares if there is a lack of an active market for such Shares or the Fund’s underlying investments, which may contribute to the
Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in the components that comprise the Underlying Index, may invest its remaining
assets in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase
agreements and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations
under the Investment Company Act of 1940, as amended (the “1940 Act”), or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index,
and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those components that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 80% of its total assets in the components that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
8
Securities
Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as
expected with the underlying
asset being hedged, and it is possible that the hedge therefore may not succeed. In addition, given their complexity, derivatives may
be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed
9
directly with the Fund
in the form of redemptions through an AP, rather than executed in the secondary market. These redemptions may also force the Fund to sell
portfolio securities when it might not otherwise do so, which may negatively impact the Fund’s NAV and increase the Fund’s
brokerage costs. Further, such sales may accelerate the realization of taxable income and/or gains to shareholders, or the Fund may be
required to sell its more liquid Fund investments to meet a large redemption, in which case the Fund’s remaining assets may be less
liquid, more volatile, and more difficult to price. To the extent the Fund permits cash purchases, large purchases of Shares may adversely
affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required to maintain a larger
cash position than it ordinarily would. To the extent these large shareholders transact in shares on the secondary market, such transactions
may account for a large percentage of the trading volume on the Fund’s exchange and may, therefore, have a material upward or downward
effect on the market price of the Shares. To the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion
of its assets in cash in anticipation of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a
$1.00
stable share price. Money market funds may also impose liquidity fees in
certain circumstances, including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying
10
Index.
In the event of adverse price movements, the Fund would remain required to make daily cash payments to maintain its required margin. There
is no assurance that a liquid secondary market will exist for any particular futures contract at any particular time. Futures
markets are highly volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage
risk and liquidity risk. The risk of loss in trading futures contracts
potentially is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Depending on the factors used, changes in interest rates and movement of such factors
may cause significant price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the
reference factor underlying the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not
be able to readily close out its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December
31,
2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Richard Ose, Gary Jones and
Gregory Meisenger (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2013. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Richard
Ose, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since June 2013. He has been responsible
for the management of certain funds in the Invesco family of ETFs since October 2013 and has been associated with the Adviser since 2011.
■
Gary
Jones, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since June 2013. He has been responsible
for the management of certain funds in the Invesco family of ETFs since January 2012 and has been associated with the Adviser since 2010.
■
Gregory
Meisenger, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible
for the management of certain funds in the Invesco family of ETFs since May 2018 and has been associated with the Adviser since March
2018.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
11
Advisory
Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.35% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025, and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PGHY.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a
redemption request, the
Fund may take up to 15 days after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
12
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid monthly by the Fund. The Fund also intends to distribute its net realized
capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to comply
with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and to avoid
a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should
recognize
gain or loss in an amount equal to the difference between the shareholder’s adjusted tax basis in his or her shares and the liquidating
distribution(s) he or she receives, except to the extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution
may be subject to backup withholding as described below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment
13
accounts.
After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions, return of capital distributions
and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the IRS, which can be relied upon currently,
such withholding is no longer required unless final regulations provide otherwise (which is not expected). The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar
laws. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate
certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such
14
price is stale or unreliable,
the Adviser will value the security at fair value in good faith using the Valuation Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The
financial highlights table below is intended to help you understand the Fund’s financial performance for the past five fiscal years.
Certain information reflects financial results for a single Share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose
report, along with the Fund’s financial statements, is included
in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year
|
$19.06
|
$21.59
|
$21.58
|
$22.82
|
$23.14
|
|
Net
investment income(a)
|
1.39
|
0.86
|
0.96
|
1.18
|
1.20
|
|
Net
realized and unrealized gain (loss) on investments |
(0.43)
|
(2.40)
|
0.18
|
(1.20)
|
(0.32)
|
|
Total
from investment operations |
0.96
|
(1.54)
|
1.14
|
(0.02)
|
0.88
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.42)
|
(0.87)
|
(0.96)
|
(1.19)
|
(1.20)
|
|
Return
of capital |
(0.01)
|
(0.12)
|
(0.17)
|
(0.03)
|
-
|
|
Total
distributions |
(1.43)
|
(0.99)
|
(1.13)
|
(1.22)
|
(1.20)
|
|
Net
asset value at end of year |
$18.59
|
$19.06
|
$21.59
|
$21.58
|
$22.82
|
|
Market
price at end of year(b)
|
$18.55
|
$18.96
|
$21.62
|
$21.59
|
$22.81
|
|
Net
Asset Value Total Return(c)
|
5.06%
|
(7.26)%
|
5.33%
|
0.02%
|
3.90%
|
|
Market
Price Total Return(c)
|
5.40%
|
(7.87)%
|
5.42%
|
0.15%
|
4.36%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year
(000’s omitted) |
$130,156
|
$186,805
|
$236,363
|
$196,355
|
$230,477
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.35%
|
0.35%
|
0.35%
|
0.35%
|
0.35%
|
|
Net
investment income |
7.22%
|
4.29%
|
4.36%
|
5.39%
|
5.21%
|
|
Portfolio
turnover rate(d)
|
141%
|
58%
|
59%
|
54%
|
57%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. For the
year
ended
October 31, 2023, the portfolio turnover calculation includes the value of securities purchased and sold in the effort to realign the
Fund’s portfolio holdings due to the underlying index
change.
|
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
The
ICE USD Global High Yield Excluding US Issuers Constrained Index is
a trademark of ICE and has been licensed for use for certain purposes by the Adviser.
Disclaimers
Source ICE Data Indices, LLC (“ICE
Data”), is used with permission. “ICE®”
is a trademark of ICE Data or its affiliates. This trademark has been licensed, along with the Underlying Index for use by the Adviser
in connection with the Fund. Neither the Adviser, the Trust, nor the Fund, as applicable, is sponsored, endorsed, sold or promoted by
ICE Data, its affiliates or its third-party suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make no representations
or warranties regarding the advisability of investing in securities generally, in the Fund particularly, the Trust or the ability of the
Underlying Index to track general stock market performance. ICE Data’s only relationship to the Adviser is the licensing of certain
trademarks and trade names and the Underlying Index or components thereof. The Underlying Index is determined, composed and calculated
by ICE Data without regard to the Adviser or the Fund or its holders. ICE Data has no obligation to take the needs of the Adviser or the
holders of the Fund into consideration in determining, composing or calculating the Underlying Index. ICE Data is not responsible for
and has not participated in the determination of the timing of, prices of, or quantities of the Fund to be issued or in the determination
or calculation of the equation by which the Fund is to be priced, sold, purchased, or redeemed. Except for certain custom index calculation
services, all information provided by ICE Data is general in nature and not tailored to the needs of the Adviser or any other person,
entity or group of persons. ICE Data has no obligation or liability in connection with the administration, marketing, or trading of the
Fund. ICE Data is not an investment advisor. Inclusion of a security within an index is not a recommendation by ICE Data to buy, sell,
or hold such security, nor is it considered to be investment advice.
ICE
DATA. AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS,
EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE UNDERLYING
INDEX, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS
SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE UNDERLYING
INDEX AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included
therein. The Adviser
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or
use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser
have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of matters
relating to the use of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the
17
individual investor,
in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their accounts
are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested in
enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
Global Water ETF |
The
Nasdaq Stock Market LLC |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco Global Water ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the NASDAQ OMX Global
WaterTM
Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that are based on the securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, Nasdaq,
Inc. (“Nasdaq” or the “Index Provider”) compiles, maintains, and calculates the Underlying Index, which is comprised
of securities of global exchange-listed companies located in the United States, as well as developed and emerging markets throughout the
world, that create products designed to conserve and purify water for homes, businesses and industries.
As
of December 31, 2023,
the Underlying Index was comprised of 38
securities with market capitalizations ranging from $560.6
million to $170.9
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
25% or more of the value of its total assets) in securities of issuers in any one industry or group of industries only to the extent that
the Underlying Index reflects a concentration in that industry or group of industries. The Fund will not otherwise concentrate its investments
in securities of issuers in any one industry or group of industries. As of October 31, 2023,
the Fund had significant exposure to the water-related industry and the industrials sector.
The Fund’s portfolio holdings, and the extent to which it concentrates its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
an additional index
with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would
3
have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
NASDAQ
OMX Global Water™
Index (Net) reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes) |
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
|
|
|
| ||||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in
exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
4
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
NASDAQ OMX Global WaterTM
Index
The
Underlying Index is designed to track the performance of companies that create products that conserve and purify water for homes, businesses,
and industries. The Underlying Index may include common stocks, ordinary shares, depositary receipts (both American and global), depositary
shares, Dutch certificates, shares of beneficial interest, stapled securities, and tracking stocks.
To
be eligible for inclusion in the Underlying Index, a security also must meet
the following criteria:
(i)
the
issuer of the security must be classified as participating in the “Green Economy,” as determined by SustainableBusiness.com
LLC, a company that provides global news and networking services to help green businesses grow;
(ii)
the
security must be listed on an eligible global stock exchange, as determined pursuant to the Underlying Index’s methodology;
(iii)
the
security must have a minimum worldwide market capitalization of $50 million; and
(iv)
the
security must have a minimum three-month average daily dollar trading volume of $250,000.
The
Underlying Index applies a modified liquidity weighting methodology,
and under this methodology, the Underlying Index is reweighted after the close of trading on the third Friday of March, June, September,
and December. When the Underlying Index is reweighted or rebalanced, the Underlying Index is subject to the following limits:
(i)
no
country can have more than ten securities, based on the largest average daily dollar trading volume;
(ii)
no
country can have a weight of more than 40% in the Underlying Index;
(iii)
no
single security can have a weight of more than 8% in the Underlying Index;
(iv)
no
country can have more than two securities in excess of 4%; and
(v)
no
more than five securities may have a weight in excess of 4%.
The
excess percentage above the cap of any such capped country in (ii) above,
is distributed proportionally across the securities in the remaining countries, with the process being repeated until no country weight
is greater than 40%. The excess percentage above the 8% cap of any such capped security in (iii) above, is distributed proportionally
across the remaining
securities. If, after
redistribution, the weighting of any of the five highest-weighted securities is above 4% and less than or equal to 8%, these securities
are not capped. However, if a country has more than two securities weighted greater than 4%, each security’s weight will be capped
at 4% and the excess weight will be redistributed. Any remaining securities in excess of 4% of the Underlying Index are capped at 4%,
and the excess weight is redistributed proportionally across the remaining index securities. The Index Provider repeats the process, if
necessary, to derive the final weights.
Securities’
eligibility for inclusion in the Underlying Index is evaluated annually
in June, and the Underlying Index is rebalanced annually on the close of trading on the third Friday of June. One security per issuer
is permitted, and if an issuer has multiple securities, the security with the highest average daily dollar trading volume will be selected
for possible inclusion in the Underlying Index. If, at any time during the year, a security becomes ineligible for inclusion in the Underlying
Index, the security is removed and is not replaced until the next rebalance in June.
Apart
from scheduled rebalances, the Index Provider or its agents may carry
out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect corporate actions or spin-offs. The Fund is
reweighted and rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at
5
an inopportune time or
for a price lower than the security’s current market value. The Underlying Index may not contain the appropriate mix of securities
for any particular economic cycle. Additionally, the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore,
any changes to the Underlying Index’s rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule.
Further, unlike with an actively managed fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact
of periods of market volatility or market decline. This means that, based on certain market and economic conditions, the Fund’s
performance could be lower than other types of funds with investment advisers that actively manage their portfolio assets to take advantage
of market opportunities or defend against market events.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Water
Industry Risk. Investments in the water industry may under-perform
relative to the general market, returns on investments in other sectors or fixed-income securities. The water industry can be significantly
affected by the availability of water, the level of rainfall and the occurrence of other climatic and environmental events, changes in
water consumption and water conservation. Furthermore, because a fund may focus its investments in the water industry, economic downturns
and global and domestic events affecting the water industry will have a greater impact on the fund than would be the case if the fund’s
investments were more diversified. These events may include additional governmental regulation, including the increased cost of compliance,
inflation, an increase in the cost of raw materials, an increase in interest rates and technological advances and changes in consumer
sentiment and spending. Companies engaged in the water industry can be subject to liability for environmental damage, depletion of resources,
conflicts with local communities over water rights and mandated expenditures for safety and pollution control.
Competition
between water companies and government regulation of water companies,
including regulation of the rates that the companies may charge, both domestically and internationally, may adversely affect the earnings
of the companies in which a fund may invest.
Industrials
Sector Risk. Changes in government regulation, world events and
economic conditions may adversely affect the companies in the industrials sector. In addition, these companies are at risk for environmental
damage claims. Industrial companies also may be adversely affected by commodity price volatility, changes in exchange rates, imposition
of import controls, increased competition, depletion of resources, technological developments, labor relations and changes in the supply
of and demand for their specific products or services or for industrials sector products in general.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and
6
economic instability,
uncertainty regarding the existence of trading markets and more governmental limitations on foreign investment than more developed markets.
In addition, securities in emerging markets may be subject to greater price fluctuations than securities in more developed markets. Securities
law in many emerging market countries is relatively new and unsettled. Therefore, laws regarding foreign investment in emerging market
securities, securities regulation, title to securities, and shareholder rights may change quickly and unpredictably. The ability to bring
and enforce actions in emerging market countries, or to obtain information needed to pursue or enforce such actions, may be limited, and
shareholder claims may be difficult or impossible to pursue. In addition, the taxation systems at the federal, regional and local levels
in emerging market countries may be less transparent and inconsistently enforced, and subject to sudden change. Emerging market countries
may have a higher degree of corruption and fraud than developed market countries, as well as counterparties and financial institutions
with less financial sophistication, creditworthiness and/or resources. Investments in emerging market securities may also be subject to
delays in settlement procedures, unexpected market closures, and lack of timely information. Lack of relevant data and reliable public
information, including financial information, about securities in emerging markets may contribute to incorrect weightings and data and
computational errors when the Index Provider selects securities for inclusion in the Underlying Index or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse
product lines than large
capitalization companies and are more susceptible to adverse developments concerning their products. As such, small- and mid-capitalization
companies typically are more likely to be adversely affected than large capitalization companies by changes in earnings results, business
prospects, investor expectations or poor economic or market conditions.
Tracking
Stock Risk. Many of the risks of investing in common stock are
applicable to tracking stock. Tracking stock is a separate class of common stock whose value is linked to a specific business unit or
operating division within a larger company and which is designed to “track” the performance of such business unit or division.
Therefore, tracking stocks may decline in value even if the common stock of the larger company increases in value. In addition, holders
of tracking stock may not have the same rights as holders of the company’s common stock.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in
7
order to make distributions
if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility
and adverse trends due to concerns about rising government debt levels of several European countries, including Greece, Spain, Ireland,
Italy and Portugal. A default or debt restructuring by any European country would adversely impact holders of that country's debt and
sellers of credit default swaps linked to that country's creditworthiness. These events have adversely affected the exchange rate of the
euro and may continue to significantly affect every country in Europe, including EU member countries that do not use the euro and non-EU
member countries. Responses to financial problems by European governments, central banks, and others, including austerity measures and
reforms, may not produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other
unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional adverse
effects on economies, financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe
remain relatively undeveloped and can be particularly sensitive to political and economic developments. Recent security concerns related
to immigration, war and geopolitical risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s departure from the EU, referred to as “Brexit”, could have wide ranging implications for the
UK’s economy, including: possible inflation or recession, depreciation of the British pound, or disruption to Britain’s trading
arrangements with the rest of Europe. The UK is one of Europe’s largest economies; its departure from
the
EU also may negatively impact the EU and Europe as a whole, such as by causing volatility within the union, triggering prolonged economic
downturns in certain European countries or sparking additional member states to contemplate departing the EU (thereby perpetuating political
instability in the region). An exit by other member states will likely result in increased volatility, illiquidity and potentially lower
economic growth in the affected markets, which will adversely affect the Fund’s investments.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to
8
deviate its investments
from the securities contained in, and relative weightings of, the Underlying Index. The Fund may not invest in certain securities included
in the Underlying Index due to liquidity constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities
included in the Underlying Index. For tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate
from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the
ability to trade certain
securities or financial instruments may be restricted, which may disrupt the Fund’s creation/redemption process, potentially affect
the price at which Shares trade in the secondary market, and/or result in the Fund being unable to trade certain securities or financial
instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments
and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the
9
particular types of securities,
and/or in securities of companies operating in the particular industries, economic sectors, countries or geographical regions, that are
suggested by the Fund’s name (the “80% investment policy”). The Fund considers the securities suggested by its name
to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its 80% investment policy because it
already generally invests at least 90% of its total assets in the securities that comprise the Underlying Index (and ADRs and GDRs that
represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact
business, violations
of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or
additional compliance costs. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities in
which the Fund invests, counterparties with which the Fund engages, governmental and other regulatory authorities, exchanges and other
financial market operators, banks, brokers, dealers, insurance companies, other financial institutions and other parties. The Fund and
its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the
10
Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares
before receiving cash
payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the
11
underlying
futures contract at a specified price at any time prior to the expiration date of the option. Exchanges
can limit the number of futures or options positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on The Nasdaq Stock Market LLC (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of
such securities in the
Fund’s portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
12
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.75% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PIO.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
13
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”),
and to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
14
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
15
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
16
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$30.81
|
$41.68
|
$31.17
|
$28.94
|
$23.73
|
|
Net
investment income(a)
|
0.31
|
0.32
|
0.58(b)
|
0.25
|
0.38
|
|
Net
realized and unrealized gain (loss) on investments |
1.12
|
(10.75)
|
10.35
|
2.27
|
5.25
|
|
Total
from investment operations |
1.43
|
(10.43)
|
10.93
|
2.52
|
5.63
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.32)
|
(0.44)
|
(0.42)
|
(0.29)
|
(0.42)
|
|
Transaction
fees(a)
|
0.00(c)
|
0.00(c)
|
0.00(c)
|
0.00(c)
|
0.00(c)
|
|
Net
asset value at end of year |
$31.92
|
$30.81
|
$41.68
|
$31.17
|
$28.94
|
|
Market
price at end of year(d)
|
$31.94
|
$30.89
|
$41.72
|
$31.18
|
$28.84
|
|
Net
Asset Value Total Return(e)
|
4.57%
|
(25.14)%
|
35.17%
|
8.76%
|
23.90%
|
|
Market
Price Total Return(e)
|
4.37%
|
(25.02)%
|
35.26%
|
9.16%
|
23.68%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$234,605
|
$257,285
|
$323,028
|
$207,262
|
$195,314
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.75%
|
0.75%
|
0.75%
|
0.75%
|
0.76%(f)
|
|
Net
investment income |
0.89%
|
0.91%
|
1.52%(b)
|
0.86%
|
1.45%(f)
|
|
Portfolio
turnover rate(g)
|
40%
|
35%
|
31%
|
30%
|
32%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.35 and 0.92%, respectively. |
|
(c)
|
Amount
represents less than $0.005. |
|
(d)
|
The
mean between the last bid and ask prices. |
|
(e)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(f)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.01%. |
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
17
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the “Corporations”). The Corporations
have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund.
The Corporations make no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding
the advisability of investing in securities generally or in the Fund particularly, or the ability of the Underlying Index to track general
stock market performance. The Corporations' only relationship to the Adviser (“Licensee”) is in the licensing of the Nasdaq®
and Underlying Index trade/service marks, and certain trade names of the Corporations and the use of the Underlying Index which is determined,
composed and calculated by Nasdaq without regard to the Licensee or the Fund. Nasdaq has no obligation to take the needs of the Licensee
or the owners of the Fund into consideration in determining, composing or calculating the Underlying Index. The Corporations are not responsible
for and have not participated in the determination of the timing of, prices at, or quantities of the Shares to be issued or in the determination
or calculation of the equation by which the Shares are to be converted into cash. The Corporations have no liability in connection with
the administration, marketing or trading of the Fund. “Nasdaq®”
is a registered trademark and is used under license.
THE
CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR
UNINTERRUPTED CALCULATIONS OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR
ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT,
OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to
the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability
for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use
of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
18
accounts are registered
under different names. Householding for the Fund is available through certain broker-dealers. If you are interested in enrolling in householding
and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer. If you currently are
enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
19
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
International BuyBack AchieversTM
ETF |
The
Nasdaq Stock Market LLC |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco International BuyBack AchieversTM ETF
(the “Fund”) seeks to track the investment results (before fees and expenses) of the NASDAQ International BuyBack AchieversTM Index
(the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
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| |
|
Other
Expenses |
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| |
|
Total
Annual Fund Operating Expenses |
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| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, Nasdaq,
Inc. (“Nasdaq” or the “Index Provider”) compiles, maintains, and calculates the Underlying Index, which is comprised
of the securities of foreign companies that are classified as “International BuyBack AchieversTM”
pursuant to the Index Provider’s proprietary selection methodology.
To
qualify as an “International BuyBack AchieverTM”
a company must have effected a net reduction of 5% or more of its outstanding shares in its latest fiscal year. Additionally, to be eligible
for inclusion in the Underlying Index, a security must: (i) be included in the NASDAQ Global Ex-US Index (a broad-based index designed
to track the performance of the global equity market and whose component securities are issued by companies located throughout the world,
excluding the United States); (ii) have a minimum market capitalization of $250 million; and (iii) have a minimum three-month average
daily dollar trading volume of $1 million.
As
of December 31, 2023,
the Underlying Index was comprised of 152
securities with market capitalizations ranging from $189.3
million to $229.7
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
more than 25% of the value of its net assets) in securities of issuers in any one industry or group of industries only to the extent that
the Underlying Index reflects a concentration in that industry or group of industries. The Fund will not otherwise concentrate its investments
in securities of issuers in any one industry or group of industries. As of October 31, 2023,
the Fund had significant exposure to the energy and financials
sectors. The Fund’s portfolio holdings, and the extent to
which it concentrates its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
3
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Period
Ended |
Returns
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-
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Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
Since
Inception
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
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|
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|
Return
After Taxes on Distributions and Sale of
Fund
Shares |
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|
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|
Nasdaq
International BuyBack Achievers™
Index
(Net) withholding
taxes, but reflects no deduction for
fees,
expenses or other taxes) |
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|
|
|
|
| ||||
|
MSCI
ACWI ex USA®
Index (Net) (reflects
reinvested
dividends net of withholding taxes,
but
reflects no deduction for fees, expenses or
other
taxes) |
|
|
|
|
|
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Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
February
2014 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less
than NAV (at a discount).
An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid)
and the lowest price a seller is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask
spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield
4
and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
NASDAQ International BuyBack
AchieversTM
Index
The
Underlying Index is designed to track the performance of securities that are classified as “International BuyBack AchieversTM.”
To be eligible for inclusion in the Underlying Index, a security must: (i) be included in the NASDAQ Global Ex-US Index, excluding local
Russian and Indian securities not represented by depositary receipts; (ii) have a minimum market capitalization of $250 million; (iii)
have effected a net reduction of 5% or more of its outstanding shares in its latest fiscal year; and (iv) have a minimum three-month average
daily dollar trading volume of $1 million. Local Russian and Indian securities not represented by depositary receipts are not eligible
for inclusion in the Underlying Index. If depositary receipts are represented for local Russian and Indian securities, then the receipts
are reviewed for inclusion in the Underlying Index instead of the local security and must meet remaining additional eligibility criteria.
Chinese securities are limited to H-shares and N-shares only.
The
Underlying Index applies a float adjusted modified market capitalization
weighting methodology. The Underlying Index is reweighted after the close of the last day of trading in January, April, July and October.
When the Underlying Index is reweighted, the Underlying Index is subject to the following limits: (i) no country can have, in aggregate,
a weight greater than 30%; (ii) no single component stock can have a weight of more than 5%; and (iii) no more than eight component securities
may represent the maximum 5% weight. If after distribution of excess weights from capped securities, any of the eight highest-ranked securities
are weighted below 5%, the weight of each of those securities is not capped. Next, any remaining securities in excess of 2.5% are capped
at 2.5% and the excess weight of any capped security or country is distributed proportionally across the remaining securities.
Securities’
eligibility for inclusion in the Underlying Index is evaluated annually
in July, and the Underlying Index is rebalanced annually after the close on the last day of trading in July. If, at any time during the
year, a component stock becomes ineligible for inclusion in the Underlying Index, the stock is removed and is not replaced until the next
rebalance in July.
Apart
from scheduled rebalances, the Index Provider or its agents may carry
out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect corporate actions or spin-offs. The Fund is
reweighted and rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice,
5
including recordkeeping
standards, comparable to those applicable to issuers in more developed markets. As a result, the nature and quality of such information
may vary. The ability to conduct adequate due diligence in emerging markets may be limited. In addition, certain emerging market countries
may impose material limitations on Public Company Accounting Oversight Board (“PCAOB”) inspection, investigation and
enforcement capabilities which can hinder the PCAOB’s ability to engage in independent oversight or inspection of accounting firms
located in or operating in certain emerging markets. There is no guarantee that the quality of financial reporting or the audits conducted
by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe
includes both developed and emerging
markets. Most
countries in Western Europe, and
a number of countries in Eastern Europe, are
members of the EU and the EMU. The EMU,
which is authorized to direct monetary policies,
including policies related to money supply and interest rates for
the euro (the
common currency of certain EU countries) requires compliance by member states with restrictions on inflation rates,
deficits,
interest rates,
debt levels and fiscal and monetary controls, each of which may
significantly affect every country in Europe. Decreasing
imports or exports, changes
in governmental or EU regulations on trade, changes
in the exchange rate of the euro,
the default or threat of default by an EU member country on its
sovereign debt, and/or economic
recessions in an EU member
country may have significant adverse effects on the economies of EU member countries
and the EU as a whole.
6
In
recent years, the
European financial markets have experienced volatility and adverse trends due to concerns about rising government debt levels of several
European countries, including Greece,
Spain,
Ireland,
Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU
member countries. Responses to financial problems by European governments,
central banks,
and others,
including austerity measures and reforms, may not produce the desired
results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences. Further defaults
or restructurings by governments and other entities of their debt could have additional adverse effects on economies, financial markets,
and asset valuations around the world.
The markets of a number of countries in Eastern Europe remain relatively
undeveloped and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration,
war and geopolitical risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues
involving its membership, structure,
procedures and policies.
The UK’s departure from the EU, referred to as “Brexit”,
could have wide ranging implications for the UK’s economy,
including:
possible inflation or recession,
depreciation of the British pound, or disruption to Britain’s
trading arrangements with the rest of Europe. The UK
is one of Europe’s largest economies;
its departure from the EU also may negatively impact the EU and
Europe as a whole, such
as by causing volatility within the union, triggering
prolonged economic downturns in certain European countries or sparking
additional
member
states
to contemplate departing the EU (thereby perpetuating political
instability in the region). An
exit by other member states will likely result
in increased volatility,
illiquidity and potentially lower economic growth in the affected
markets, which
will adversely affect the Fund’s investments.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Energy
Sector Risk. Companies in the energy sector are subject to extensive
government regulation, including contractual fixed pricing, which may increase the cost of business and limit these companies' earnings.
A significant portion of their revenues may depend on a relatively small number of customers, including governmental entities and utilities.
As a result, governmental budget constraints may have a material adverse effect on the stock prices of companies in this industry.
Energy
companies may do business with companies in countries other than
the United States. Such companies often operate in countries with less stringent regulatory regimes and countries that have a history
of expropriation and/or nationalization, among other adverse policies. In addition, these companies are at risk of civil liability from
accidents resulting in injury, loss of life or property, pollution or other environmental damage claims and risk of loss from terrorism,
war and natural disasters. The energy sector is cyclical, and commodity price volatility, changes in exchange rates, imposition of import
controls, increased competition, depletion of resources, development of alternative energy sources, technological developments, geopolitical
conflict and related economic sanctions and labor relations also could affect companies in this sector. Recent global, political and economic
events have created greater volatility in the energy sector. Such events may create wide fluctuations in the value of companies in this
sector, which may affect the value of the Shares.
Financials
Sector Risk. Financial services companies are subject to extensive
government regulation and, as a result, their profitability may be affected by new regulations or regulatory interpretations. Changes
in interest
rates can have a disproportionate effect on the financials sector, and financial services companies whose securities the Fund may purchase
may themselves have concentrated portfolios, which makes them vulnerable to economic conditions that affect that sector. Financial services
companies have also been affected by increased competition, which could adversely affect the profitability or viability of such companies.
In addition, the financials sector is undergoing numerous changes, including continuing consolidations, development of new products and
structures and changes to its regulatory framework. Increased government involvement in financial institutions, including measures such
as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders in such
institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or region, which
may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue to
do so. Deterioration of credit markets can have
an adverse impact on a broad range of financial markets, and thereby
cause
certain financial services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation
of their assets and even ceased operations.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign
7
currency will reduce
the value of a security denominated in that foreign currency, thereby decreasing the Fund’s overall NAV. In addition, fluctuations
in the exchange values of currencies could affect the economy or particular business operations of companies in a geographic region in
which the Fund invests, causing an adverse impact on the Fund. As a result, investors have the potential for losses regardless of the
length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the
Fund
has recently commenced operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally
greater impact on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility
8
and disruption in the
creation/redemption process of the Fund. Although Shares are listed for trading on a securities exchange, there can be no assurance that
an active trading market for Shares will develop or be maintained by market makers or APs, that Shares will continue to trade on any such
exchange or that Shares will continue to meet the requirements for listing on an exchange. Any of these factors, among others, may lead
to the Shares trading at a premium or discount to the Fund’s NAV. As a result, an investor could lose money over short or long periods.
Further, the Fund may experience low trading volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and
market liquidity (including for the underlying securities held by the Fund), and are generally lower if Shares have more trading volume
and market liquidity and higher if Shares have little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds,
including
affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act or exemptions
therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and interest payments is based
on the movement of one or more specified factors, such as the movement of a particular security or securities index) and in futures contracts,
options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
The
Fund’s investment objective is a non-fundamental policy that the Board
of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks.
9
Cybersecurity incidents
involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer agent and
financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial losses,
impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory
fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse
consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with
which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply
with the eligibility
requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune times or for prices other
than at current market values or may elect not to sell such securities on the day that they are removed from the Underlying Index, due
to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return and the return of the Underlying
Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in
10
developed markets. Thus,
there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares
before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on The Nasdaq Stock Market LLC (the “Exchange”) may be halted
due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in
Shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the
11
requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will remain unchanged. Foreign exchanges may be open on days
when Shares are not priced, and therefore, if the Fund holds securities that are primarily listed on such exchanges, the value of such
securities in the Fund’s portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with
other team members to
focus on certain asset classes, implementing investment strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since February 2014. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.55% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual
Report to Shareholders for the fiscal period
ended April 30, 2023.
12
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “IPKW.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”),
and to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
13
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
14
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
15
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
16
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$30.49
|
$43.74
|
$31.35
|
$32.20
|
$31.00
|
|
Net
investment income(a)
|
0.98
|
1.12
|
2.55(b)
|
0.57
|
0.76
|
|
Net
realized and unrealized gain (loss) on investments |
2.79
|
(10.90)
|
10.57
|
(0.82)
|
1.38
|
|
Total
from investment operations |
3.77
|
(9.78)
|
13.12
|
(0.25)
|
2.14
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.92)
|
(3.47)
|
(0.73)
|
(0.61)
|
(0.94)
|
|
Transaction
fees(a)
|
0.00(c)
|
0.00(c)
|
0.00(c)
|
0.01
|
0.00(c)
|
|
Net
asset value at end of year |
$33.34
|
$30.49
|
$43.74
|
$31.35
|
$32.20
|
|
Market
price at end of year(d)
|
$33.48
|
$30.48
|
$43.78
|
$31.42
|
$32.05
|
|
Net
Asset Value Total Return(e)
|
12.35%
|
(23.55)%
|
41.90%
|
(0.30)%
|
7.10%
|
|
Market
Price Total Return(e)
|
12.85%
|
(23.65)%
|
41.72%
|
0.37%
|
6.74%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$78,347
|
$80,785
|
$124,660
|
$92,470
|
$141,692
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.55%
|
0.55%
|
0.55%
|
0.55%
|
0.55%
|
|
Net
investment income |
2.85%
|
3.08%
|
5.98%(b)
|
1.86%
|
2.44%
|
|
Portfolio
turnover rate(f)
|
97%
|
101%
|
113%
|
88%
|
99%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.63 and 1.47%, respectively. |
|
(c)
|
Amount
represents less than $0.005. |
|
(d)
|
The
mean between the last bid and ask prices. |
|
(e)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
17
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Fund is not sponsored, endorsed, sold
or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the “Corporations”). The Corporations
have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund.
The Corporations make no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding
the advisability of investing in securities generally or in the Fund particularly, or the ability of the Underlying Index to track general
stock market performance. The Corporations' only relationship to the Adviser (“Licensee”) is in the licensing of the Nasdaq®
and Underlying Index trade/service marks, and certain trade names of the Corporations and the use of the Underlying Index which is determined,
composed and calculated by Nasdaq without regard to the Licensee or the Fund. Nasdaq has no obligation to take the needs of the Licensee
or the owners of the Fund into consideration in determining, composing or calculating the Underlying Index. The Corporations are not responsible
for and have not participated in the determination of the timing of, prices at, or quantities of the Shares to be issued or in the determination
or calculation of the equation by which the Shares are to be converted into cash. The Corporations have no liability in connection with
the administration, marketing or trading of the Fund. “Nasdaq®”
is a registered trademark and is used under license.
THE
CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR
UNINTERRUPTED CALCULATIONS OF THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR
ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT,
OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
Buyback Achievers trademark is used by the Licensee pursuant to a sublicense
from Nasdaq, a licensee of Mergent, Inc., the owner of the trademark. All rights in the Buyback Achievers trademark vest in Mergent, Inc.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as
to results to be obtained
by the Fund, owners of the Shares or any other person or entity from the use of the Underlying Index or any data included therein. The
Adviser makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall the
Adviser have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of
matters relating to the use of the Underlying Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
18
Delivery
of Shareholder Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders.
In the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the
SAI, Annual Report and/or Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
19
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
International Corporate Bond ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco International Corporate Bond ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of
the S&P International Corporate Bond Index® (the
“Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example
does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower,
your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 80% of its total assets in the components that comprise the Underlying Index.
S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) constructs
the Underlying Index, which is composed of investment grade corporate bonds issued by foreign issuers and denominated in the following
currencies of Group of Ten (“G10”) countries, excluding the U.S. Dollar (USD): Australian Dollar (AUD), British Pound (GBP),
Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Norwegian Krone (NOK), Swedish Krona (SEK) and Swiss
Franc (SFR).
As
of December 31, 2023,
the Underlying Index was comprised of 602 securities.
The
Fund does not purchase all of the securities in the Underlying Index;
instead, the Fund utilizes a “sampling” methodology to seek to achieve its investment objective.
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
25% or more of the value of its total assets) in securities of issuers in any one industry or group of industries only to the extent that
the Underlying Index reflects a concentration in that industry or group of industries. The Fund will not otherwise concentrate its investments
in securities of issuers in any one industry or group of industries. As of October 31, 2023,
the Fund
had significant exposure
to the financials sector. The Fund’s portfolio holdings, and the extent to which it concentrates its investments, are likely to
change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied
from year to year and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and
additional indices
with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
-
|
-
|
|
Return
After Taxes on Distributions |
|
|
-
|
-
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
-
|
-
|
|
| ||||
|
S&P
International Corporate Bond Index®
(Net) (reflects
reinvested dividends net of withholding
taxes,
but reflects no deduction for fees, expenses
or
other taxes) |
|
|
-
|
-
|
|
| ||||
|
MSCI
ACWI ex USA®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)1
|
|
|
|
|
|
| ||||
|
Bloomberg
Pan-European Aggregate Index (reflects
no
deduction for fees, expenses or taxes)1
|
|
|
-
|
-
|
|
| ||||
1
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2010 |
|
| ||
|
Richard
Ose |
Senior
Portfolio Manager of the
Adviser
|
February 2023
|
|
| ||
|
Tom
Boksa |
Portfolio
Manager of the Adviser |
February 2023
|
|
| ||
|
Jeremy
Neisewander |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Elizabeth
Sanford, CFA |
Portfolio
Manager of the Adviser |
February
2024 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your
salesperson or financial
adviser or visit your financial intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund's annual return
and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial instruments,
while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking the performance
of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying Index.
As an index fund, the Fund does not take temporary defensive positions during periods of adverse market, economic or other conditions.
The
Fund, because of the practical difficulties and expense of purchasing
all of the securities in the Underlying Index, does not purchase all of the securities in the Underlying Index; instead, the Fund utilizes
a sampling methodology to seek to achieve its investment objective. A “sampling” methodology means that the Adviser uses a
quantitative analysis to select securities from the Underlying Index universe to obtain a representative sample of securities that have,
in the aggregate, investment characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and
other characteristics. These include duration, maturity, credit quality, yield and coupon. When employing a sampling methodology, the
Adviser bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the
Fund to hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund
in as many securities as it believes necessary to achieve the Fund's investment objective.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P International Corporate
Bond Index®
The
Underlying Index is constructed from Eurobonds and global bonds issued in Euros and British Pounds, and domestic corporate bonds denominated
in the Australian Dollar, Canadian Dollar, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona and Swiss Franc. To be included
in the Underlying Index, a bond must be issued by a non-U.S. corporation. The country of risk of the issuer must be a “developed
country,” as classified by the Bank for International Settlements in its international debt securities statistics, and the country
must be a “developed market” under the S&P Dow Jones Indices’ Country Classification. Only non-U.S. dollar, G10
currency denominated bonds are eligible for inclusion in the Underlying Index. Each bond must have a fixed non-zero coupon rate and a
4
maturity date greater
than one year from the last business day of the month of inclusion, and the total outstanding value of such bond must meet a minimum issuance
threshold based on the bond’s currency. The threshold may change depending on market conditions. Each bond also must be rated investment
grade by Moody’s or S&P Global Ratings. A bond’s lower rating, if rated by both services, is used to determine eligibility
for the Underlying Index. Temporary unrated tapped issues, in which the issuer reopens and sells debt instruments from past eligible rated
issues, may be included in the Underlying Index. The Index Provider excludes debt issued by governments, government agencies, State or
any other form of public debt, and corporate debt with a government guarantee or any form of public guarantee from inclusion in the Underlying
Index.
The
Index Provider weights constituents by respective market values in U.S.
dollars and re-weights them on the last trading day of each month. In addition, the Index Provider rebalances the Underlying Index annually
on the last trading day each September. At each monthly re-weighting, single currency exposure is capped at 50%. At each annual rebalance,
if there are more than ten eligible bonds for a given currency, the Index Provider will remove 25% of the lowest-yielding eligible bonds
denominated in that currency with the number of bonds subject to removal rounded down to the nearest integer. The Index Provider first
calculates the weight of a bond by dividing the outstanding Underlying Index market value for the bond by the total outstanding Underlying
Index market value for the eligible universe, converting all figures to U.S. dollars using spot foreign exchange rates as of the monthly
rebalance date. Then, the Index Provider calculates the aggregated weight for each currency. If the aggregated weight for a currency is
more than 50%, the Index Provider modifies the weighting of each bond in this currency so that the modified aggregated weight for this
currency is at 50%. The excess weight above the 50% cap is distributed to the remaining currencies according to each currency’s
aggregated weight. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even
beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
Fixed-Income Investment Risk. Investments in fixed-income securities
of non-U.S. issuers are subject to the same risks as other debt securities, notably credit risk, market risk, interest rate risk and liquidity
risk, while also facing risks beyond those associated with investments in U.S. securities including, among others, greater market volatility,
the availability of less reliable financial information, higher transactional costs, taxation by foreign governments, decreased market
liquidity and political instability. Foreign issuers are often subject to less stringent requirements regarding accounting, auditing,
financial reporting and record keeping than are U.S. issuers, and therefore, not all material information regarding these issuers will
be available. Securities exchanges or foreign governments may adopt rules or regulations that may negatively impact the Fund’s ability
to invest in foreign securities or may prevent the Fund from repatriating its investments.
Fixed-Income
Securities Risk. The Fund invests in fixed-income securities, which
are subject to interest rate risk and credit risk. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting
from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. Fixed-income
securities with longer maturities typically are more sensitive to changes in interest rates, making them more volatile than securities
with shorter maturities. Credit risk refers to the possibility that the issuer of a security will be unable and/or unwilling to make timely
interest payments and/or repay the principal on its debt. Debt instruments are subject to varying degrees of credit risk, which may be
reflected in credit ratings. There is a possibility that the credit rating of a fixed-income security may be downgraded after purchase,
which may occur quickly and without advance warning following sudden market downturns or unexpected developments involving an issuer,
and which may adversely affect the liquidity and value of the security. Securities issued by the U.S. government
historically have been subject to limited credit risk; however, the actual or threatened failure of the U.S. government
to pay its obligations will increase credit risks and securities issued by U.S. government
agencies are not necessarily backed by the full faith and credit of the U.S. government.
Due to recent events in the fixed-income markets, including the Federal Reserve Board (“FRB”) ending its quantitative easing
program, the Fund is subject to heightened interest rate risk as a result of a rise in interest rates. In addition, the Fund is subject
to the risk that interest rates may exhibit increased volatility, which could cause the Fund’s NAV to fluctuate more. A decrease
in fixed-income market maker capacity may act to decrease
5
liquidity in the fixed-income
markets and act to further increase volatility, affecting the Fund’s returns.
Changing
Fixed-Income Market Conditions Risk. Increases in the federal funds
and equivalent foreign interest rates or other changes to monetary policy or regulatory actions may expose fixed-income markets to heightened
volatility and reduced liquidity for certain fixed-income investments, particularly those with longer maturities. It is difficult to predict
the impact of interest rate changes on various markets. In addition, decreases in fixed-income dealer market-making capacity may also
potentially lead to heightened volatility and reduced liquidity in the fixed-income markets. As a result, the value of the Fund's investments
and share price may decline. Changes in central bank policies could also result in higher than normal redemptions by APs (as defined herein),
which could potentially increase the Fund's portfolio turnover rate and transaction costs and potentially lower the Fund’s performance
returns.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Financials
Sector Risk. Financial services companies are subject to extensive
government regulation and, as a result, their profitability may be affected by new regulations or regulatory interpretations. Changes
in interest
rates can have a disproportionate effect on the financials sector, and financial services companies whose securities the Fund may purchase
may themselves have concentrated portfolios, which makes them vulnerable to economic conditions that affect that sector. Financial services
companies have also been affected by increased competition, which could adversely affect the profitability or viability of such companies.
In addition, the financials sector is undergoing numerous changes, including continuing consolidations, development of new products and
structures and changes to its regulatory framework. Increased government involvement in financial institutions, including measures such
as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders in such
institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or region, which
may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue to
do so. Deterioration of credit markets can have
an adverse impact on a broad range of financial markets, and thereby
cause
certain financial services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation
of their assets and even ceased operations.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more
geographically diversified
funds. The economies and financial markets of certain regions can be interdependent and may all decline at the same time. A natural or
other disaster could occur in a country or geographic region in which the Fund invests, which could affect the economy or particular business
operations of companies in that specific country or geographic region and adversely impact the Fund's investments in the affected region.
The Schedule of Investments included in the Fund’s annual and semi-annual reports identifies the countries in which the Fund had
invested and the level of investment, as of the date of the reports.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity measures and reforms, may not
produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped
and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration, war and geopolitical
risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign
6
currency, thereby decreasing
the Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Restricted
Securities Risk. The Fund may invest in restricted securities,
including those that may be resold only in accordance with Regulation S under the Securities Act. Regulation S securities are securities
of U.S. and non-U.S. issuers initially offered and sold outside the United States without registration with the SEC. Accordingly, the
liquidity of the market for specific Regulation S securities may vary. Delay or difficulty in selling such securities may result in a
loss to the Fund.
Call
Risk.
If interest rates fall, it is possible that issuers of callable
securities with high interest coupons will “call” (or prepay) their bonds before their maturity date. If an issuer exercises
such a call during a period of declining interest rates, the Fund may have to replace such called security with a lower yielding security.
If that were to happen, the Fund’s net investment income could fall.
Reinvestment
Risk. Reinvestment risk is the risk that the Fund will not be able
to reinvest income or principal at the same return it is currently earning. Reinvestment risk is greater during periods of declining interest
rates, as prepayments often occur faster. This may require the Fund to reinvest the proceeds at an earlier date, and it may be able to
do so only at lower yields, thereby reducing its return.
Liquidity
Risk. Liquidity risk exists when a particular investment is difficult
to purchase or sell. If the Fund invests in illiquid securities or current portfolio securities become illiquid, it may reduce the returns
of the Fund because the Fund may be unable to sell the illiquid securities at an advantageous time or price. In the event that the Fund
voluntarily or involuntarily liquidates portfolio assets during periods of infrequent trading, it may not receive full value for those
assets.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S.
issuers, which may make
it difficult to obtain a current price for a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be
readily available for some securities, and those securities may be fair valued. The value established for a security through fair valuation
may be different from what would be produced if the security had been valued using market quotations. Fund securities that are valued
using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuations
in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that
the Fund could sell a portfolio security for the value established for it at any time, and it is possible that the Fund would incur a
loss because a security is sold at a discount to its established value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Sampling
Risk. The Fund’s use of a representative sampling methodology
could result in the Fund holding a smaller number of securities than are in the Underlying Index. As a result, an adverse development
to an issuer of securities that the Fund holds could result in a greater decline in NAV than would be the case if the Fund held all of
the securities in the Underlying Index. To the extent the assets in the Fund are smaller, these risks will be greater. In addition, by
sampling the securities in the Underlying Index, the Fund faces the risk that the securities selected for the Fund, in the aggregate,
will not provide investment performance matching that of the Underlying Index, thereby increasing tracking error.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s
7
assets at times, either
as a result of cash flows into the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing
and communication errors,
errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or
systems failures. The Fund and the Adviser seek to reduce these operational risks through controls and procedures. However, these measures
do not address every possible risk and may be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 80% of its total assets in the components that comprise the Underlying Index, may invest its remaining
assets in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase
agreements and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations
under the Investment Company Act of 1940, as amended (the “1940 Act”), or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index,
and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those components that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 80% of its total assets in the components that comprise the Underlying
Index, in accordance with its principal investment strategies.
8
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may
change without shareholder approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional
9
tracking error risk.
Therefore, errors and additional ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose
money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
10
premiums
paid or received by the Fund are small in relation to the market value of the investments underlying the options,
the Fund is exposed to the risk that buying and selling options
can be more speculative than
investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Depending on the factors used, changes in interest rates and movement of such factors
may cause significant price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the
reference factor underlying the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not
be able to readily close out its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders
because the mutual fund
may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains that must be distributed
to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will not lead to such taxable
events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Richard Ose, Tom Boksa,
Jeremy Neisewander and
Elizabeth Sanford (the
“Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2010. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Richard
Ose, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2023. He has been
responsible for the management of certain funds in the Invesco family of ETFs since October 2013 and has been associated with the Adviser
since 2011.
■
Tom
Boksa, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2023. He has been
11
responsible
for the management of certain funds in the Invesco family of ETFs since August 2019 and has been associated with the Adviser since 2013.
■
Jeremy
Neisewander, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible
for the management of certain funds in the Invesco family of ETFs since April 2018 and has been associated with the Adviser since April
2018.
■
Elizabeth
Sanford, CFA, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2024. She has been
responsible for the management of certain funds in the Invesco family of ETFs and associated with the Adviser since 2021. Prior to joining
the Adviser, Ms. Sanford was an assistant portfolio manager at AAM – Insurance Investment Management since 2012.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.50% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions
and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “PICB.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
12
transaction costs, which
could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization of capital gains.
These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases. However, direct
trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid monthly by the Fund. The Fund also intends to distribute its net realized
capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to comply
with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and to avoid
a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and
qualified
foreign corporations. If the Fund invests primarily in debt securities, either none or only a nominal portion of the dividends paid by
the Fund will be eligible for taxation at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
13
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more
Creation Units, you will
be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its
14
judgment, believes better
reflects the security’s fair value in accordance with the Valuation Procedures. Foreign exchange-traded equity securities are valued
at their market value if market quotations are available and reliable. The Adviser may use various pricing services to obtain market quotations
as well as fair value prices. The Adviser may discontinue the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$19.72
|
$28.27
|
$28.10
|
$26.96
|
$25.31
|
|
Net
investment income(a)
|
0.50
|
0.26
|
0.29
|
0.34
|
0.39
|
|
Net
realized and unrealized gain (loss) on investments |
0.97
|
(8.39)
|
0.20
|
1.13
|
1.65
|
|
Total
from investment operations |
1.47
|
(8.13)
|
0.49
|
1.47
|
2.04
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.25)
|
(0.14)
|
(0.29)
|
(0.34)
|
(0.23)
|
|
Net
realized gains |
-
|
(0.09)
|
(0.03)
|
-
|
-
|
|
Return
of capital |
(0.24)
|
(0.19)
|
-
|
-
|
(0.16)
|
|
Total
distributions |
(0.49)
|
(0.42)
|
(0.32)
|
(0.34)
|
(0.39)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.01
|
0.00(b)
|
|
Net
asset value at end of year |
$20.70
|
$19.72
|
$28.27
|
$28.10
|
$26.96
|
|
Market
price at end of year(c)
|
$20.75
|
$19.73
|
$28.31
|
$28.15
|
$26.84
|
|
Net
Asset Value Total Return(d)
|
7.38%
|
(29.02)%
|
1.73%
|
5.57%
|
8.12%
|
|
Market
Price Total Return(d)
|
7.58%
|
(29.09)%
|
1.69%
|
6.24%
|
7.77%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$115,915
|
$97,609
|
$122,979
|
$118,025
|
$111,878
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.50%
|
0.50%
|
0.50%
|
0.50%
|
0.51%(e)
|
|
Net
investment income |
2.36%
|
1.08%
|
0.99%
|
1.27%
|
1.49%(e)
|
|
Portfolio
turnover rate(f)
|
34%
|
28%
|
22%
|
22%
|
23%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.01%. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
17
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about the Fund and is
incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional information about
the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s
current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or
Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
MSCI Global Timber ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco MSCI Global Timber ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the MSCI ACWI
IMI Timber Select Capped Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
|
Fee
Waiver and/or Expense Reimbursement1
|
|
|
| |
|
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement |
|
|
| |
1
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses are equal to the Total Annual Fund
Operating Expenses After Fee Waiver and/or Expense Reimbursement in the first year and the Total Annual Fund Operating Expenses thereafter.
This example does not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher
or lower, your costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index, as well as American
depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, MSCI,
Inc. (“MSCI” or the “Index Provider”) compiles, maintains, and calculates the Underlying Index, which is comprised
of equity securities of companies in both developed and emerging markets throughout the world
that are engaged in the
ownership and management of forests and timberlands and the production of finished products that use timber as a raw material.
The
securities in the Underlying Index are selected from a universe of securities
that are included in the MSCI ACWI Investable Market Index (the
“Parent Index”) and classified by the Global Industry
Classification Standard (“GICS”) to be in the sub-industries of forest products, paper products, paper and
plastic packaging products and materials or specialized real estate
investment trusts (“REITs”) classified as “timber” REITs.
The
constituents of the Underlying Index are weighted based on their free
float-adjusted market capitalization. As of December 31, 2023,
the Underlying Index was comprised of 71
securities with market capitalizations ranging from $101.2
million to $25.4
billion and represented the following countries: Brazil,
Canada, Chile,
China,
Finland, India,
Indonesia,
Ireland, Japan, Norway,
Portugal,
Saudi Arabia,
South Africa,
South Korea,
Spain, Sweden, Switzerland, Taiwan, Thailand,
the United Kingdom (“UK”), and the
United States.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
Concentration
Policy. The Fund will concentrate its investments (i.e., invest
more than 25% of the value of its net assets) in securities of issuers in any one industry or group of industries only to the extent that
the Underlying Index reflects a concentration in that industry or group of industries. The Fund will not otherwise concentrate its investments
in securities of issuers in any one industry or group of industries. As of October 31, 2023,
the Fund had significant exposure to the materials sector and the global timber industry. The Fund’s portfolio holdings, and the
extent to which it concentrates its investments, are likely to change over time.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and additional
indexes with characteristics relevant to the Fund. The Fund's
performance reflects fee waivers, if any, absent which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
The
Fund is the successor to the investment performance of the Guggenheim
MSCI Global Timber ETF (the “Predecessor Fund”) as a result of the reorganization of the Predecessor Fund into the Fund, which
was consummated after the close of business on April 6, 2018. Accordingly, the performance information shown below for periods ending
on or prior to April 6, 2018 is that of the Predecessor Fund.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
MSCI
ACWI IMI Timber Select Capped Index (Net) (reflects
reinvested dividends net of withholding
taxes,
but reflects no deduction for fees, expenses |
|
|
|
|
|
| ||||
|
Blended—MSCI
ACWI IMI Timber Select Capped
Index
(reflects reinvested dividends net of
withholding
taxes but reflects no deduction for
fees,
expenses or other taxes)2
|
|
|
|
|
|
| ||||
|
MSCI
ACWI (Net) (reflects reinvested dividends net of
withholding
taxes but reflects no deduction for
fees,
expenses or other taxes)3
|
|
|
|
|
|
| ||||
|
MSCI
World Index (Net) (reflects reinvested dividends
net
of withholding taxes, but reflects no deduction
for
fees, expenses or other taxes)3
|
|
|
|
|
|
| ||||
1
2
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
April
2018 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
April
2018 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
April
2018 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV,
4
Shares may trade at a
price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller is willing to accept for Shares
(ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry
weightings, market capitalization,
return variability, earnings valuation, yield and other financial characteristics of securities. When employing a sampling methodology,
the Adviser bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects
the Fund to hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the
Fund in as many securities as it believes necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling
methodology, it may have a larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
MSCI ACWI IMI Timber Select
Capped Index
The
Underlying Index is designed to measure the performance of equity securities of companies that are engaged in the ownership and management
of forests and timberlands and the production of finished products that use timber as a raw material.
To
be included in the Underlying Index, securities must be:
1.
Constituents
of the Parent
Index, a rules-based index that measures equity market performance of developed and emerging markets; and
2.
Classified
as being part of one of the following GICS®
sub-industries: forest products, paper products, paper and plastic
packaging products and materials or specialized REITs classified
as “timber” REITs.
The
Underlying Index is weighted by free float-adjusted
market capitalization, subject to a maximum weight of 5% for each issuer.
The
Underlying Index is rebalanced quarterly in February, May, August and
November. Apart from scheduled rebalances, the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying
Index in order, for example, to reflect corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the
5
Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Materials
Sector Risk. Companies engaged in the production and distribution
of materials may be adversely affected by changes in world events, political and economic conditions, energy conservation, environmental
policies, commodity price volatility, changes in exchange rates, increased competition and the imposition of import controls. Production
of industrial materials may exceed demand as a result of market imbalances or economic downturns, leading to poor investment returns.
In addition, issuers in the materials sector are at risk for environmental damage and product liability claims and may be adversely affected
by the depletion of resources, technical progress, labor relations and government regulations.
Global
Timber Industry Risk. The market value of securities of global
timber companies may be affected by numerous factors, including
events
occurring in nature and international politics. For example, the volume and value of timber that can be harvested from timberlands may
be limited by natural disasters and other events such as fire, volcanic eruptions, insect infestation, disease, ice storms, wind storms,
flooding, other weather conditions and other causes. In periods of poor logging conditions, global timber companies may harvest less timber
than expected. Global timber companies involved in the forest, paper and packaging products segments of the industry are highly competitive
globally, including significant competition from non-wood and engineered wood products, and no single company is dominant. These segments
have suffered, and continue to suffer, from excess capacity. Global timber companies are subject to many federal, state and local environmental,
health and safety laws and regulations, particularly with respect to the restoration and reforestation of timberlands, harvesting timber
near waterways, discharges of pollutants and emissions, and the management, disposal and remediation of hazardous substances or other
contaminants. Political risks and the other risks to which foreign securities are subject may also affect domestic companies in which
the Fund may invest if they have significant operations or investments in foreign countries. In particular, tariffs, quotas or trade agreements
can also affect the markets for products of global timber companies, particularly wood products. In addition, rising interest rates and
general economic conditions may affect the demand for timber products. Any factors adversely affecting companies in the global timber
industry could have a significant adverse impact on the Fund’s performance.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging
6
market securities, securities
regulation, title to securities, and shareholder rights may change quickly and unpredictably. The ability to bring and enforce actions
in emerging market countries, or to obtain information needed to pursue or enforce such actions, may be limited, and shareholder claims
may be difficult or impossible to pursue. In addition, the taxation systems at the federal, regional and local levels in emerging market
countries may be less transparent and inconsistently enforced, and subject to sudden change. Emerging market countries may have a higher
degree of corruption and fraud than developed market countries, as well as counterparties and financial institutions with less financial
sophistication, creditworthiness and/or resources. Investments in emerging market securities may also be subject to delays in settlement
procedures, unexpected market closures, and lack of timely information. Lack of relevant data and reliable public information, including
financial information, about securities in emerging markets may contribute to incorrect weightings and data and computational errors when
the Index Provider selects securities for inclusion in the Underlying Index or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its
management or lower demand
for the company's products or services. In particular, the common stock of a company may decline significantly in price over short periods
of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common stock; similarly, the
common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons,
the issuer experiences a decline in its financial condition.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
REIT
Risk. The REITs in which the Fund may invest will be subject to
risks inherent in the direct ownership of real estate. These risks include, among others: fluctuations in the value of the underlying
properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market
rates for rents; changes in the availability, cost and terms of mortgage funds; increased competition, property taxes, capital expenditures,
or operating expenses; and other occurrences, including the impact of changes in environmental laws that may affect the real estate industry.
A REIT that fails to comply with federal tax requirements affecting REITs may be subject to federal income taxation, or the federal tax
requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital
for future expenditures. The value of a REIT can depend on the structure of and cash flow generated by the REIT. In addition, like mutual
funds, REITs have expenses, including advisory and administration fees, that their shareholders pay. As a result, an investor may absorb
duplicate levels of fees when the Fund invests in REITs. In addition, REITs are subject to certain provisions under federal tax law. The
failure of a company to qualify as a REIT could have adverse consequences for the Fund, including significantly reducing the return to
the Fund on its investment in such company. Mortgage REITs lend money to developers and owners of properties and invest primarily in mortgages
and similar real estate interests. Mortgage REITs receive interest payments from the owners of the mortgaged properties. Accordingly,
mortgage REITs are subject to the credit risk of the borrowers to whom they extend funds. Credit risk is the risk that the borrower will
not be able to make interest and principal payments on the loan to the REIT when they are due. Mortgage REITs also are subject to the
risk that the value of mortgaged properties may be less than the amounts owed on the properties. If a mortgage REIT is required to foreclose
on a borrower, the amount recovered in connection with the foreclosure may be less than the amount owed to the mortgage REIT. Mortgage
REITs are subject to significant interest rate risk. During periods when interest rates are declining, mortgages are often refinanced
or prepaid. Refinancing or prepayment of mortgages may reduce the yield of mortgage REITs. When interest rates decline, however, the value
of a REIT’s investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s
investment in fixed rate obligations can be expected to decline. In addition, rising interest rates generally increase the costs of obtaining
financing, which could cause the value of a mortgage REIT’s investments to decline. A REIT’s investment in adjustable rate
obligations may react differently to interest rate changes than an investment in fixed rate obligations. As interest rates on adjustable
rate mortgage loans are reset periodically, yields on a REIT’s investment in such loans will gradually align themselves to reflect
changes in market interest rates, causing the value of such investments to fluctuate less dramatically in response to interest rate fluctuations
than would investments in fixed rate obligations.
Mortgage
REITs typically use leverage (and in many cases, may be highly
leveraged), which increases investment risk and could adversely affect a REIT’s operations and market value in periods of rising
interest rates, increased interest rate volatility, downturns in the economy and
7
reductions in the availability
of financing or deterioration in the conditions of the REIT’s mortgage-related assets.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region.
European
Investment Risk. Europe
includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in
Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized to direct monetary policies, including policies related
to money supply and interest rates for the euro (the common currency of certain EU countries) requires compliance by member states with
restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls, each of which may significantly
affect every country in Europe. Decreasing imports or exports,
changes in governmental or EU regulations on trade,
changes in the exchange rate of the euro,
the default or threat of
default by an EU member country on its sovereign
debt,
and/or economic recessions in an EU member
country may have significant
adverse effects on the economies of EU member countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity measures and reforms, may not
produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped
and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration, war and geopolitical
risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign
currency will reduce
the value of a security denominated in that foreign currency, thereby decreasing the Fund’s overall NAV. In addition, fluctuations
in the exchange values of currencies could affect the economy or particular business operations of companies in a geographic region in
which the Fund invests, causing an adverse impact on the Fund. As a result, investors have the potential for losses regardless of the
length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and
8
may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected.
Since the Underlying
Index is not subject to the tax diversification requirements to which the Fund must adhere, the Fund may be required to deviate its investments
from the securities contained in, and relative weightings of, the Underlying Index. The Fund may not invest in certain securities included
in the Underlying Index due to liquidity constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities
included in the Underlying Index. For tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate
from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares
9
and their underlying
NAV. In addition, an exchange or market may issue trading halts on specific securities or financial instruments. As a result, the ability
to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s creation/redemption process,
potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being unable to trade certain securities
or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately
price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian,
10
transfer agent and financial
intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, impediments
to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse consequences
could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with which the Fund
engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers, dealers, insurance
companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices
other than at current
market values or may elect not to sell such securities on the day that they are removed from the Underlying Index, due to market conditions
or otherwise. Due to these factors, the variation between the Fund’s annual return and the return of the Underlying Index may increase
significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because
11
of failures of or defects
in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares before
receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a
specified
period of time. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in
the underlying futures contract at a specified price at any time prior to the expiration date of the option. Exchanges
can limit the number of futures or options positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days
12
when Shares are not priced,
and therefore, if the Fund holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s
portfolio may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since April 2018. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser for its services an annual fee equal to 0.50% of its average daily net assets (the “Advisory Fee”).
The
Fund is responsible for all of its own expenses, including, but not limited
to, the investment advisory fees, costs of transfer agency, custody, fund administration, legal, audit and other services, interest, taxes,
Acquired Fund Fees and Expenses, if any, brokerage commissions and other expenses connected with executions of portfolio transactions,
sub-licensing fees related to the Underlying Index, any distribution fees or expenses, litigation expenses, fees payable to the Trust’s
Board members and officers who are not “interested persons” of the Trust or the Adviser, expenses incurred in connection with
the Board members’ services, including travel expenses and legal fees of counsel for those members of the Board who are not “interested
persons” of the Trust or the Adviser and extraordinary expenses, including proxy expenses (except for such proxies related to: (i)
changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested person” of the Trust,
or (iii) any other matters that directly benefit the Adviser).
The
Trust and the Adviser have entered into an Amended and Restated Excess
Expense Agreement (the “Expense Agreement”) on behalf of the Fund pursuant to which the Adviser has agreed to waive fees and/or
pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expenses, licensing fees,
offering costs (as defined below), brokerage commissions and other trading expenses, taxes, Acquired Fund Fees and Expenses, if applicable,
and extraordinary expenses) from exceeding 0.55% of its average daily net assets per year (the “Expense Cap”), at least until
August 31, 2025.
The
offering costs excluded from the Expense Cap for the Fund are: (a) initial
legal fees pertaining to the Shares offered for sale; (b) initial SEC and state registration fees; and (c) initial fees paid to be listed
on an exchange.
The
Expense Agreement provides that the fees waived and/or expenses borne
by the Adviser are subject to recapture by the Adviser for up to three years from the date the fees were waived or the expenses were incurred,
but no recapture payment will be made by the Fund if it would result in the
13
Fund exceeding (i) the
Expense Cap or (ii) the expense cap in effect at the time the fees and/or expenses subject to recapture were waived and/or borne by the
Adviser.
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
This waiver is not subject to recapture.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual
Report to Shareholders for the fiscal period ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “CUT.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid annually
by the Fund. The Fund also intends to distribute its net realized capital gains, if any, to shareholders annually. Dividends and other
distributions may be declared and paid more frequently to comply with the distribution requirements of Subchapter M of the Internal Revenue
Code of
14
1986, as amended (the
“Code”), and to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
15
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to
the nearest cent. Generally,
the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses are accrued and
applied daily and securities and other assets for which market quotations are readily available and reliable are valued at market value.
The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets for which market
quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures (the “Valuation
Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could
16
be realized upon the
sale of the security. There is no assurance that the Fund could sell a portfolio security for the value established for it at any time,
and it is possible that the Fund would incur a loss if a security is sold at a discount to its established value. Because the Fund seeks
to track the Underlying Index, the use of fair value pricing could result in a difference between the prices used to calculate the Fund’s
NAV and the prices used by the Underlying Index, which may increase the Fund’s tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year
|
$29.59
|
$36.09
|
$27.82
|
$27.65
|
$27.98
|
|
Net
investment income(a)
|
0.75
|
0.68
|
0.55
|
0.53
|
0.72
|
|
Net
realized and unrealized gain (loss) on investments |
(0.59)
|
(6.60)
|
8.27
|
0.40
|
(0.23)
|
|
Total
from investment operations |
0.16
|
(5.92)
|
8.82
|
0.93
|
0.49
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.78)
|
(0.58)
|
(0.55)
|
(0.77)
|
(0.82)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.01
|
0.00(b)
|
|
Net
asset value at end of year |
$28.97
|
$29.59
|
$36.09
|
$27.82
|
$27.65
|
|
Market
price at end of year(c)
|
$29.03
|
$29.53
|
$36.09
|
$27.81
|
$27.56
|
|
Net
Asset Value Total Return(d)
|
0.44%
|
(16.65)%
|
31.90%
|
3.29%
|
2.32%
|
|
Market
Price Total Return(d)
|
0.85%
|
(16.82)%
|
31.95%
|
3.60%
|
2.14%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year
(000’s
omitted) |
$52,137
|
$60,656
|
$92,035
|
$75,101
|
$134,093
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses,
after Waivers |
0.67%
|
0.61%
|
0.60%
|
0.55%
|
0.56%(e)
|
|
Expenses,
prior to Waivers |
0.82%
|
0.69%
|
0.68%
|
0.72%
|
0.68%(e)
|
|
Net
investment income |
2.48%
|
1.99%
|
1.51%
|
2.00%
|
2.70%(e)
|
|
Portfolio
turnover rate(f)
|
10%
|
15%
|
14%
|
10%
|
18%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.01%. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
THE FUND IS NOT SPONSORED, ENDORSED, SOLD
OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING,
COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI PARTIES”). THE UNDERLYING INDEX (REFERRED TO HEREIN AS THE MSCI
INDEX) IS THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAME ARE SERVICE MARKS OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED
FOR USE FOR CERTAIN PURPOSES BY THE ADVISER. NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN FUNDS GENERALLY OR IN THE FUND PARTICULARLY
OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN
TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEX WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO
THE FUND OR THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS
OF THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI
INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES
OF THE FUND TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THE FUND IS REDEEMABLE.
FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE FUND.
ALTHOUGH
MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE MSCI INDEX FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY,
ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF
ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES
OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT
SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING
LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
No
purchaser, seller, or holder of this security, product or fund, or any other
person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this security
without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity
claim any affiliation with MSCI without the prior written permission of MSCI.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not
19
participating in the
distribution of Shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C)
of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer
firms should note that dealers who are not “underwriters” but are participating in a distribution (as contrasted with engaging
in ordinary secondary market transactions), and thus dealing with the Shares that are part of an overallotment within the meaning of Section
4(a)(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of
the Securities Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities
Act only is available with respect to transactions on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information
about the Fund’s
investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s current Annual Report,
you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during
the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report,
free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
GBLD
|
Invesco
MSCI Green Building ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco MSCI Green Building ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the MSCI
Global Green Building Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Acquired
Fund Fees and Expenses1
|
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
|
Fee
Waiver and/or Expense Reimbursement2
|
|
|
| |
|
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement |
|
|
| |
1
2
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses are
equal to the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement in the first year and the Total Annual
Fund Operating Expenses thereafter. This example does not include
brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your costs, based
on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in the securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, MSCI
Inc. (the “Index Provider”) compiles, maintains and calculates the Underlying Index, which is comprised of companies that
the index methodology has determined provide exposure to the environmental impact theme of “green building”. The index methodology
defines “green building” to include the design, construction, redevelopment, retrofitting, or acquisition of green-certified
properties to promote mechanisms for raising capacity for effective climate change mitigation and adaptation.
The
Underlying Index is composed of securities that are also components
of the MSCI ACWI Investable Market Index (the “Parent Index”), an equity index composed of more than 9,100 securities of large-,
mid- and small-capitalization companies located in both developed and emerging market countries around the world. Securities eligible
for inclusion in the Underlying Index include American depositary receipts (“ADRs”), global depositary receipts (“GDRs”),
and real estate investment trusts (“REITs”). Companies that derive 50% or more of their revenue from green building are eligible
for inclusion in the Underlying Index. Such companies are evaluated for their level of involvement in, and strategic commitment to green
building, based on the Index Provider’s internal environmental, social and governance (“ESG”) rating and score data.
Once included in the Underlying Index, securities will remain constituents as long as they continue to meet the eligibility criteria and
the revenue they derive from green building does not fall below 40%. The Underlying Index weights its constituents by their free-float
adjusted market capitalization.
As
of December 31, 2023,
the Underlying Index was comprised of 95
constituents with market capitalizations ranging from $499.2
million to $22.0
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required to meet certain
diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The
bar chart and table provide an indication of the risks of investing in the Fund by showing how the Fund’s total
returns have varied from year to year and by showing how the Fund’s average
annual total returns compared with a broad measure of market performance and an additional index with characteristics relevant to
the Fund. The Fund's performance reflects fee
waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
Since
Inception
|
|
Return
Before Taxes |
|
% |
-
|
|
Return
After Taxes on Distributions |
|
|
-
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
-
|
|
| |||
|
MSCI
Global Green Building Index (Net) dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
-
|
|
| |||
|
MSCI
All Country World IMI Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
|
|
| |||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
April
2021 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
April
2021 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
April
2021 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
April
2021 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV,
4
Shares may trade at a
price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller is willing to accept for Shares
(ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry
weightings, market capitalization,
return variability, earnings valuation, yield and other financial characteristics of securities. When employing a sampling methodology,
the Adviser bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects
the Fund to hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the
Fund in as many securities as it believes necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling
methodology, it may have a larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
MSCI Global Green Building
Index
The
Index Provider compiles, maintains and calculates the Underlying Index, which is comprised of companies that the Index Provider has determined
provide exposure to the environmental impact theme of “green building.” Sometimes referred to as “green construction”
or “sustainable building,” green building refers to both a structure and the application of processes that are environmentally
responsible and resource-efficient throughout a building's life-cycle. The Index Provider defines “green building” to include
the design, construction, redevelopment, retrofitting, or acquisition of green-certified properties to promote mechanisms for raising
capacity for effective climate change mitigation and adaptation. The investible universe for the Underlying Index includes all securities
in the Parent Index. The Underlying Index then excludes the securities of companies that faced very severe controversies pertaining to
ESG issues in the last three years (based on the Index Provider’s internal ESG rating and score data) and companies involved in
controversial weapons (as defined by the methodology of the Index Provider’s Global Ex-Controversial Weapons Indexes).
Next,
the remaining eligible companies are evaluated for their level of involvement
in, and strategic commitment to green building. Examples of such involvement or commitment include (i) owning properties, facilities and
buildings designed and built according to environmental or sustainable standards and certified by third parties (such as the Leadership
in Energy and Environmental Design (LEED) green building certification program); (ii) constructing green or sustainable properties, facilities
or buildings, which may also include retrofitting or redeveloping non-certified properties to comply with green building standards; and
(iii) providing consultancy services that aid in the green building certification of properties, facilities, or buildings. Companies that
derive 50% or more of their revenue from green building are eligible for inclusion in the Underlying Index. To reduce turnover and enhance
stability in the Underlying Index, the Index Provider applies buffer rules such that existing constituents of the Underlying Index are
retained in the Underlying Index as long as they continue to meet the eligibility criteria and their exposure to green building does not
fall below 40%. However, existing constituents that remain in this buffer zone (i.e., their revenues from green building are greater than
40% but less than 50%) for two consecutive years are removed from the Underlying Index at the next rebalance. The Underlying Index weights
its constituents by their free float-adjusted
market capitalization.
The
Underlying Index is rebalanced quarterly. The Index Provider conducts
quarterly reviews, and changes to the Underlying Index are implemented as of the last business day of February, May, August and November.
Existing constituents may be deleted from the Underlying Index
5
due to declining exposure
to green building, subject to the buffer rules described above. Any constituent that is deleted from the Parent Index as a result of a
quarterly index review is also deleted from the Underlying Index.
The
Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Thematic
Investing Risk. The Fund relies on the Index Provider for the identification
of securities for inclusion in the Underlying Index that reflect the environmental theme of “green building”, as set forth
in the Underlying Index's methodology. The Fund's performance may suffer if such securities
are not correctly identified.
Performance may also suffer if the securities included in the Underlying Index do not benefit from the development of such theme. Further,
there is a risk that information used by the Index Provider to evaluate ESG factors may not be readily available, complete or accurate,
which could negatively impact the Index Provider's ability to apply its ESG standards when compiling the Underlying Index, and which may
negatively impact the Fund's performance. Performance may also be impacted by the inclusion of non-theme-relevant exposures in the Underlying
Index. There is no guarantee that the Underlying Index will reflect complete exposure to the green building investment theme. Additionally,
thematic investing involves the risk that the green building theme is out of favor, or that the securities chosen to represent that theme
underperform the market as a whole.
Risk
of Green Building Investing. Companies involved in “green
building” face many of the risk factors associated generally with the building and construction industry, including that such companies
may be significantly affected by changes in government spending or regulation, zoning laws, economic conditions and world events, interest
rates, taxation, real estate values and overbuilding. Such companies may be impacted by the supply and demand both for their specific
products or services and for industrial sector products in general. In addition, such companies face risks specific to sustainable or
“green” building, including: building costs may be more expensive for green buildings as compared to conventional buildings;
green construction materials may not be readily available; the costs associated with obtaining third-party certification; and the failure
to continue to meet certification standards. The technology and methods for green building are relatively new, and there is uncertainty
surrounding the longevity and warranty of new products and/or the use of relatively untested materials. Moreover, there remains uncertainty
about how the regulatory environment might evolve with respect to green building.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were diversified broadly over numerous industries
or industry groups. Such industry-based risks, any of which may adversely affect the companies in which the Fund invests, may include,
but are not limited to, the following: general economic conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources; adverse labor relations, political or world events; obsolescence of technologies;
and increased competition or new product introductions that may affect the profitability or viability of companies in an industry. In
addition, at times, such industry or industry group may be out of favor and underperform other industries or the market as a whole. Information
about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Real
Estate Sector Risk. The risks associated with investments in securities
issued by companies in the real estate sector and companies related to the real estate sector, including REITs, consist of: fluctuations
in the value of the underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic
conditions; decreases in market rates for rents; changes in the availability, cost and terms of mortgage funds; increases in competition,
property taxes, capital expenditures, or operating expenses; and other economic, political or regulatory occurrences, including the impact
of changes in environmental laws.
The
real estate sector has historically been cyclical and particularly sensitive
to economic downturns. Many real estate companies utilize
6
leverage,
which increases investment risk and could adversely affect a company’s operations and market value in periods of rising interest
rates.
REIT
Risk. The REITs in which the Fund may invest will be subject to
risks inherent in the direct ownership of real estate. These risks include, among others: fluctuations in the value of the underlying
properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market
rates for rents; changes in the availability, cost and terms of mortgage funds; increased competition, property taxes, capital expenditures,
or operating expenses; and other occurrences, including the impact of changes in environmental laws that may affect the real estate industry.
A REIT that fails to comply with federal tax requirements affecting REITs may be subject to federal income taxation, or the federal tax
requirement that a REIT distribute substantially all of its net income to its shareholders may result in a REIT having insufficient capital
for future expenditures. The value of a REIT can depend on the structure of and cash flow generated by the REIT. In addition, like mutual
funds, REITs have expenses, including advisory and administration fees, that their shareholders pay. As a result, an investor may absorb
duplicate levels of fees when the Fund invests in REITs. In addition, REITs are subject to certain provisions under federal tax law. The
failure of a company to qualify as a REIT could have adverse consequences for the Fund, including significantly reducing the return to
the Fund on its investment in such company.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder
rights may change quickly
and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed to pursue or
enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation systems
at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and subject
to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries, as well
as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments in emerging
market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Japan
Investment Risk. Japan may be subject to political, economic, nuclear,
labor, natural disaster, and regional and global conflicts risks, among others. Any of these risks, individually or in the aggregate,
can impact an investment made in Japan. The growth of Japan’s economy has recently lagged that of its Asian neighbors and other
major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs,
other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. The Japanese economy
has experienced the effects of the global economic slowdown similar to the United States and Europe, and downturns in the economies of
Japan’s key trading partners, such as the United States, China and/or countries in Southeast Asia, could also have a negative impact
on the Japanese economy as a whole. Japan has a limited
7
supply
of natural resources, and is heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the
Japanese economy.
The
Japanese economy faces additional concerns, including a financial
system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations,
a changing corporate governance structure, and large government deficits. These issues may cause a continued slowdown of the Japanese
economy.
Moreover,
Japan has an aging workforce and has experienced a significant
population decline in recent years. Japan’s labor market appears to be undergoing fundamental structural changes as a result, which
may adversely affect its economic competitiveness in the world marketplace.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying
foreign securities directly
in their national markets and currencies. GDRs are certificates issued by an international bank that generally are traded and denominated
in the currencies of countries other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain
of the risks associated with direct investments in the securities of foreign companies, such as currency, political, economic and market
risks, because their values depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and
GDRs may not track the price of the underlying foreign securities on which they are based, and their value may change materially at times
when U.S. markets are not open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market
8
as a whole, causing the
value of its securities to decline. Poor performance may be caused by poor management decisions, competitive pressures, changes in technology,
expiration of patent protection, disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures
or other factors. Issuers may, in times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also
cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
9
may be unable to accurately
price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act
or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and interest payments
is based on the movement of one or more specified factors, such as the movement of a particular security or securities index) and in futures
contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to the Underlying Index,
and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to and deletions from the Underlying
Index to fully settle in the portfolio composition of the Fund.
The
Fund’s investment objective is a non-fundamental policy that the Board
of Trustees (the “Board”) of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder
approval upon 60 days’ prior written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing
Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
10
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that
any large shareholder
would not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s
liquidity and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP,
rather than executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not
otherwise do so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may
accelerate the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments
to meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money
11
market
fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per share (i.e.,
in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money market funds
may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments
and
the price of the underlying securities. Because futures contracts
project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the
12
Shares’ in-kind
redemption mechanism generally will not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi, CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since April 2021. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2021. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2021. He has been responsible for the
management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2021. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.39% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “GBLD.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
13
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting
trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves the right not to accept
orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise are not in the best interests
of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent purchases and redemptions of
Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”),
and to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
14
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special
certification
requirements to avoid U.S. backup withholding and claim any treaty benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
15
Additional
Considerations for Investments in Real Estate Securities
■
Because
of “noncash” expenses such as property depreciation, the cash flow of a REIT that owns properties will exceed its taxable
income. The REIT, and in turn the Fund, may distribute this excess cash. Such a distribution is classified as a return of capital. Return
of capital distributions generally are not taxable to you. Your cost basis in your Shares will be decreased by the amount of any return
of capital. Any return of capital distributions in excess of your cost basis will be treated as capital gains.
■
Dividends
paid to shareholders from the Fund’s investments in U.S. REITs generally will not qualify for taxation at long-term capital gain
rates applicable to qualified dividend income.
■
The
Fund may derive “excess inclusion income” from certain equity interests in mortgage pooling vehicles either directly or through
an investment in a U.S. REIT. Please see the SAI for a discussion of the risks and special tax consequences to shareholders in the event
the Fund realizes excess inclusion income in excess of certain threshold amounts.
■
Under
the Tax Cuts and Jobs Act, “qualified REIT dividends” (i.e., ordinary REIT dividends other than capital gain dividends and
portions of REIT dividends designated as qualified dividend income) are treated as eligible for a 20% deduction by noncorporate taxpayers.
The Fund may choose to report the special character of “qualified REIT dividends” to a shareholder, provided both the Fund
and the shareholder meet certain holding period requirements with respect to their shares.
■
The
Fund’s foreign shareholders should see the SAI for a discussion of the risks and special tax consequences to them from a sale of
a U.S. real property interest by a REIT in which the Fund invests.
Distributor
Invesco Distributors,
Inc. (the “Distributor”) serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does
not maintain a secondary market in Shares. The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g.,
open-end mutual funds)
are valued using such company’s end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded
are valued at the last trade price or official closing price on the exchange on which they primarily trade. Deposits, other obligations
of U.S. and non-U.S. banks and financial institutions, and cash equivalents are valued at their daily account value. Fixed-income securities
(including convertible securities) normally are valued on the basis of prices provided by independent pricing services. Pricing services
generally value fixed-income securities assuming orderly transactions of institutional round lot size, but the Fund may hold or transact
in the same securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value
may be adjusted accordingly. Futures contracts are valued at the daily settlement price set by an exchange on which they are principally
traded. U.S. exchange-traded options are valued at the mean between the last bid and asked prices from the exchange on which they principally
trade. Non-U.S. exchange-traded options are valued at the final settlement price set by the exchange on which they trade. Options not
listed on an exchange and swaps generally are valued using pricing provided from independent pricing services. Unlisted securities will
be valued using prices provided by independent pricing services or by another method that the Adviser, in its judgment, believes better
reflects the security’s fair value in accordance with the Valuation Procedures. Foreign exchange-traded equity securities are valued
at their market value if market quotations are available and reliable. The Adviser may use various pricing services to obtain market quotations
as well as fair value prices. The Adviser may discontinue the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
16
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the period since the Fund’s inception.
Certain information reflects financial results for a single Share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends
and other distributions). This information has been derived from the Fund’s financial statements, which have been audited by PwC,
whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended
October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, |
For
the Period
April
20, 2021(a)
Through
October
31,
2021
| |
|
|
2023
|
2022
| |
|
Per
Share Operating Performance: |
|
|
|
|
Net
asset value at beginning of period |
$16.43
|
$23.82
|
$25.00
|
|
Net
investment income(b)
|
0.70
|
0.69
|
0.44
|
|
Net
realized and unrealized gain (loss) on investments |
(1.59)
|
(7.21)
|
(1.21)
|
|
Total
from investment operations |
(0.89)
|
(6.52)
|
(0.77)
|
|
Distributions
to shareholders from: |
|
|
|
|
Net
investment income |
(0.70)
|
(0.76)
|
(0.41)
|
|
Return
of capital |
-
|
(0.11)
|
-
|
|
Total
distributions |
(0.70)
|
(0.87)
|
(0.41)
|
|
Net
asset value at end of period |
$14.84
|
$16.43
|
$23.82
|
|
Market
price at end of period(c)
|
$14.93
|
$16.44
|
$23.89
|
|
Net
Asset Value Total Return(d)
|
(5.79)%
|
(28.05)%
|
(3.13)%(e)
|
|
Market
Price Total Return(d)
|
(5.28)%
|
(28.22)%
|
(2.84)%(e)
|
|
Ratios/Supplemental
Data: |
|
|
|
|
Net
assets at end of period (000’s omitted) |
$5,937
|
$4,928
|
$4,764
|
|
Ratio
to average net assets of: |
|
|
|
|
Expenses,
after Waivers |
0.38%
|
0.39%
|
0.39%
|
|
Expenses,
prior to Waivers |
0.39%
|
0.39%
|
0.39%
|
|
Net
investment income |
4.14%
|
3.40%
|
3.34%(f)
|
|
Portfolio
turnover rate(g)
|
23%
|
17%
|
25%
|
|
(a)
|
Commencement
of investment operations. |
|
(b)
|
Based
on average shares outstanding. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
The
net asset value total return from Fund Inception (April 22, 2021, the first day of trading on the exchange) to October 31, 2021 was (2.74)%.
The market price total return from Fund Inception to
October 31, 2021 was (2.30)%. |
|
(f)
|
Annualized.
|
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
THE FUND IS NOT SPONSORED, ENDORSED, SOLD
OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING,
COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI PARTIES”). THE UNDERLYING INDEX (REFERRED TO HEREIN AS THE MSCI
INDEX) IS THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAME ARE SERVICE MARKS OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED
FOR USE FOR CERTAIN PURPOSES BY THE ADVISER. NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE
ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN FUNDS GENERALLY OR IN THE FUND PARTICULARLY
OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN
TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEX WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO
THE FUND OR THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS
OF THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI
INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES
OF THE FUND TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THE FUND IS REDEEMABLE.
FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE FUND.
ALTHOUGH
MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE MSCI INDEX FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY,
ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF
ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES
OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT
SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING
LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
No
purchaser, seller, or holder of this security, product or fund, or any other
person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this security
without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity
claim any affiliation with MSCI without the prior written permission of MSCI.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its
client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not
19
participating in the
distribution of Shares, generally are required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C)
of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer
firms should note that dealers who are not “underwriters” but are participating in a distribution (as contrasted with engaging
in ordinary secondary market transactions), and thus dealing with the Shares that are part of an overallotment within the meaning of Section
4(a)(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of
the Securities Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities
Act only is available with respect to transactions on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information about the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus.
Additional information
about
the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s
current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P Emerging Markets Low Volatility ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P Emerging Markets Low Volatility ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the S&P BMI Emerging Markets Low Volatility IndexTM (the
“Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) compiles, maintains and calculates the Underlying
Index, which is designed to measure the performance of the 200 least volatile stocks (over the trailing 12 months) included in the S&P
Emerging Plus LargeMidCap (the “Parent Index”). Volatility is a statistical measurement of the magnitude of up and down asset
price fluctuations (increases or decreases in a stock’s price) over time. S&P DJI measures the realized volatility of the Underlying
Index’s constituents over the trailing 12 months and weights constituents so that the least volatile stocks receive the highest
weights.
The
Parent Index is designed to measure publicly listed equity securities of
companies with float-adjusted market values of at least $100 million located in emerging market countries.
As
of December 31, 2023,
the Underlying Index was comprised of 200 securities with market capitalizations ranging from $974.9
million
to $2.1
trillion and represented the following countries: Brazil, Chile,
China, Czech Republic,
Greece, Hungary,
India, Indonesia, Kuwait, Malaysia, Mexico,
Poland,
Qatar, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, and the United Arab Emirates.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The Fund's
performance reflects fee waivers,
if any,
absent which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the
3
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
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10
Years
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Return
Before Taxes |
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% |
% |
% |
|
Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale of Fund
Shares
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S&P
BMI Emerging Markets Low Volatility Index™
(Net)
withholding
taxes, but reflects no deduction for |
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MSCI
Emerging Markets Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)1
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1
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
January
2012 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or
multiples thereof (“Creation
Unit Aggregations”), generally in exchange for the deposit or delivery of a basket of securities. However, the Fund also reserves
the right to permit or require Creation Units to be issued in exchange for cash. Except when aggregated in Creation Units, the Shares
are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it
4
may not be possible or
practicable to purchase all of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities
in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P BMI Emerging Markets
Low Volatility Index
The
Underlying Index is designed to measure the performance of the 200 least volatile stocks of companies located in emerging markets whose
minimum three-month average daily value traded is $3 million ($2.5 million for current constituents) as of the rebalance reference date
of the Parent Index. The Parent Index measures all publicly listed equities with float-adjusted market values of at least $100 million
that meet certain liquidity thresholds from the following countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary,
India, Indonesia, Kuwait, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand,
Turkey and the United Arab Emirates. (For constituents from China,
and India, only those classified by the Index Provider as having developed market status are eligible for inclusion in the Underlying
Index.)
S&P
DJI measures the realized volatility of every stock in the Underlying Index
over the trailing 12 months and weights constituents so that the least volatile stocks receive the highest weights.
The
Underlying Index is rebalanced quarterly after market close on the third
Friday of March, June, September and December. S&P DJI makes additions to the Underlying Index only at the time of the quarterly rebalance
but constituents that are removed from the Parent Index are removed from the Underlying Index simultaneously. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate
that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the Underlying
Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically related
to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn in
the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in
5
emerging markets may
be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting Oversight Board (“PCAOB”)
inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability to engage in independent oversight or
inspection of accounting firms located in or operating in certain emerging markets. There is no guarantee that the quality of financial
reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of
certain regions can be
interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic region in which
the Fund invests, which could affect the economy or particular business operations of companies in that specific country or geographic
region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s annual
and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of the reports.
Asia
Pacific Investment Risk. The level of development of the economies
of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined,
if an economic recession is experienced by any of these countries, it will likely adversely impact the economic performance of other countries
in the region. Certain economies in the region may be adversely affected by increased competition, high inflation rates, undeveloped financial
services sectors, currency fluctuations or restrictions, political and social instability and increased economic volatility. In addition,
certain countries in the Asia Pacific region in which the Fund may invest are large debtors to commercial banks and foreign governments.
The recent economic crisis has reduced the willingness of certain lenders to extend credit to these Asia Pacific countries and have made
it more difficult for such borrowers to obtain financing on attractive terms or at all. These developments may also have a negative effect
on the broader economy of such Asia Pacific countries, including issuers in which the Fund may invest. Due to heavy reliance on international
trade, a decrease in demand (due to recession or otherwise in the United States, Europe or Asia) would adversely affect economic performance
in the region.
Taiwan
Investment Risk. Investments in Taiwanese issuers may subject the
Fund to legal, regulatory, political, currency and economic risks that are specific to Taiwan. Specifically, Taiwan’s geographic
proximity and history of political contention with China have resulted in ongoing tensions between the two countries. These tensions may
materially affect the Taiwanese economy and its securities market. Taiwan’s economy is export-oriented, so it depends on an open
world trade regime and remains vulnerable to fluctuations in the world economy. The Taiwanese economy is dependent on the economies of
Asia, mainly those of Japan and China, and the United States. Reduction in spending by any of these countries on Taiwanese products and
services or negative changes in any of these economies may cause an adverse impact on the Taiwanese economy.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Financials
Sector Risk. Financial services companies are subject to extensive
government regulation and, as a result, their profitability may
6
be
affected by new regulations or regulatory interpretations. Changes
in interest
rates can have a disproportionate effect on the financials sector, and financial services companies whose securities the Fund may purchase
may themselves have concentrated portfolios, which makes them vulnerable to economic conditions that affect that sector. Financial services
companies have also been affected by increased competition, which could adversely affect the profitability or viability of such companies.
In addition, the financials sector is undergoing numerous changes, including continuing consolidations, development of new products and
structures and changes to its regulatory framework. Increased government involvement in financial institutions, including measures such
as taking ownership positions in such institutions, could result in a dilution in the value of the shares held by shareholders in such
institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or region, which
may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue to
do so. Deterioration of credit markets can have
an adverse impact on a broad range of financial markets, and thereby
cause
certain financial services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation
of their assets and even ceased operations.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of
essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using
7
market quotations. Fund
securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject
to greater fluctuations in their value from one day to the next than would be the case if market quotations were used. In addition, there
is no assurance that the Fund could sell a portfolio security for the value established for it at any time, and it is possible that the
Fund would incur a loss because a security is sold at a discount to its established value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether
8
the Shares will trade
below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing
reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the 1940 Act or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment
and interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities
index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional
Risks of Investing in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset
9
resulting from changes
in the general level of interest rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default
risk”), which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the
Fund’s remaining
assets may be less liquid, more volatile, and more difficult to price. To the extent the Fund permits cash purchases, large purchases
of Shares may adversely affect the Fund’s performance to the extent that the Fund is delayed in investing new cash and is required
to maintain a larger cash position than it ordinarily would. To the extent these large shareholders transact in shares on the secondary
market, such transactions may account for a large percentage of the trading volume on the Fund’s exchange and may, therefore, have
a material upward or downward effect on the market price of the Shares. To the extent the Fund permits redemptions in cash, the Fund may
hold a relatively large proportion of its assets in cash in anticipation of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe
10
weather-related phenomena
generally, and widespread disease, including pandemics and epidemics, have been and may be highly disruptive to economies and markets,
adversely impacting individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor
sentiment, and other factors affecting the value of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying
Index is concentrated is negatively impacted to a greater extent by such events, the Fund may experience heightened volatility. Given
the increasing interdependence among global economies and markets, conditions in one country, market, or region are increasingly likely
to adversely affect markets, issuers, and/or foreign exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
11
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since January 2012. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory
Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.29% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “EELV.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a
12
redemption request, the
Fund may take up to 15 days after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Actof 1933, as amended (the “Securities Act”),
will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should
13
recognize
gain or loss in an amount equal to the difference between the shareholder’s adjusted tax basis in his or her shares and the liquidating
distribution(s) he or she receives, except to the extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution
may be subject to backup withholding as described below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment
accounts.
After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions, return of capital distributions
and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the IRS, which can be relied upon currently,
such withholding is no longer required unless final regulations provide otherwise (which is not expected). The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar
laws. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate
certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
14
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such
price is stale or unreliable,
the Adviser will value the security at fair value in good faith using the Valuation Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$21.30
|
$25.05
|
$19.94
|
$23.23
|
$23.02
|
|
Net
investment income(a)
|
0.80
|
1.05
|
0.74
|
0.72
|
0.74
|
|
Net
realized and unrealized gain (loss) on investments |
0.70
|
(3.69)
|
5.03
|
(3.33)
|
0.58
|
|
Total
from investment operations |
1.50
|
(2.64)
|
5.77
|
(2.61)
|
1.32
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.74)
|
(1.17)
|
(0.67)
|
(0.72)
|
(1.12)
|
|
Transaction
fees(a)
|
0.02
|
0.06
|
0.01
|
0.04
|
0.01
|
|
Net
asset value at end of year |
$22.08
|
$21.30
|
$25.05
|
$19.94
|
$23.23
|
|
Market
price at end of year(b)
|
$22.00
|
$21.40
|
$25.08
|
$19.82
|
$23.12
|
|
Net
Asset Value Total Return(c)
|
7.01%
|
(10.68)%
|
29.21%
|
(10.92)%
|
5.87%
|
|
Market
Price Total Return(c)
|
6.13%
|
(10.40)%
|
30.16%
|
(11.03)%
|
5.32%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$695,392
|
$904,397
|
$360,698
|
$269,207
|
$335,632
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses,
after Waivers |
0.29%
|
0.29%
|
0.29%
|
0.29%
|
0.29%
|
|
Expenses,
prior to Waivers |
0.29%
|
0.29%
|
0.29%
|
0.38%
|
0.45%
|
|
Net
investment income |
3.44%
|
4.42%
|
3.13%
|
3.42%
|
3.14%
|
|
Portfolio
turnover rate(d)
|
71%
|
136%
|
92%
|
114%
|
67%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
17
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about
the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional
information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In
the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal period.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P Emerging Markets Momentum ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P Emerging Markets Momentum ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the S&P Momentum Emerging Plus LargeMidCap Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index, as well as American depositary
receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) compiles, maintains and calculates the Underlying
Index, which is composed of constituents of the S&P Emerging Plus LargeMidCap (the “Parent Index”) that have the highest
“momentum score.” In general, momentum is the tendency of an investment to exhibit persistence in its relative performance;
a “momentum style” of investing emphasizes investing in securities that have had better recent performance compared to other
securities. The momentum score for each security included in the Underlying Index is based on upward price movements of the security as
compared to other eligible securities within the Parent Index.
The
Parent Index is designed to measure publicly listed equity securities of
companies with float-adjusted market values of at least $100 million located in emerging market countries
as defined by the Index Provider.
In
selecting constituent securities for the Underlying Index, the Index Provider
first calculates the momentum score of each stock in the Parent
Index by evaluating the
percentage change in the stock’s price over the last 12 months, excluding the most recent month, and applying an adjustment based
on the security’s volatility over that period. The Index Provider then ranks all the stocks in descending order by momentum score
and selects the top 20% for inclusion in the Underlying Index and weights the selected securities based on a modified market capitalization-weighted
strategy.
As
of December 31, 2023,
the Underlying Index was comprised of 204
securities with market capitalizations ranging from $867.1
million
to $75.3
billion
and represented the following countries: Brazil, Chile, China, Czech Republic, Egypt,
Greece, Hungary, India, Indonesia, Malaysia, Mexico, Peru,
the Philippines, Poland,
Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey,
and the United Arab Emirates.
While
the Fund generally seeks to invest in all of the securities comprising
the Underlying Index in proportion to their weightings in the Underlying Index, at times the composition of the Underlying Index may make
such “full replication” impracticable. In such circumstances, the Fund will utilize a “sampling” methodology to
seek to achieve its investment objective.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and additional
indexes with characteristics relevant to the Fund. The Fund's
performance reflects fee waivers,
if any,
absent which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
S&P
Momentum Emerging Plus LargeMidCap Index
(Net)
withholding
taxes, but reflects no deduction for |
|
|
|
|
|
| ||||
|
Blended
- S&P Momentum Emerging Plus
LargeMidCap
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)3
|
|
|
|
|
|
| ||||
|
MSCI
Emerging Markets
Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)2
|
|
|
|
|
|
| ||||
1
2
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
February
2012 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the
4
difference between the
highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller is willing to accept for Shares (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling
methodology, the Adviser
bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the Fund to
hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund in as
many securities as it believes necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling methodology,
it may have a larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P Momentum Emerging
Plus LargeMidCap Index
The
Underlying Index is designed to measure the performance of the securities with the greatest momentum within the Parent Index. The Parent
Index measures all publicly listed equities with float-adjusted market values of at least $100 million that meet certain liquidity thresholds
from the following countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Kuwait, Malaysia,
Mexico, Peru, the Philippines, Poland, Qatar, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United Arab Emirates.
In
selecting constituent securities for the Underlying Index, the Index Provider
first calculates the momentum score of each stock in the Parent Index by evaluating the percentage change in the stock’s price over
the last 12 months, excluding the most recent month, and applying an adjustment based on the security’s volatility over that period.
The Index Provider then ranks all the stocks in descending order by momentum score and selects the top 20% for inclusion in the Underlying
Index.
The
Underlying Index uses a modified market capitalization-weighted strategy,
as the Index Provider weights component securities by multiplying their market capitalization and their momentum score.
The
Underlying Index is rebalanced after market close on the third Friday
in March and September. Additions to the Underlying Index generally occur only at the time of the semi-annual rebalance, but constituents
removed from the Parent Index are removed from the Underlying Index simultaneously. Apart from scheduled rebalances, the Index Provider
or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect corporate actions or
spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues,
5
war,
military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market countries may also have higher rates of inflation or
deflation and more rapid and extreme fluctuations in inflation
rates and greater sensitivity to interest rate changes. Issuers in emerging markets also may have relatively low market liquidity, decreased
publicly available and less reliable information, and inconsistent and less stringent regulatory, disclosure, accounting, auditing and
financial reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to issuers
in more developed markets. As a result, the nature and quality of such information may vary. The ability to conduct adequate due diligence
in emerging markets may be limited. In addition, certain emerging market countries may impose material limitations on Public Company Accounting
Oversight Board (“PCAOB”) inspection, investigation and enforcement capabilities which can hinder the PCAOB’s ability
to engage in independent oversight or inspection of accounting firms located in or operating in certain emerging markets. There is no
guarantee that the quality of financial reporting or the audits conducted by audit firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Momentum
Investing Risk. Momentum is the tendency of an investment to exhibit
persistence in its relative performance; a “momentum” style of investing therefore emphasizes investing in securities that
have had better recent performance compared to other securities, on the theory that these securities will continue to increase in value.
Momentum investing is subject to the risk that the securities may be more volatile than the market as a whole. High momentum may also
be a sign that the securities’ prices have peaked, and therefore the returns on securities that have previously exhibited price
momentum may be less than the returns on other styles of investing. Momentum can turn quickly, and stocks that previously exhibited high
momentum may not experience continued positive momentum. The
6
Fund may experience significant
losses if momentum stops, reverses or otherwise behaves differently than predicted. In addition, there may be periods when the momentum
style of investing is out of favor and therefore, the investment performance of the Fund may suffer.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Asia
Pacific Investment Risk. The level of development of the economies
of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined,
if an economic recession is experienced by any of these countries, it will likely adversely impact the economic performance of other countries
in the region. Certain economies in the region may be adversely affected by increased competition, high inflation rates, undeveloped financial
services sectors, currency fluctuations or restrictions, political and social instability and increased economic volatility. In addition,
certain countries in the Asia Pacific region in which the Fund may invest are large debtors to commercial banks and foreign governments.
The recent economic crisis has reduced the willingness of certain lenders to extend credit to these Asia Pacific countries and have made
it more difficult for such borrowers to obtain financing on attractive terms or at all. These developments may also have a negative effect
on the broader economy of such Asia Pacific countries, including issuers in which the Fund may invest. Due to heavy reliance on international
trade, a decrease in demand (due to recession or otherwise in the United States, Europe or Asia) would adversely affect economic performance
in the region.
India
Investment Risk. Investments in companies located or operating
in India involves risks such as political and legal uncertainty, greater government control over the economy, greater risk of hyperinflation,
currency fluctuations and/or currency devaluations or blockage of currency movements or repatriation of capital invested and the risk
of nationalization or expropriation of assets. In addition, religious and border disputes persist in India. Moreover, India has experienced
civil unrest and hostilities with neighboring countries, including Pakistan, and the Indian government has confronted separatist movements
in several Indian states. Additionally, governmental actions can have a significant effect on the economic conditions in India, which
could adversely affect the value and liquidity of the Fund’s investments. Further, certain Indian regulatory approvals, including
approvals from the Securities and Exchange Board of India (“SEBI”), the Reserve Bank of India (RBI), the central government
and the tax authorities (to the extent that tax benefits need to be utilized), may be required before the Fund can make investments in
the securities of Indian companies. Capital gains from Indian securities may be subject to local taxation.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that
could
negatively affect supply and demand in a particular industry, competition for resources, adverse labor relations, political or world events,
obsolescence of technologies, and increased competition or new product introductions that may affect the profitability or viability of
companies in an industry. In addition, at times, such industry or industry group may be out of favor and underperform other industries
or the market as a whole. Information about the Fund’s exposure to a particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often, mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, mid-capitalization companies
are typically less financially stable than larger, more established companies, and they may depend on a small number of essential personnel,
making them more vulnerable to loss of personnel. Mid-capitalization companies also normally have less diverse product lines than large-capitalization
companies and are more susceptible to adverse developments concerning their products. As such, mid-capitalization companies typically
are more likely to be adversely affected than large-capitalization companies by changes in earnings results, business prospects, investor
expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of
7
foreign companies, such
as currency, political, economic and market risks, because their values depend on the performance of the non-dollar denominated underlying
foreign securities. Moreover, ADRs and GDRs may not track the price of the underlying foreign securities on which they are based, and
their value may change materially at times when U.S. markets are not open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own
discretion, decide to
reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in connection with the rebalancing or adjustment of the Underlying Index, which may result in a high portfolio turnover rate.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying and selling all of its securities two times during the
course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high
portfolio turnover rate can result in an increase in taxable capital gains distributions to the Fund’s shareholders, the Fund will
seek to utilize the in-kind creation and redemption mechanism (described below) to minimize the realization of capital gains to the extent
possible.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
8
requirements to which
the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and relative weightings of,
the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity constraints. Liquidity
constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For tax efficiency purposes,
the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue
trading halts on specific
securities or financial instruments. As a result, the ability to trade certain securities or financial instruments may be restricted,
which may disrupt the Fund’s creation/redemption process, potentially affect the price at which Shares trade in the secondary market,
and/or result in the Fund being unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may
be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and
structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified
factors, such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net
9
assets, plus the amount
of any borrowing for investment purposes, in the particular types of securities, and/or in securities of companies operating in the particular
industries, economic sectors, countries or geographical regions, that are suggested by the Fund’s name (the “80% investment
policy”). The Fund considers the securities suggested by its name to be those securities that comprise the Underlying Index. Therefore,
the Fund anticipates meeting its 80% investment policy because it already generally invests at least 90% of its total assets in the securities
that comprise the Underlying Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal
investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to
trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar adverse consequences could
result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties with which the Fund engages,
governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers, dealers, insurance companies,
other financial institutions and other parties. The Fund and its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses, or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market
10
conditions or otherwise.
Due to these factors, the variation between the Fund’s annual return and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares
before receiving cash
payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the
11
underlying
futures contract at a specified price at any time prior to the expiration date of the option. Exchanges
can limit the number of futures or options positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the
Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
12
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since February 2012. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.29% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “EEMO.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Actof 1933, as amended (the “Securities Act”),
will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
13
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
14
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation
Unit for securities,
cannot be deducted currently under the rules governing “wash sales” or on the ground that there has been no significant change
in the AP's economic position. An AP exchanging securities should consult its own tax advisor(s) with respect to whether wash sale rules
apply and when a loss otherwise might not be deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot
15
sizes. Odd lots often
trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts are valued at the
daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued at the mean between
the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options are valued at the final
settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally are valued using pricing
provided from independent pricing services. Unlisted securities will be valued using prices provided by independent pricing services or
by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance with the Valuation
Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available and reliable.
The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue the
use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial
statements of the Fund
and assists in the preparation and/or review of the Fund’s federal and state income tax returns.
16
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$14.12
|
$17.90
|
$16.49
|
$16.97
|
$17.23
|
|
Net
investment income(a)
|
0.59
|
0.43(b)
|
0.27(c)
|
0.32
|
0.40
|
|
Net
realized and unrealized gain (loss) on investments |
(1.03)
|
(3.78)
|
1.32
|
(0.46)
|
1.61
|
|
Total
from investment operations |
(0.44)
|
(3.35)
|
1.59
|
(0.14)
|
2.01
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.67)
|
(0.44)
|
(0.19)
|
(0.34)
|
(0.43)
|
|
Net
realized gains |
-
|
-
|
-
|
-
|
(1.85)
|
|
Total
distributions |
(0.67)
|
(0.44)
|
(0.19)
|
(0.34)
|
(2.28)
|
|
Transaction
fees(a)
|
-
|
0.01
|
0.01
|
0.00(d)
|
0.01
|
|
Net
asset value at end of year |
$13.01
|
$14.12
|
$17.90
|
$16.49
|
$16.97
|
|
Market
price at end of year(e)
|
$13.03
|
$14.07
|
$17.72
|
$16.51
|
$16.92
|
|
Net
Asset Value Total Return(f)
|
(3.27)%
|
(18.82)%
|
9.66%
|
0.20%
|
13.60%
|
|
Market
Price Total Return(f)
|
(2.76)%
|
(18.28)%
|
8.44%
|
0.59%
|
13.66%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$4,553
|
$4,942
|
$6,263
|
$5,770
|
$5,941
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses,
after Waivers |
0.29%
|
0.29%
|
0.29%
|
0.29%
|
0.36%(g)(h)
|
|
Expenses,
prior to Waivers |
0.29%
|
0.29%
|
0.29%
|
0.37%
|
0.53%(g)(h)
|
|
Net
investment income |
4.23%
|
2.64%(b)
|
1.43%(c)
|
2.10%
|
2.42%(h)
|
|
Portfolio
turnover rate(i)
|
115%
|
114%
|
166%
|
172%
|
114%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.32 and 1.98%, respectively. |
|
(c)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.22 and 1.14%, respectively. |
|
(d)
|
Amount
represents less than $0.005. |
|
(e)
|
The
mean between the last bid and ask prices. |
|
(f)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(g)
|
In
addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of
the investment companies in which the Fund invests.
Estimated
investment companies' expenses are not expenses that are incurred directly by the Fund. They are expenses that are incurred directly by
the investment companies and are deducted
from
the value of the investment companies the Fund invests in. The effect of the estimated investment companies' expenses that the Fund bears
indirectly is included in the Fund's total return. |
|
(h)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.08%. |
|
(i)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
17
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
18
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about
the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional
information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In
the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal period.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
19
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P Global Water Index ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P Global Water Index ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the
S&P Global Water Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index, as well as American depositary
receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) compiles, maintains, and calculates the Underlying
Index, which is designed to measure the performance of the largest global companies in water-related businesses, with a target constituent
count of 100. To be eligible for inclusion in the Underlying Index, companies must either derive at least 25% in aggregate revenue from
water-related businesses as defined by FactSet's Revere Business Industry Classification System (“RBICS”) or belong to the
water utilities sub-industry classification under the Global Industry Classification Standard (“GICS”). Underlying Index constituents
must have a minimum float-adjusted capitalization of $100 million and total market capitalization of at least $300 million.
The
Underlying Index excludes from the eligible universe securities of companies
based on their specific business activities and noncompliance with United Nations Global Compact (“UNGC”) Principles, using
information provided by Sustainalytics, a globally recognized independent provider of
environmental, social
and governance (“ESG”) research, ratings, and data. Companies without Sustainalytics coverage are ineligible for inclusion
until receiving such coverage. The UNGC is an arrangement by which companies voluntarily and publicly commit to a set of principles drawn
from key UN Conventions and Declarations. The principles of the UNGC represent a set of values that the UN believes responsible businesses
should incorporate into their operations in order to meet fundamental responsibilities in the areas of human rights, labor, the environment,
and anti-corruption.
As
of December 31, 2023,
the Underlying Index was comprised of 56
securities with market capitalizations ranging from $588.0
million to $56.6
billion.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund is “non-diversified” and therefore is not required
to meet certain diversification requirements under the Investment Company Act of 1940, as amended (the “1940 Act”).
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The Fund's performance reflects fee waivers, if any, absent which performance
would have been lower. Although the information shown
in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before
and after taxes) is not necessarily indicative of how the Fund will perform in the future.
The
Fund is the successor to the investment performance of the Guggenheim
S&P Global Water Index ETF (the “Predecessor Fund”) as a result of the reorganization of the Predecessor Fund into the
Fund, which was consummated after the close of business on April 6, 2018. Accordingly, the performance information shown below for periods
ended on or prior to April 6, 2018 is that of the Predecessor Fund.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
S&P
Global Water Index (Net) dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes) |
|
|
|
|
|
| ||||
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
April
2018 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
April
2018 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
April
2018 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 80,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
4
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) compiles, maintains, and calculates the Underlying
Index, which is designed to measure the performance of the largest global companies in water-related businesses, with a target constituent
count of 100. To be eligible for inclusion in the Underlying Index, companies must either derive at least 25% in aggregate revenue from
water-related businesses as defined by FactSet's Revere Business Industry Classification System (“RBICS”) or belong to the
water utilities sub-industry classification under the Global Industry Classification Standard (“GICS”). Underlying Index constituents
must have a minimum float-adjusted capitalization of $100 million and total market capitalization of at least $300 million.
The
Underlying Index excludes from the eligible universe securities of companies
based on their specific business activities and noncompliance with United Nations Global Compact (“UNGC”) Principles, using
information provided by Sustainalytics, a globally recognized independent provider of environmental, social and governance (“ESG”)
research, ratings, and data. Companies without Sustainalytics coverage are ineligible for inclusion until receiving such coverage. The
UNGC is an arrangement by which companies voluntarily and publicly commit to a set of principles drawn from key UN Conventions and Declarations.
The principles of the UNGC represent a set of values that the UN believes responsible businesses should incorporate into their operations
in order to meet fundamental responsibilities in the areas of human rights, labor, the environment, and anti-corruption.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in
those same weightings.
In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling strategy, it may have a larger tracking error than if it used a full replication strategy.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P Global Water Index
The
Underlying Index is comprised of securities that are selected based on the relative importance of the global water industry within the
company’s business model. The Underlying Index seeks a target constituent count of 100 securities and is designed to have a balanced
representation from different segments of the water industry, consisting of the following: 50 water utilities and infrastructure companies
and 50 water equipment instruments and materials companies, each as categorized by the Index Provider.
To
be eligible for inclusion in the Underlying Index, a company must have
a minimum total market capitalization and float-adjusted market capitalization of $300 million and $100 million, respectively, and a six-month
median daily value traded of $3 million ($2 million for current constituents).
The
Underlying Index also employs negative screens to exclude securities
of companies with business activities above specified thresholds. These thresholds generally exclude from the Underlying Index companies
that derive more than a specified percentage (which percentage is between 0% and 5%) of their revenues from the following activities:
■
Controversial
weapons
■
Military
contracting
■
Small
arms
■
Tobacco
■
Thermal
coal
■
Oil
sands extraction
■
Shale
energy extraction
■
Arctic
oil and gas exploration
These
negative screens rely on information from Sustainalytics. The Underlying
Index also excludes companies classified by Sustainalytics as “non-compliant” with UNGC Principles. All listed companies that
pass the eligibility criteria have their publicly-disclosed business description reviewed to determine the company's exposure to water
related businesses. S&P DJI determines the universe of companies that may be considered potential
5
constituents for the
Underlying Index based on factors such as a company’s business description and most recent reported revenue by water industry segment.
The
Underlying Index is constructed as follows:
■
Companies
are classified as being in one of two clusters based on their primary source of revenue – (i) water equipment instruments and materials
or (ii) water utilities and infrastructure.
■
S&P
DJI assigns a revenue score for each company in the eligible universe based on its revenue from certain water-related activities within
the above clusters. Such scores are based primarily on RBICS data, though the Index Provider also considers a company’s business
description and most recently reported revenue by segment.
■
S&P
DJI assigns an exposure score for each company based on its aggregate percentage revenue attributable to certain water-related activities
within the above clusters, as follows:
•
companies
with aggregate percentage revenue from water-related activities equal to or greater than 75% are assigned an exposure score of 1;
•
companies
with aggregate percentage revenue from water-related activities equal to or greater than 50% but less than 75% are assigned an exposure
score of 0.75;
•
companies
with aggregate percentage revenue from water-related activities equal to or greater than 25% but less than 50% are assigned an exposure
score of 0.5; and
•
companies
with aggregate percentage revenue from water-related activities less than 25% are assigned an exposure score of 0.
■
Companies
with an exposure of 0 after the above steps but assigned an exposure score of at least 0.5 as of the previous rebalancing can be assigned
a non-zero score based on other publicly available factors.
■
Within
each cluster, stocks are ranked first by exposure score then by float-adjusted market capitalization.
■
All
stocks with an exposure score of 1 are selected for inclusion in the Underlying Index.
■
If
there are fewer than 50 constituents within each cluster, the highest-ranking stocks with an exposure score of 0.75 are selected until
the target constituent count of 50 per cluster is reached.
■
If
there are still fewer than 50 constituents within each cluster, the highest-ranking stocks with an exposure score of 0.5 are selected
until the target constituent count of 50 per cluster is reached.
■
If
there are not enough stocks with an exposure score of 0.5, the clusters will contain fewer than 50 constituents.
The
Underlying Index uses a modified market capitalization weighting methodology.
Constituents with exposure scores of 1 are capped at the lower of 8% of the Underlying Index or five times their liquidity weight. “Liquidity
weight” is a metric used by the Index Provider to account for a stock's liquidity (based on its median daily traded value over of
the prior six months) relative to the liquidity of all stocks within the index. Constituents with exposure scores of 0.75 are capped at
the lower of 6% of the Underlying Index or five times their liquidity weight. Constituents with exposure scores of 0.5 are capped at the
lower of 4% of the Underlying Index or five times their liquidity weight. The cumulative weight of all constituents within the Underlying
Index which have a weight greater than 4.5% cannot exceed 40%. The aggregate weight of each cluster is 50%.
Companies
that are acquired or delisted are removed from the Underlying Index
throughout the year. There are no additions to the Underlying Index between reconstitutions.
The
Underlying Index is rebalanced semi-annually effective after the close
of business of the third Fridays of April and October of each year, with a reference date for the data being the third Friday of the previous
March and September, respectively. The Underlying Index is reweighted quarterly after the close of business of the third Friday of January,
April, July and October.
The
Fund is rebalanced and reweighted in accordance with the Underlying
Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Industry
Concentration Risk. In following its methodology, the Underlying
Index will be concentrated to a significant degree in securities of issuers operating in a single industry or industry group. As a result,
the Fund will also concentrate its investments in such industries or industry groups to approximately the same extent. By concentrating
its investments in an industry or industry group, the Fund faces more risks than if it were
6
diversified
broadly over numerous industries or industry groups. Such industry-based risks, any of which may adversely affect the companies in which
the Fund invests, may include, but are not limited to, the following: general economic conditions or cyclical market patterns that could
negatively affect supply and demand in a particular industry; competition for resources; adverse labor relations, political or world events;
obsolescence of technologies; and increased competition or new product introductions that may affect the profitability or viability of
companies in an industry. In addition, at times, such industry or industry group may be out of favor and underperform other industries
or the market as a whole. Information about the Fund’s exposure to a particular sector,
industry,
industry group or sub-industry (as applicable)
is available in the Fund’s Annual and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Water
Industry Risk. Investments in the water industry may under-perform
relative to the general market, returns on investments in other sectors or fixed-income securities. The water industry can be significantly
affected by the availability of water, the level of rainfall and the occurrence of other climatic and environmental events, changes in
water consumption and water conservation. Furthermore, because the Fund may focus its investments in the water industry, economic downturns
and global and domestic events affecting the water industry will have a greater impact on the Fund than would be the case if the Fund’s
investments were more diversified. These events may include additional governmental regulation, including the increased cost of compliance,
inflation, an increase in the cost of raw materials, an increase in interest rates and technological advances and changes in consumer
sentiment and spending. Companies engaged in the water industry can be subject to liability for environmental damage, depletion of resources,
conflicts with local communities over water rights and mandated expenditures for safety and pollution control.
Competition
between water companies and government regulation of water companies,
including regulation of the rates that the companies may charge, both domestically and internationally, may adversely affect the earnings
of the companies in which the Fund may invest.
Industrials
Sector Risk. Changes in government regulation, world events and
economic conditions may adversely affect the companies in the industrials sector. In addition, these companies are at risk for environmental
damage claims. Industrial companies also may be adversely affected by commodity price volatility, changes in exchange rates, imposition
of import controls, increased competition, depletion of resources, technological developments, labor relations and changes in the supply
of and demand for their specific products or services or for industrials sector products in general.
Utilities
Sector Risk. The risks inherent in the utilities sector include
a variety of factors that may adversely affect the business or operations of utility
companies, including high interest costs associated with capital construction and improvement programs; difficulty in raising adequate
capital on reasonable terms in periods of high inflation and unsettled capital markets; governmental regulation of rates that the utility
company can charge to customers; costs associated with compliance
with, and adjusting to changes to, environmental and other regulations; effects of economic slowdowns and surplus capacity; and increased
competition from other providers of utility services. Utilities companies may also be adversely affected by increased costs associated
with the reduced availability of certain types of fuel, as well
as occasionally reduced availability and high costs of natural
gas for resale.
Energy conservation and changes in climate policy may also have
a significant adverse impact on the revenues and expenses of utility companies.
The effects of a national energy policy and lengthy delays, increased costs and other problems associated with the design, construction,
licensing, regulation and operation of nuclear facilities for electric generation, which may include the problems associated with the
use of radioactive
materials
and the disposal of radioactive wastes, may also negatively impact these companies.
Technological
innovations may render existing plants, equipment or products obsolete,
and companies may experience difficulty in obtaining regulatory approval of new technologies and may be affected by the potential impact
of terrorist activities on the utility industry and its customers, as well as the impact of natural or man-made disasters. Any such event
could have serious consequences for the general population of the affected area and may adversely impact the Fund's portfolio securities
performance.
Issuers
in the utilities sector also may be subject to regulation by various governmental authorities and may be affected by the imposition of
special tariffs and changes in tax laws, regulatory policies and accounting standards. Certain
utility companies have experienced full or partial deregulation in recent years.
Deregulation may subject
utilities companies to greater competition and may adversely affect their
profitability. As deregulation allows utility
companies to diversify outside of their original geographic regions
and their traditional lines of business, utility
companies may engage in riskier ventures. In addition, deregulation
may eliminate restrictions on the profits of certain utility companies, but may also subject these companies to greater risk of loss.
There is no assurance that regulatory authorities will
grant rate increases in
the future, or that such increases will be adequate to permit the payment of dividends on stocks issued by a utility
company.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Foreign
and Emerging Markets Investment Risk. Investments in foreign securities
involve risks that are beyond those associated with investments in U.S. securities, and investments in securities of issuers in emerging
market countries involve risks not often associated with investments in securities of issuers in developed countries. Fluctuations in
the value of the U.S. dollar relative to the values of other currencies may adversely affect investments in foreign and emerging market
securities. Foreign and emerging markets may have greater concentration in a few industries, resulting in greater vulnerability to regional
and global trade conditions. Emerging market
7
countries
may also have higher rates of inflation or deflation and
more rapid and extreme fluctuations in inflation rates and greater sensitivity to interest rate changes. Issuers in emerging markets also
may have relatively low market liquidity, decreased publicly available and less reliable information, and inconsistent and less stringent
regulatory, disclosure, accounting, auditing and financial reporting requirements and standards of practice, including recordkeeping standards,
comparable to those applicable to issuers in more developed markets. As a result, the nature and quality of such information may vary.
The ability to conduct adequate due diligence in emerging markets may be limited. In addition, certain emerging market countries may impose
material limitations on Public Company Accounting Oversight Board (“PCAOB”) inspection, investigation and enforcement
capabilities which can hinder the PCAOB’s ability to engage in independent oversight or inspection of accounting firms located in
or operating in certain emerging markets. There is no guarantee that the quality of financial reporting or the audits conducted by audit
firms of emerging market issuers meet PCAOB standards.
Foreign
and emerging market securities also are subject to the risks of expropriation,
nationalization or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments
in foreign and emerging market securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or
transfer restrictions and higher transactional costs. Emerging markets are subject to greater market volatility, lower trading volume,
political, social and economic instability, uncertainty regarding the existence of trading markets and more governmental limitations on
foreign investment than more developed markets. In addition, securities in emerging markets may be subject to greater price fluctuations
than securities in more developed markets. Securities law in many emerging market countries is relatively new and unsettled. Therefore,
laws regarding foreign investment in emerging market securities, securities regulation, title to securities, and shareholder rights may
change quickly and unpredictably. The ability to bring and enforce actions in emerging market countries, or to obtain information needed
to pursue or enforce such actions, may be limited, and shareholder claims may be difficult or impossible to pursue. In addition, the taxation
systems at the federal, regional and local levels in emerging market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Emerging market countries may have a higher degree of corruption and fraud than developed market countries,
as well as counterparties and financial institutions with less financial sophistication, creditworthiness and/or resources. Investments
in emerging market securities may also be subject to delays in settlement procedures, unexpected market closures, and lack of timely information.
Lack of relevant data and reliable public information, including financial information, about securities in emerging markets may contribute
to incorrect weightings and data and computational errors when the Index Provider selects securities for inclusion in the Underlying Index
or rebalances the Underlying Index.
Each
country has different laws specific to that country that impact investments,
which may increase the risks to which investors are subject. Country-specific rules or legislation addressing investment-related transactions
may inhibit or prevent certain transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades.
Depositary receipts also
involve substantially identical risks to those associated with investments in foreign securities. Additionally, the issuers of certain
depositary receipts, particularly unsponsored or unregistered depositary receipts, have no obligation to distribute shareholder communications
to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Non-Diversified
Fund Risk. Because the Fund is considered non-diversified and can
invest a greater portion of its assets in securities of individual issuers than a diversified fund, changes in the market value of a single
investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Small-
and Mid-Capitalization Company Risk.
Securities of small- and mid-capitalization companies may be more
volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that vary,
sometimes significantly, from the overall securities market. Often small- and mid-capitalization companies and the industries in which
they focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, small- and mid-capitalization
companies are typically less financially stable than larger, more established companies, and they may depend on a small number of essential
personnel, making them more vulnerable to loss of personnel. Small-
and mid-capitalization
companies also normally have less diverse product lines than large capitalization companies and are more susceptible to adverse developments
concerning their products. As such, small- and mid-capitalization companies typically are more likely to be adversely affected than large
capitalization companies by changes in earnings results, business prospects, investor expectations or poor economic or market conditions.
ADR
and GDR Risk. ADRs are certificates that evidence ownership of
shares of a foreign issuer and are alternatives to purchasing the underlying foreign securities directly in their national markets and
currencies. GDRs are certificates issued by an international bank that generally are traded and denominated in the currencies of countries
other than the home country of the issuer of the underlying shares. ADRs and GDRs may be subject to certain of the risks associated with
direct investments in the securities of foreign companies, such as currency, political, economic and market risks, because their values
depend on the performance of the non-dollar denominated underlying foreign securities. Moreover, ADRs and GDRs may not track the price
of the underlying foreign securities on which they are based, and their value may change materially at times when U.S. markets are not
open for trading.
Certain
countries may limit the ability to convert ADRs into the underlying
foreign securities and vice versa, which may cause the securities of the foreign company to trade at a discount or premium to the market
price of the related ADR. ADRs may be purchased through “sponsored” or “unsponsored” facilities. A sponsored facility
is established jointly by a depositary and the issuer of the underlying security. A depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Unsponsored receipts may involve higher expenses and may be less liquid. Holders
of unsponsored ADRs generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights
to the holders of such receipts in respect of the deposited securities.
GDRs
can involve currency risk since, unlike ADRs, they may not be U.S. dollar-denominated.
Because the Fund’s NAV is determined in U.S. dollars, the Fund’s NAV could decline if the currency of the non-U.S. market
in which the Fund invests depreciates against the U.S. dollar, even if the value of the Fund’s holdings, measured in the foreign
currency, increases.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value
8
of the Fund’s holdings,
measured in the foreign currency, increases. Generally, an increase in the value of the U.S. dollar against a foreign currency will reduce
the value of a security denominated in that foreign currency, thereby decreasing the Fund’s overall NAV. In addition, fluctuations
in the exchange values of currencies could affect the economy or particular business operations of companies in a geographic region in
which the Fund invests, causing an adverse impact on the Fund. As a result, investors have the potential for losses regardless of the
length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity
measures
and reforms, may not produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have
other unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional
adverse effects on economies, financial markets, and asset valuations around the world. The markets of a number of countries in Eastern
Europe remain relatively undeveloped and can be particularly sensitive to political and economic developments. Recent security concerns
related to immigration, war and geopolitical risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally
9
greater
impact on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no
assurance that an active
trading market for Shares will develop or be maintained by market makers or APs, that Shares will continue to trade on any such exchange
or that Shares will continue to meet the requirements for listing on an exchange. Any of these factors, among others, may lead to the
Shares trading at a premium or discount to the Fund’s NAV. As a result, an investor could lose money over short or long periods.
Further, the Fund may experience low trading volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and
market liquidity (including for the underlying securities held by the Fund), and are generally lower if Shares have more trading volume
and market liquidity and higher if Shares have little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index (and ADRs and GDRs that represent
securities in the Underlying Index), may invest its remaining assets in securities (including other funds) not included in the Underlying
Index, and in money market instruments, including repurchase agreements and other funds, including affiliated funds, that invest exclusively
in money market
10
instruments
(subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities and structured notes (notes on
which the amount of principal repayment and interest payments is based on the movement of one or more specified factors, such as the movement
of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index (and ADRs and GDRs that represent securities in the Underlying Index), in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also
may cause the value of
the Fund’s investments to decline. Like a debt security, a convertible security provides a fixed-income stream and also tends to
decrease in value when interest rates rise. Moreover, many convertible securities have credit ratings that are below investment grade
and are subject to the same risks as lower-rated debt securities, which are considered to have more speculative characteristics and greater
susceptibility to default or decline in market value than investment grade (or higher-rated) securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”), which
is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability
11
in relation to the quality,
accuracy or completeness of data in the Underlying Index, and it generally does not guarantee that the Underlying Index will be in line
with its methodology. Errors made by the Index Provider with respect to the quality, accuracy and completeness of the data within the
Underlying Index may occur from time to time and may not be identified and corrected by the Index Provider for a period of time, if at
all. Therefore, gains, losses, or costs associated with Index Provider errors will generally be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the
Underlying Index while
an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries that are eligible foreign sub-custodians
may be recently organized or otherwise lack extensive operating experience. In addition, in certain countries there may be legal restrictions
or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian in the event of the bankruptcy
of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed markets. Thus, there may be
a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of failures of or defects in
the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release local shares before receiving
cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of
12
the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
13
Portfolio
Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since April 2018. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since April 2018. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser for its services an annual fee equal to 0.50% of its average daily net assets (the “Advisory Fee”).
The
Fund is responsible for all of its own expenses, including, but not limited
to, the investment advisory fees, costs of transfer agency, custody, fund administration, legal, audit and other services, interest, taxes,
Acquired Fund Fees and Expenses, if any, brokerage commissions and other expenses connected with executions of portfolio transactions,
sub-licensing fees related to the Underlying Index, any distribution fees or expenses, litigation expenses, fees payable to the Trust’s
Board members and officers who are not “interested persons” of the Trust or the Adviser, expenses incurred in connection with
the Board members’ services, including travel expenses and legal fees of counsel for those members of the Board who are not “interested
persons” of the Trust or the Adviser and extraordinary expenses, including proxy expenses (except for such proxies related to: (i)
changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested person” of the Trust,
or (iii) any other matters that directly benefit the Adviser).
The
Trust and the Adviser have entered into an Amended and Restated Excess
Expense Agreement (the “Expense Agreement”) on behalf of the Fund pursuant to which the Adviser has agreed to waive fees and/or
pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expenses, sub-licensing fees,
offering costs (as
defined
below), brokerage commissions and other trading expenses, taxes, Acquired Fund Fees and Expenses, if applicable, and extraordinary expenses)
from exceeding 0.63% of its average daily net assets per year (the “Expense Cap”), at least until August 31, 2025.
The
offering costs excluded from the Expense Cap for the Fund are: (a) initial
legal fees pertaining to the Shares offered for sale; (b) initial SEC and state registration fees; and (c) initial fees paid to be listed
on an exchange.
The
Expense Agreement provides that the fees waived and/or expenses borne
by the Adviser are subject to recapture by the Adviser for up to three years from the date the fees were waived or the expenses were incurred,
but no recapture payment will be made by the Fund if it would result in the Fund exceeding (i) the Expense Cap or (ii) the expense cap
in effect at the time the fees and/or expenses subject to recapture were waived and/or borne by the Adviser.
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
This waiver is not subject to recapture.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “CGW.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a
14
redemption request, the
Fund may take up to 15 days after the receipt of the redemption request to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid annually by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”),
and to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should
15
recognize
gain or loss in an amount equal to the difference between the shareholder’s adjusted tax basis in his or her shares and the liquidating
distribution(s) he or she receives, except to the extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution
may be subject to backup withholding as described below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment
accounts.
After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions, return of capital distributions
and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the IRS, which can be relied upon currently,
such withholding is no longer required unless final regulations provide otherwise (which is not expected). The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA or similar
laws. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate
certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
16
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such
price is stale or unreliable,
the Adviser will value the security at fair value in good faith using the Valuation Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
17
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$45.65
|
$58.91
|
$41.43
|
$39.55
|
$32.32
|
|
Net
investment income(a)
|
0.75
|
0.61
|
1.08(b)
|
0.63
|
0.64
|
|
Net
realized and unrealized gain (loss) on investments |
(0.36)(c)
|
(12.91)
|
17.06
|
1.86
|
7.26
|
|
Total
from investment operations |
0.39
|
(12.30)
|
18.14
|
2.49
|
7.90
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.68)
|
(0.96)
|
(0.66)
|
(0.61)
|
(0.67)
|
|
Transaction
fees(a)
|
0.00(d)
|
0.00(d)
|
0.00(d)
|
0.00(d)
|
0.00(d)
|
|
Net
asset value at end of year |
$45.36
|
$45.65
|
$58.91
|
$41.43
|
$39.55
|
|
Market
price at end of year(e)
|
$45.37
|
$45.66
|
$59.04
|
$41.54
|
$39.54
|
|
Net
Asset Value Total Return(f)
|
0.81%
|
(21.21)%
|
44.25%
|
6.31%
|
25.10%
|
|
Market
Price Total Return(f)
|
0.81%
|
(21.37)%
|
44.18%
|
6.62%
|
25.27%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s
omitted) |
$840,083
|
$932,994
|
$1,199,341
|
$710,871
|
$741,918
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.56%
|
0.57%
|
0.57%
|
0.57%
|
0.59%
|
|
Net
investment income |
1.53%
|
1.20%
|
2.08%(b)
|
1.61%
|
1.82%
|
|
Portfolio
turnover rate(g)
|
36%
|
35%
|
15%
|
15%
|
13%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
investment income per share and the ratio of net investment income to average net assets include a significant dividend received during
the period. Net investment income per share and the
ratio
of net investment income to average net assets excluding the significant dividend are $0.62 and 1.18%, respectively. |
|
(c)
|
Net
gains (losses) on securities (both realized and unrealized) per share may not correlate with the Fund’s net realized and unrealized
gain (loss) due to timing of shareholder transactions in
relation
to the fluctuating market values of the Fund’s investments. |
|
(d)
|
Amount
represents less than $0.005. |
|
(e)
|
The
mean between the last bid and ask prices. |
|
(f)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(g)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
18
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
19
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about
the Fund and is incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional
information about the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In
the Fund’s current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the last fiscal period.
If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or Semi-Annual Report, free of charge,
or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
20
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P International Developed Low Volatility ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P International Developed Low Volatility ETF (the “Fund”) seeks to track the investment results (before fees
and expenses) of the S&P BMI International Developed Low VolatilityTM Index
(the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices LLC (“S&P DJI” or the “Index Provider”) compiles, maintains and calculates the Underlying
Index, which is designed to measure the performance of the 200 least volatile stocks of the S&P Developed ex-U.S. & Korea LargeMidCap
(the “Parent Index”). Volatility is a statistical measurement of the magnitude of up and down asset price fluctuations (increases
or decreases in a stock’s price) over time. S&P DJI measures the realized volatility of the Underlying Index’s constituents
over the trailing 12 months and weights constituents so that the least volatile stocks receive the highest weights.
The
Parent Index is designed to measure the performance of large- and mid-cap
securities in developed markets throughout the world, excluding the United States and South Korea.
As
of December 31, 2023,
the Underlying Index was comprised of 200 securities with market capitalizations ranging from $2.2
billion to $309.4
billion and represented the following countries: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan,
the
Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and an additional
index with characteristics relevant to the Fund. The Fund's performance reflects fee waivers, if
any, absent
which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
S&P
BMI International Developed Low Volatility™
Index
(Net) withholding
taxes, but reflects no deduction for |
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)1
|
|
|
|
|
|
| ||||
1
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
January
2012 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P BMI International
Developed Low Volatility Index
The
Underlying Index is designed to measure the performance of the 200 least volatile stocks of the Parent Index that have a minimum three-month
average daily value traded of $3 million ($2.5 million for current constituents) as of the rebalance reference date.
The
Parent Index measures all publicly listed equities of companies located
in developed markets throughout the world, excluding the United States and South Korea, that have float-adjusted market values of at least
$100 million and that meet certain minimum liquidity thresholds. S&P DJI
4
measures the realized
volatility of every stock in the Underlying Index over the trailing 12 months and weights constituents so that the least volatile stocks
receive the highest weights.
The
Underlying Index is rebalanced quarterly after market close on the third
Friday in March, June, September and December. S&P DJI makes additions to the Underlying Index only at the time of the quarterly rebalance
but constituents that are removed from the Parent Index are removed from the Underlying Index simultaneously. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other
types of funds with investment
advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or transfer restrictions and higher
transactional costs. Each country has different laws specific to that country that impact investment, which may increase the risks to
which investors are subject. Country-specific rules or legislation addressing investment-related transactions may inhibit or prevent certain
transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its
5
management or lower demand
for the company's products or services. In particular, the common stock of a company may decline significantly in price over short periods
of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common stock; similarly, the
common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons,
the issuer experiences a decline in its financial condition.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
Asia
Pacific Investment Risk. The level of development of the economies
of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined,
if an economic recession is experienced by any of these countries, it will likely adversely impact the economic performance of other countries
in the region. Certain economies in the region may be adversely affected by increased competition, high inflation rates, undeveloped financial
services sectors, currency fluctuations or restrictions, political and social instability and increased economic volatility. In addition,
certain countries in the Asia Pacific region in which the Fund may invest are large debtors to commercial banks and foreign governments.
The recent economic crisis has reduced the willingness of certain lenders to extend credit to these Asia Pacific countries and have made
it more difficult for such borrowers to obtain financing on attractive terms or at all. These developments may also have a negative effect
on the broader economy of such Asia Pacific countries, including issuers in which the Fund may invest. Due to heavy reliance on international
trade, a decrease in demand (due to recession or otherwise in the United States, Europe or Asia) would adversely affect economic performance
in the region.
Japan
Investment Risk. Japan may be subject to political, economic, nuclear,
labor, natural disaster, and regional and global conflicts risks, among others. Any of these risks, individually or in the aggregate,
can impact an investment made in Japan. The growth of Japan’s economy has recently lagged that of its Asian neighbors and other
major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs,
other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. The Japanese economy
has experienced the effects of the global economic slowdown similar to the United States and Europe, and downturns in the economies of
Japan’s key trading partners, such as the United States, China and/or countries in Southeast Asia, could also have a negative impact
on the Japanese economy as a whole. Japan has a limited supply of natural resources, and is heavily dependent on oil imports, and higher
commodity prices could therefore have a negative impact on the Japanese economy.
The
Japanese economy faces additional concerns, including a financial
system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations,
a changing corporate governance structure, and large government deficits. These issues may cause a continued slowdown of the Japanese
economy.
Moreover,
Japan has an aging workforce and has experienced a significant
population decline in recent years. Japan’s labor market appears to be undergoing fundamental structural changes as a result,
which
may adversely affect its economic competitiveness in the world marketplace.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often, mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, mid-capitalization companies
are typically less financially stable than larger, more established companies, and they may depend on a small number of essential personnel,
making them more vulnerable to loss of personnel. Mid-capitalization companies also normally have less diverse product lines than large-capitalization
companies and are more susceptible to adverse developments concerning their products. As such, mid-capitalization companies typically
are more likely to be adversely affected than large-capitalization companies by changes in earnings results, business prospects, investor
expectations or poor economic or market conditions.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to
6
sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer.
The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may
contribute to tracking
error. The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices,
the Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax
diversification requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained
in, and relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due
to liquidity constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying
Index. For tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying
Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
7
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the Investment Company Act of 1940 as amended (the “1940 Act”) or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”)
is open) for additions
to, and deletions from, the Underlying Index to fully settle in the portfolio composition of the Fund.
The
Fund’s investment objective is a non-fundamental policy that the Board
of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies,
8
other financial institutions
and other parties. The Fund and its shareholders could be negatively impacted as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”),
which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses, or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its
shareholders. Unscheduled
rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional ad hoc rebalances carried out by the
Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit
9
Insurance Corporation
or any other government agency; it is possible to lose money by investing in a money market fund. To the extent that the Fund invests
in money market funds, the Fund will be subject to the same risks that investors experience when investing in money market funds. These
risks may include the impact of significant fluctuations in assets as a result of the cash sweep program or purchase and redemption activity
in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly
subject
to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the
10
secondary market on a
national securities exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV.
These in-kind arrangements are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise
from frequent cash creation and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on
taxable shareholders because the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales
may generate taxable gains that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption
mechanism generally will not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since January 2012. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
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Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.25% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling
11
Shares through a broker,
you will incur customary brokerage commissions and charges, and you may pay some or all of the spread between the bid and the offered
price in the secondary market on each leg of a round trip (purchase and sale) transaction.
The
Shares trade on the Exchange under the symbol “IDLV.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking
error, disruption of
portfolio management, dilution to the Fund and increased transaction costs, which could negatively impact the Fund’s ability to
achieve its investment objective, and may lead to the realization of capital gains. These consequences may increase as the frequency of
cash purchases and redemptions of Creation Units by APs increases. However, direct trading by APs is critical to ensuring that Shares
trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and
12
qualified
foreign corporations. If the Fund invests primarily in debt securities, either none or only a nominal portion of the dividends paid by
the Fund will be eligible for taxation at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more
13
Creation Units, you will
be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its
judgment, believes better
reflects the security’s fair value in accordance with the Valuation Procedures. Foreign exchange-traded equity securities are valued
at their market value if market quotations are available and reliable. The Adviser may use various pricing services to obtain market quotations
as well as fair value prices. The Adviser may discontinue the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
14
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$24.92
|
$31.63
|
$27.37
|
$34.58
|
$30.83
|
|
Net
investment income(a)
|
0.94
|
0.98
|
0.83
|
0.83
|
1.15
|
|
Net
realized and unrealized gain (loss) on investments |
0.70
|
(6.32)
|
4.17
|
(6.40)
|
3.79
|
|
Total
from investment operations |
1.64
|
(5.34)
|
5.00
|
(5.57)
|
4.94
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.99)
|
(1.37)
|
(0.74)
|
(1.64)
|
(1.19)
|
|
Net
asset value at end of year |
$25.57
|
$24.92
|
$31.63
|
$27.37
|
$34.58
|
|
Market
price at end of year(b)
|
$25.75
|
$24.92
|
$31.69
|
$27.43
|
$34.57
|
|
Net
Asset Value Total Return(c)
|
6.42%
|
(17.33)%
|
18.34%
|
(16.49)%
|
16.33%
|
|
Market
Price Total Return(c)
|
7.17%
|
(17.50)%
|
18.31%
|
(16.28)%
|
16.56%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$536,963
|
$431,159
|
$700,694
|
$774,564
|
$989,052
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses,
after Waivers |
0.25%
|
0.25%
|
0.25%
|
0.25%
|
0.25%
|
|
Expenses,
prior to Waivers |
0.25%
|
0.25%
|
0.25%
|
0.30%
|
0.35%
|
|
Net
investment income |
3.47%
|
3.29%
|
2.69%
|
2.77%
|
3.51%
|
|
Portfolio
turnover rate(d)
|
67%
|
78%
|
81%
|
99%
|
59%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
The
mean between the last bid and ask prices. |
|
(c)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(d)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
15
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
16
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about the Fund and is
incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional information about
the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s
current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or
Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
17
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P International Developed Momentum ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P International Developed Momentum ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the S&P Momentum Developed ex-U.S. & South Korea LargeMidCap (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities
that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices (“S&P DJI” or the “Index Provider”) compiles, maintains and calculates the Underlying Index,
which is composed of constituents of the S&P Developed ex-U.S. & Korea LargeMidCap (the “Parent Index”) that have
the highest “momentum score.” In general, momentum is the tendency of an investment to exhibit persistence in its relative
performance; a “momentum style” of investing emphasizes investing in securities that have had better recent performance compared
to other securities. The momentum score for each security included in the Underlying Index is based on upward price movements of the security
as compared to other eligible securities within the Parent Index.
The
Parent Index is designed to measure the performance of large- and mid-cap
securities in developed markets throughout the world, excluding the United States and South Korea.
In
selecting constituent securities for the Underlying Index, the Index Provider
first calculates the momentum score of each stock in the Parent Index by evaluating the percentage change in the stock’s price over
the last
12 months, excluding
the most recent month, and applying an adjustment based on the security’s volatility over that period. The Index Provider then ranks
all the stocks in descending order by momentum score, selects the top 20% for inclusion in the Underlying Index and weights the selected
securities based on a modified market capitalization-weighted strategy.
As
of December 31, 2023,
the Underlying Index was comprised of 198
securities with market capitalizations ranging from $2.3
billion to $355.2
billion and represented the following countries: 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 (“UK”).
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
3
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and additional
indexes with characteristics relevant to the Fund. The Fund's performance reflects fee waivers, if
any, absent
which performance would have been lower. Although
the information shown in the bar chart and the table gives you some idea of the risks involved in investing in the Fund, the Fund’s
past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
|
Period
Ended |
Returns
|
|
|
|
|
|
|
|
-
|
Average Annual Total Returns (for the periods ended December 31, 2023)
|
|
Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
|
|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
|
|
|
|
|
| ||||
|
S&P
Momentum Developed ex-U.S. & South Korea
LargeMidCap
Index™ (Net) dividends
net of withholding taxes, but reflects no |
|
|
|
|
|
| ||||
|
Blended
- S&P
Momentum Developed ex-US and
South
Korea LargeMidCap Index (Net) (reflects
reinvested
dividends net of withholding taxes, but
reflects
no deduction for fees, expenses or other
taxes)3
|
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)2
|
|
|
|
|
|
| ||||
1
2
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
February
2012 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the difference between the highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller
is willing to accept for Shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
4
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling methodology, the Adviser bases the quantity of holdings in the Fund on a number of factors, including
asset size of the Fund, and generally expects the Fund to hold less than the total number of securities in the Underlying Index. However,
the Adviser reserves the right to invest the Fund in as many securities as it believes necessary to achieve the Fund’s investment
objective. To the extent the Fund uses a sampling methodology, it may have a larger tracking error than if it used a full replication
methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P Momentum Developed
ex-U.S. & South Korea LargeMidCap
The
Underlying Index is designed to measure the performance of the securities with the greatest momentum within the Parent Index. The Parent
Index measures all publicly listed equities of companies located in developed markets throughout the world, excluding the United States
and South Korea, that have float-adjusted market values of at least $100 million and that meet certain minimum liquidity thresholds.
To
qualify for inclusion in the Underlying Index, a security must (i) be a constituent
of the Parent Index, (ii) have traded at least 150 days over the trailing 12 months, and (iii) have a three-month average daily value
traded of at least $3 million over the trailing 12 months.
In
selecting constituent securities for the Underlying Index, the Index Provider
first calculates the momentum score of each stock in the Parent Index by evaluating the percentage change in the stock’s price over
the last 12 months, excluding the most recent month, and applying an adjustment based on the security’s volatility over that period.
The Index Provider then ranks all the stocks in descending order by momentum score and selects the top 20% for inclusion in the Underlying
Index.
The
Underlying Index uses a modified market capitalization-weighted strategy,
as the Index Provider weights component securities by multiplying their market capitalization and their momentum score.
The
Underlying Index is rebalanced after market close on the third Friday
in March and September. Additions to and deletions from the
Underlying Index generally occur only at the time of the semi-annual rebalance but constituents removed from the Parent Index are removed
from the Underlying Index simultaneously. Apart from scheduled rebalances, the Index Provider or its agents may carry out additional ad
hoc rebalances to the Underlying Index in order, for example, to reflect corporate actions or spin-offs. The Fund is rebalanced in accordance
with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the securities in the
Underlying Index. The value of a security may decline due to general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed
5
from the Underlying Index,
the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current market value.
The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally, the Fund rebalances
its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s rebalance schedule
will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed fund, the Adviser
does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market decline. This
means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types of funds with
investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or transfer restrictions and higher
transactional costs. Each country has different laws specific to that country that impact investment, which may increase the risks to
which investors are subject. Country-specific rules or legislation addressing investment-related transactions may inhibit or prevent certain
transactions from transpiring in a particular country.
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Momentum
Investing Risk. Momentum is the tendency of an investment to exhibit
persistence in its relative performance; a “momentum” style of investing therefore emphasizes investing in securities that
have had better recent performance compared to other securities, on the theory that these securities will continue to increase in value.
Momentum investing is subject to the risk that the securities may be more volatile than the market as a whole. High momentum may also
be a sign that the securities’ prices have peaked, and therefore the returns on securities that have previously exhibited price
momentum may be less than the returns on other styles of investing. Momentum can turn quickly, and stocks that previously exhibited high
momentum may not experience continued positive momentum. The Fund may experience significant losses if momentum stops, reverses or otherwise
behaves differently than predicted. In addition, there may be
periods when the momentum
style of investing is out of favor and therefore, the investment performance of the Fund may suffer.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies related to money supply and interest rates for the euro (the common currency of certain
EU countries) requires compliance by member states with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental
or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or economic recessions in an EU member country may have significant adverse effects on the economies of EU member
countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's
6
creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity measures and reforms, may not
produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped
and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration, war and geopolitical
risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Japan
Investment Risk. Japan may be subject to political, economic, nuclear,
labor, natural disaster, and regional and global conflicts risks, among others. Any of these risks, individually or in the aggregate,
can impact an investment made in Japan. The growth of Japan’s economy has recently lagged that of its Asian neighbors and other
major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs,
other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. The Japanese economy
has experienced the effects of the global economic slowdown similar to the United States and Europe, and downturns in the economies of
Japan’s key trading partners, such as the United States, China and/or countries in Southeast Asia, could also have a negative impact
on the Japanese economy as a whole. Japan has a limited supply of natural resources, and is heavily dependent on oil imports, and higher
commodity prices could therefore have a negative impact on the Japanese economy.
The
Japanese economy faces additional concerns, including a financial
system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations,
a changing corporate governance structure, and large government deficits. These issues may cause a continued slowdown of the Japanese
economy.
Moreover,
Japan has an aging workforce and has experienced a significant
population decline in recent years. Japan’s labor market appears to be undergoing fundamental structural changes as a result, which
may adversely affect its economic competitiveness in the world marketplace.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks
than
if it were diversified broadly over numerous industries or industry groups. Such industry-based risks, any of which may adversely affect
the companies in which the Fund invests, may include, but are not limited to, the following: general economic conditions or cyclical market
patterns that could negatively affect supply and demand in a particular industry, competition for resources, adverse labor relations,
political or world events, obsolescence of technologies, and increased competition or new product introductions that may affect the profitability
or viability of companies in an industry. In addition, at times, such industry or industry group may be out of favor and underperform
other industries or the market as a whole. Information about the Fund’s exposure to a particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s Annual
and Semi-Annual Reports to Shareholders, as well as on required forms filed with the SEC.
Financials
Sector Risk. Financial
services companies are subject to extensive government regulation and, as a result, their profitability may be affected by new regulations
or regulatory interpretations. Changes
in interest rates can have a disproportionate effect on the financials sector,
and
financial services companies whose securities the Fund may purchase may themselves have concentrated portfolios,
which makes them vulnerable to economic conditions that affect
that sector. Financial services companies have also been affected by increased competition, which could adversely affect the profitability
or viability of such companies. In addition, the
financials sector is undergoing
numerous changes,
including continuing consolidations,
development of new products and structures and changes to its regulatory
framework. Increased
government involvement in financial institutions, including
measures such as taking ownership positions in such institutions,
could result in a dilution in
the value of the shares held by shareholders in such institutions.
Global
economies and financial markets are becoming increasingly interconnected,
which increases the possibility that conditions in one country or region may adversely affect issuers in another country or region, which
may adversely affect securities held by the Fund. These circumstances have also decreased liquidity in some markets and may continue to
do so. Deterioration of credit markets can have an adverse impact on a broad range of financial markets, and thereby cause certain financial
services companies to incur large losses. Certain financial services companies have experienced a decline in the valuation of their assets
and even ceased operations.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often, mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, mid-capitalization companies
are typically less financially stable than larger, more established companies, and they may depend on a small number of essential personnel,
making them more vulnerable to loss of personnel. Mid-capitalization companies also normally have less diverse product lines than large-capitalization
companies and are more susceptible to adverse developments concerning their products. As such, mid-capitalization companies typically
are more likely to be adversely affected than large-capitalization companies by changes in earnings results, business prospects, investor
expectations or poor economic or market conditions.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular
7
business operations of
companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors have the potential
for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater fluctuations in Share price than would occur in a diversified fund. This may increase the Fund’s
volatility and cause the performance of a relatively small number of issuers to have a greater impact on the Fund’s performance.
Portfolio
Turnover Risk. The Fund may engage in frequent trading of its portfolio
securities in connection with the rebalancing or adjustment of the Underlying Index, which may result in a high portfolio turnover rate.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying and selling all of its securities two times during the
course of a year. A high portfolio turnover rate (such as 100% or more) could result in high brokerage costs for the Fund. While a high
portfolio turnover rate can result in an increase in taxable capital gains distributions to the Fund’s shareholders, the Fund will
seek to utilize the in-kind creation and redemption mechanism (described below) to minimize the realization of capital gains to the extent
possible.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at
any time, and it is possible
that the Fund would incur a loss because a security is sold at a discount to its established value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in regulated industries, certain emerging or international
markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate amount of investment by affiliated
investors that may not be exceeded, or that may not be exceeded without the grant of a license or other regulatory or corporate consent,
or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or business restrictions. As a result,
the Fund may be restricted in its ability to acquire particular securities due to positions held by the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by
8
the Fund are traded outside
a collateralized settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on
behalf of other market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the
business or are unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward
to create or redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely
to trade at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have
lower trading volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to
effectively create or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ
significantly from the
value of the Fund’s underlying holdings, with the result that investors may pay significantly more or receive significantly less
than the underlying value of the Shares bought or sold. This can be reflected as a spread between the bid and ask prices for the Fund
quoted during the day or a premium or discount in the closing price from the Fund’s NAV. Additionally, APs may be less willing to
create or redeem the Shares if there is a lack of an active market for such Shares or the Fund’s underlying investments, which may
contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the Investment Company Act of 1940 as amended (the “1940 Act”) or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
The
Fund’s investment objective is a non-fundamental policy that the Board
of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
Borrowing Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the
9
risks of both debt securities
and equity securities. As with other equity securities, the value of a convertible security tends to increase as the price of the underlying
stock goes up, and to decrease as the price of the underlying stock goes down. Declining common stock values therefore also may cause
the value of the Fund’s investments to decline. Like a debt security, a convertible security provides a fixed-income stream and
also tends to decrease in value when interest rates rise. Moreover, many convertible securities have credit ratings that are below investment
grade and are subject to the same risks as lower-rated debt securities, which are considered to have more speculative characteristics
and greater susceptibility to default or decline in market value than investment grade (or higher-rated) securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”),
which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile
the Underlying Index
accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the Index Provider gives descriptions
of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any warranty or accept any liability
in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally does not guarantee that the Underlying
Index will be in line with its methodology. Errors made by the Index Provider with respect to the quality, accuracy and completeness of
the data within the Underlying Index may occur from time to time and may not be identified and corrected by the Index Provider for a period
of time, if at all. Therefore, gains, losses, or costs associated with Index Provider errors will generally be borne by the Fund and its
shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that any large shareholder would
not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s liquidity
and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP, rather than
executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not otherwise do
so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may accelerate
the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments to
meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are
10
excluded from the Fund
expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money market fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per
share (i.e., in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money
market funds may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an
agreed date. Repurchase
agreements may be characterized as loans secured by the underlying securities. If the seller of securities under a repurchase agreement
defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Fund will seek to
dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities may be restricted. If the
seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of the underlying securities
are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments and the price of the underlying securities.
Because futures contracts project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely
11
interest payments and/or
repay the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the Shares’ in-kind redemption mechanism generally will
not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco Capital Management
LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515. Invesco Capital Management
LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust, Invesco Actively Managed Exchange-Traded
Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco Exchange-Traded Self-Indexed Fund Trust
and Invesco India Exchange-Traded Fund Trust, a
family
of ETFs, with combined assets under management of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and Tony
Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since February 2012. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.25% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs
12
through
such Underlying Affiliated Investments is in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has
agreed to waive the Advisory Fee payable by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by
the Adviser or an affiliate of the Adviser that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory
Fee available to be waived. This waiver does not apply to the Fund's investment of cash collateral received for securities lending. This
waiver is in place through at least August 31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “IDMO.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
Fund incurs in effecting trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves
the right not to accept orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise
are not in the best interests of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent
purchases and redemptions of Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and
13
gain it distributes.
If you are a taxable investor, dividends and distributions you receive generally are taxable to you whether you reinvest distributions
in additional Shares or take them in cash. Every year, you will be sent information showing the amount of dividends and distributions
you received during the prior calendar year. In addition, investors in taxable accounts should be aware of the basic tax points listed
below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special certification requirements to avoid U.S. backup withholding and claim any treaty
benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
14
generally
are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual retirement
accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily
available and reliable
in accordance with Board-approved policies and related Adviser procedures (the “Valuation Procedures”), subject to the Board’s
oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the passage of time between when the
security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s last
market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency, (ii)
events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
15
between the prices used
to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
16
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$28.98
|
$37.11
|
$28.96
|
$26.85
|
$24.86
|
|
Net
investment income(a)
|
1.13
|
0.97
|
0.50
|
0.04
|
0.61
|
|
Net
realized and unrealized gain (loss) on investments |
2.87(b)
|
(7.84)
|
8.25
|
2.58
|
2.12
|
|
Total
from investment operations |
4.00
|
(6.87)
|
8.75
|
2.62
|
2.73
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(1.06)
|
(1.26)
|
(0.60)
|
(0.51)
|
(0.74)
|
|
Net
asset value at end of year |
$31.92
|
$28.98
|
$37.11
|
$28.96
|
$26.85
|
|
Market
price at end of year(c)
|
$32.41
|
$29.21
|
$37.16
|
$28.92
|
$26.79
|
|
Net
Asset Value Total Return(d)
|
13.82%
|
(18.73)%
|
30.43%
|
10.14%
|
11.30%
|
|
Market
Price Total Return(d)
|
14.62%
|
(18.21)%
|
30.80%
|
10.24%
|
11.42%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$65,438
|
$8,695
|
$16,701
|
$298,237
|
$2,685
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses,
after Waivers |
0.25%
|
0.25%
|
0.25%
|
0.25%
|
0.53%(e)
|
|
Expenses,
prior to Waivers |
0.25%
|
0.25%
|
0.25%
|
0.26%
|
0.63%(e)
|
|
Net
investment income |
3.47%
|
2.93%
|
1.42%
|
0.13%
|
2.39%(e)
|
|
Portfolio
turnover rate(f)
|
131%
|
106%
|
29%
|
15%
|
104%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Net
realized and unrealized gain (loss) on investments per share may not correlate with the Fund’s net realized and unrealized gain
(loss) due to timing of shareholder transactions in relation to the
fluctuating
market values of the Fund’s investments. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.27%. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
17
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
18
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about the Fund and is
incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional information about
the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s
current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or
Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
19
Prospectus
February
28, 2024
Invesco
Exchange-Traded Fund Trust II
|
|
Invesco
S&P International Developed Quality ETF |
NYSE
Arca, Inc. |
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The
Invesco S&P International Developed Quality ETF (the “Fund”) seeks to track the investment results (before fees and expenses)
of the S&P Quality Developed ex-U.S. LargeMidCap Index (the “Underlying Index”).
This
table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
Management
Fees |
% |
|
| |
|
Other
Expenses |
|
|
| |
|
Total
Annual Fund Operating Expenses |
|
|
| |
The example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your Shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. This example does
not include brokerage commissions that investors may pay to buy and sell Shares. Although your actual costs may be higher or lower, your
costs, based on these assumptions, would be:
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$
|
$
|
$
|
$
|
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index.
Strictly
in accordance with its guidelines and mandated procedures, S&P
Dow Jones Indices (“S&P DJI” or the “Index Provider”) compiles, maintains and calculates the Underlying Index,
which is constructed from constituents of the S&P Developed ex-U.S. LargeMidCap (the “Parent Index”) that the Index Provider
identifies as being of the highest quality—that is, stocks of companies that seek to generate higher revenue and cash flow than
their average counterparts
through prudent use of assets and finances.
The
Parent Index is designed to measure the top 85% of float-adjusted market
cap in each developed country, excluding the United States.
In
selecting constituent securities for the Underlying Index, the Index Provider
calculates the quality score of each security in the Parent Index and selects the top 20% of securities with the highest quality scores
based on a composite of the following three factors: (i) return-on-equity, calculated as the company’s trailing 12-month earnings
per share divided by the company’s latest book value per share; (ii) accruals ratio, computed using the change of the company’s
net operating assets over the last year divided by the company’s average total assets over the last two fiscal
years; and (iii)
financial leverage, calculated
as the company’s latest total debt divided by the company’s book value. Eligible securities also must have a minimum three-month
average daily trading volume of $3 million.
The
Underlying Index is modified market-capitalization weighted, weighting
component securities by multiplying their market capitalization and their quality score; securities with higher scores receive relatively
greater weights.
As
of December 31, 2023,
the Underlying Index was comprised of 203
securities with market capitalizations ranging from $1.5
billion
to $406.6
billion and represented the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, South Korea, Spain, Sweden, Switzerland,
and the United Kingdom (“UK”).
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that the Fund generally invests in all of the securities comprising the Underlying Index in proportion to their
weightings in the Underlying Index.
The
Fund intends to be
“diversified,”
as defined in
the Investment Company Act of 1940, as amended (the “1940 Act”),
to the extent that the Underlying Index is diversified. The Fund
may become “non-diversified” as defined in the 1940
Act solely as a result of a change in relative market capitalization
or index weighting of one or more constituents of the Underlying Index. Should the Fund become “non-diversified,” it will
no longer be required to meet certain diversification requirements under the 1940 Act
and may invest a greater portion of its assets in securities of
a small group of issuers or in any one individual issuer than can a diversified fund.
Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status solely
due to a change in relative market capitalization or index weighting of one or more constituents of the Underlying Index.
In seeking to track the Underlying Index, the Fund was managed as diversified as of October 31, 2023.
The
following summarizes the principal risks of investing in the Fund.
1
2
The
bar chart below shows how the Fund has performed. The table below the bar chart shows the Fund’s average annual total returns (before
and after taxes). The bar chart and table
provide an indication of the risks of investing in the Fund by showing how the Fund’s total returns have varied from year to year
and by showing how the Fund’s average annual total returns compared with a broad measure of market performance and additional
indexes with characteristics relevant to the Fund. The
Fund's performance reflects fee waivers, if any, absent which performance would have been lower.
Although the information shown in the bar chart and the
table gives you some idea of the risks involved in investing in the Fund, the Fund’s past performance (before and after taxes) is
not necessarily indicative of how the Fund will perform in the future.
Updated
performance information is available online at www.invesco.com/ETFs .
|
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Period
Ended |
Returns
|
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|
|
|
|
|
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-
|
3
Average Annual Total Returns (for the periods ended December 31, 2023)
|
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Inception
Date
|
1
Year
|
5
Years
|
10
Years
|
|
Return
Before Taxes |
|
% |
% |
% |
|
Return
After Taxes on Distributions |
|
|
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|
|
Return
After Taxes on Distributions and Sale of Fund
Shares
|
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| ||||
|
S&P
Quality Developed ex-U.S. LargeMidCap Index
(Net)
withholding
taxes, but reflects no deduction for |
|
|
|
|
|
| ||||
|
Blended
- S&P Quality Developed ex-U.S.
LargeMidCap
Index3
|
|
|
|
|
|
| ||||
|
MSCI
EAFE®
Index (Net) (reflects reinvested
dividends
net of withholding taxes, but reflects no
deduction
for fees, expenses or other taxes)2
|
|
|
|
|
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| ||||
1
2
3
Management of the Fund
Investment
Adviser. Invesco Capital Management LLC (the “Adviser”).
Portfolio Managers
The
following individuals are responsible jointly and primarily for the day-to-day management of the Fund’s portfolio:
|
Name
|
Title
with Adviser/Trust |
Date
Began
Managing
the
Fund |
|
Peter
Hubbard |
Head
of Equities and Director of
Portfolio
Management of the
Adviser;
Vice President of the Trust |
June
2007 |
|
| ||
|
Michael
Jeanette |
Senior
Portfolio Manager of the
Adviser
|
February
2015 |
|
| ||
|
Pratik
Doshi, CFA |
Portfolio
Manager of the Adviser |
February
2020 |
|
| ||
|
Tony
Seisser |
Portfolio
Manager of the Adviser |
February
2015 |
|
| ||
Purchase and Sale of Shares
The
Fund issues and redeems Shares at NAV only with APs and only in large blocks of 50,000 Shares (each block of Shares is called a “Creation
Unit”) or multiples thereof (“Creation Unit Aggregations”), generally in exchange for the deposit or delivery of a basket
of securities. However, the Fund also reserves the right to permit or require Creation Units to be issued in exchange for cash. Except
when aggregated in Creation Units, the Shares are not redeemable securities of the Fund.
Individual
Shares may only be bought and sold in the secondary market (i.e.,
on a national securities exchange) through a broker or dealer at a market price. Because the Shares trade at market prices rather than
NAV, Shares may trade at a price greater than NAV (at a premium), at NAV, or less than NAV (at a discount). An investor may incur costs
attributable to the
difference between the
highest price a buyer is willing to pay to purchase Shares (bid) and the lowest price a seller is willing to accept for Shares (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”).
Recent
information, including information on the Fund’s NAV, market price,
premiums and discounts, and bid-ask spreads, is available online at www.invesco.com/ETFs.
Tax Information
The
Fund’s distributions generally are taxed as ordinary income, capital gains or some combination of both, unless you are investing
through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement account, in which case your distributions may
be taxed as ordinary income when withdrawn from such account.
Payments to Broker-Dealers
and Other Financial Intermediaries
If
you purchase Shares of the
Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund’s distributor or its related companies may
pay the intermediary for certain Fund-related activities, including those that are designed to make the intermediary more knowledgeable
about exchange-traded products, such as the Fund, as well as for marketing, education or other initiatives related to the sale or promotion
of Shares. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
or financial adviser to recommend the Fund over another investment. Ask your salesperson or financial adviser or visit your financial
intermediary’s website for more information.
Additional Information About the Fund’s Strategies and Risks
Principal Investment Strategies
The
Fund generally will invest at least 90% of its total assets in securities that comprise the Underlying Index. The Fund operates as an
index fund and is not actively managed, meaning that it does not seek to outperform the Underlying Index. Rather, the Fund seeks to generally
track the performance of the Underlying Index as closely as possible (i.e., it seeks to obtain a high degree of correlation with the Underlying
Index and to minimize “tracking error” between the two). Tracking error means the variation between the Fund’s annual
return and the return of the Underlying Index. Because the Underlying Index is a financial calculation based on a grouping of financial
instruments, while the Fund is an actual investment portfolio, the Fund may experience tracking error for a number of reasons when tracking
the performance of the Underlying Index. For example, the Fund incurs operating expenses and transaction costs not applicable to the Underlying
Index.
As
an index fund, the Fund does not take temporary defensive positions during
periods of adverse market, economic or other conditions.
The
Fund employs a “full replication” methodology in seeking to track the
Underlying Index, meaning that it generally invests in all of the securities comprising the Underlying Index in proportion to the weightings
of the securities in the Underlying Index. However, under various circumstances, it may not be possible or practicable to purchase all
of those securities in those same weightings. In those circumstances, the Fund may purchase a sample of securities in the Underlying Index.
A
“sampling” methodology means that the Adviser uses a quantitative analysis
to select securities from the Underlying Index universe to obtain a representative sample of securities that have, in the aggregate, investment
characteristics similar to the Underlying Index in terms of key risk factors, performance attributes and other characteristics. These
include industry weightings, market capitalization, return variability, earnings valuation, yield and other financial characteristics
of securities. When employing a sampling
4
methodology, the Adviser
bases the quantity of holdings in the Fund on a number of factors, including asset size of the Fund, and generally expects the Fund to
hold less than the total number of securities in the Underlying Index. However, the Adviser reserves the right to invest the Fund in as
many securities as it believes necessary to achieve the Fund’s investment objective. To the extent the Fund uses a sampling methodology,
it may have a larger tracking error than if it used a full replication methodology.
At
times, the Fund may utilize one or more additional investment techniques
in seeking to track the Underlying Index. Such techniques may include: (i) overweighting or underweighting a component security in the
Fund’s portfolio compared to its weight in the Underlying Index, (ii) purchasing securities not contained in the Underlying Index
that the Adviser believes are appropriate to substitute for certain securities in the Underlying Index, (iii) selling securities included
in the Underlying Index in anticipation of their removal from the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying Index.
Additional
information about the construction of the Underlying Index is set
forth below.
S&P Quality Developed
ex-U.S. LargeMidCap Index
The
Underlying Index is designed to measure the performance of the highest quality securities, as identified by the Index Provider, within
the Parent Index. The Parent Index measures all publicly listed equities outside the United States with float-adjusted market values of
at least $100 million that meet certain minimum liquidity thresholds.
The
Index Provider considers the securities of companies that seek to generate
higher revenue and cash flow than their average counterparts
through prudent use of assets and finances to
be “quality” and calculates the quality score of each security in the Parent Index based on a composite of the following three
factors: (i) return-on-equity, calculated as the company’s trailing 12-month earnings per share divided by the company’s latest
book value per share; (ii) accruals ratio, computed using the change of the company’s net operating assets over the last year divided
by the company’s average total assets over the last two fiscal
years; and (iii) financial leverage, calculated as the company’s
latest total debt divided by the company’s book value. Eligible securities also must have a minimum three-month average daily trading
volume of $3 million.
The
Index Provider then selects the top 20% of securities
with the highest quality scores for inclusion in the Underlying Index and weights them based on a modified market-capitalization weighted
methodology. Weights are calculated by multiplying a security’s market capitalization and its quality score, with securities with
higher scores receiving relatively greater weights. The maximum weight is the lesser of 5% or 20 times its market capitalization weight
and no sector or country comprises more than 40% of the Underlying Index.
The
Underlying Index is rebalanced after market close on the third Friday
in June and December. Additions to and deletions from the Underlying Index generally occur only at the time of the semi-annual rebalance,
but constituents removed from the Parent Index are removed from the Underlying Index simultaneously. Apart from scheduled rebalances,
the Index Provider or its agents may carry out additional ad hoc rebalances to the Underlying Index in order, for example, to reflect
corporate actions or spin-offs. The Fund is rebalanced in accordance with the Underlying Index.
Principal Risks of Investing
in the Fund
The
following provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing
in the Fund” in the Fund's “Summary Information” section. Any of the following risks may impact the Fund’s NAV
which could result in the Fund trading at a premium or discount to NAV.
Market
Risk. Securities in the Underlying Index are subject to market
fluctuations, and the Fund could lose money due to short-term market movements and over longer periods during market downturns. You should
anticipate that the value of the Shares will decline, more or less, in
correlation
with any decline in value of the securities in the Underlying Index. The value of a security may decline due to general market conditions,
economic trends or events that are not specifically related to the issuer of the security or due to factors that affect a particular industry
or group of industries. During a general downturn in the securities markets, multiple asset classes may be negatively affected. Additionally,
natural or environmental disasters, widespread disease or other public health issues, war, military conflicts,
acts of terrorism, economic crises
or other events could result in increased premiums or discounts to the Fund’s NAV.
Market
Disruption Risks Related to Armed
Conflict. As
a result of increasingly interconnected global economies
and financial markets,
armed conflict between countries or in a geographic region,
for example the current conflicts
between Russia
and Ukraine in Europe
and Hamas
and Israel in the
Middle East,
has
the potential to adversely impact the Fund’s
investments.
Such conflicts,
and other corresponding events, have had, and could continue to have, severe negative effects on regional and global economic and financial
markets, including increased volatility, reduced liquidity, and overall uncertainty. The negative impacts may be particularly acute in
certain sectors.
The
timing and duration of such conflicts,
resulting sanctions,
related events and other implications cannot
be predicted. The foregoing may result in a negative impact on Fund performance and the value of an investment in the Fund, even beyond
any direct investment exposure the Fund may have to issuers located
in or with significant exposure to an impacted country or geographic region.
Index
Risk. Unlike many investment companies that are “actively
managed,” the Fund is a “passive” investor and therefore does not utilize an investing strategy that seeks returns in
excess of the Underlying Index. Therefore, the Fund would not necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is underperforming. If a specific security is removed from the
Underlying Index, the Fund may be forced to sell such security at an inopportune time or for a price lower than the security’s current
market value. The Underlying Index may not contain the appropriate mix of securities for any particular economic cycle. Additionally,
the Fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index’s
rebalance schedule will result in corresponding changes to the Fund’s rebalance schedule. Further, unlike with an actively managed
fund, the Adviser does not use techniques or defensive strategies designed to lessen the impact of periods of market volatility or market
decline. This means that, based on certain market and economic conditions, the Fund’s performance could be lower than other types
of funds with investment advisers that actively manage their portfolio assets to take advantage of market opportunities or defend against
market events.
Foreign
Investment Risk. Investments in foreign securities involve risks
that are beyond those associated with investments in U.S. securities. Fluctuations in the value of the U.S. dollar relative to the values
of other currencies may adversely affect investments in foreign securities, and foreign securities may have relatively low market liquidity,
decreased publicly available information about issuers, and inconsistent and potentially less stringent accounting, auditing and financial
reporting requirements and standards of practice, including recordkeeping standards, comparable to those applicable to domestic issuers.
Foreign
securities also are subject to the risks of expropriation, nationalization
or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. Investments in foreign
securities also may be subject to dividend withholding or confiscatory taxes, currency blockage and/or transfer restrictions and higher
transactional costs. Each country has different laws specific to that country that impact investment, which may increase the risks to
which investors are subject. Country-specific rules or legislation addressing investment-related transactions may inhibit or prevent certain
transactions from transpiring in a particular country.
5
From
time to time, certain companies in which the Fund invests may operate
in, or have dealings with, countries subject to sanctions or embargoes imposed by the U.S. government and the United Nations and/or in
countries the U.S. government identified as state sponsors of terrorism. One or more of these companies may be subject to constraints
under U.S. law or regulations that could negatively affect the company’s performance.
Furthermore,
foreign exchanges and broker-dealers generally are subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. Differences in clearance and settlement procedures in foreign
markets may cause delays in settlement of the Fund's trades effected in those markets and could result in losses to the Fund due to subsequent
declines in the value of the securities subject to the trades. Depositary receipts also involve substantially identical risks to those
associated with investments in foreign securities. Additionally, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, have no obligation to distribute shareholder communications to the holders of such receipts or to
pass through to them any voting rights with respect to the deposited securities.
Equity
Risk. Equity risk is the risk that the value of equity securities,
including common stocks, will fall. The value of an equity security may fall due to changes in general economic conditions that impact
the market as a whole and that are relatively unrelated to an issuer or its industry. These conditions include changes in interest rates,
specific periods of overall market turbulence or instability, or general and prolonged periods of economic decline and cyclical change.
An issuer's common stock in particular may be especially sensitive to, and more adversely affected by, these general movements in the
stock market; it is possible that a drop in the stock market may depress the price of most or all of the common stocks that the Fund holds.
In
addition, equity risk includes the risk that investor sentiment toward, and
perceptions regarding, one or more particular industries or economic sectors will become negative, resulting in those investors exiting
their investments in those industries, which could cause a reduction in the value of companies in those industries or sectors more broadly.
Price changes of equity securities may occur in a particular region, industry, or sector of the market, and as a result, the value of
an issuer's common stock may fall solely because of factors, such as increases in production costs, that negatively impact other companies
in the same industry or in a number of different industries.
Equity
risk also includes the financial risks of a specific company, including
that the value of the company's securities may fall as a result of factors directly relating to that company, such as decisions made by
its management or lower demand for the company's products or services. In particular, the common stock of a company may decline significantly
in price over short periods of time. For example, an adverse event, such as an unfavorable earnings report, may depress the value of common
stock; similarly, the common stock of an issuer may decline in price if the issuer fails to make anticipated dividend payments because,
among other reasons, the issuer experiences a decline in its financial condition.
Geographic
Concentration Risk. Funds that are less diversified across geographic
regions or countries are generally riskier than more geographically diversified funds. The economies and financial markets of certain
regions can be interdependent and may all decline at the same time. A natural or other disaster could occur in a country or geographic
region in which the Fund invests, which could affect the economy or particular business operations of companies in that specific country
or geographic region and adversely impact the Fund's investments in the affected region. The Schedule of Investments included in the Fund’s
annual and semi-annual reports identifies the countries in which the Fund had invested and the level of investment, as of the date of
the reports.
European
Investment Risk. Europe includes both developed and emerging markets.
Most countries in Western Europe, and a number of countries in Eastern Europe, are members of the EU and the EMU. The EMU, which is authorized
to direct monetary policies, including policies
related
to money supply and interest rates for the euro (the common currency of certain EU countries) requires compliance by member states with
restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls, each of which may significantly
affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange
rate of the euro, the default or threat of default by an EU member country on its sovereign debt, and/or economic recessions in an EU
member country may have significant adverse effects on the economies of EU member countries and the EU as a whole.
In
recent years, the European financial markets have experienced volatility and adverse trends due to concerns about rising government debt
levels of several European countries, including Greece, Spain, Ireland, Italy and Portugal. A default or debt restructuring by any European
country would adversely impact holders of that country's debt and sellers of credit default swaps linked to that country's creditworthiness.
These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including
EU member countries that do not use the euro and non-EU member countries.
Responses to financial problems by European governments, central banks, and others, including austerity measures and reforms, may not
produce the desired results, may limit future growth and economic recovery, may result in social unrest, or have other unintended consequences.
Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. The markets of a number of countries in Eastern Europe remain relatively undeveloped
and can be particularly sensitive to political and economic developments. Recent security concerns related to immigration, war and geopolitical
risk, and terrorism could have a negative impact on the EU and investments within EU countries.
The
EU faces issues involving its membership, structure, procedures
and policies. The UK’s
departure from the EU,
referred to
as “Brexit”,
could have wide ranging implications for the UK’s economy, including: possible inflation or recession, depreciation of the British
pound, or disruption to Britain’s trading arrangements with
the rest of Europe. The UK is one of Europe’s largest economies; its departure from the EU also may negatively impact the EU and
Europe as a whole, such as by causing volatility within the union, triggering prolonged economic downturns in certain European countries
or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region). An exit
by other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets,
which will adversely affect the Fund’s investments.
Industry
Concentration Risk. In following its methodology, the Underlying
Index from time to time may be concentrated to a significant degree in securities of issuers operating in a single industry or industry
group. To the extent that the Underlying Index concentrates in the securities of issuers in a particular industry or industry group, the
Fund will also concentrate its investments to approximately the same extent. By concentrating its investments in an industry or industry
group, the Fund may face more risks than if it were diversified broadly over numerous industries or industry groups. Such industry-based
risks, any of which may adversely affect the companies in which the Fund invests, may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively affect supply and demand in a particular industry, competition
for resources, adverse labor relations, political or world events, obsolescence of technologies, and increased competition or new product
introductions that may affect the profitability or viability of companies in an industry. In addition, at times, such industry or industry
group may be out of favor and underperform other industries or the market as a whole. Information about the Fund’s exposure to a
particular sector,
industry,
industry group or
sub-industry (as applicable) is available in the Fund’s
6
Annual and Semi-Annual
Reports to Shareholders, as well as on required forms filed with the SEC.
Mid-Capitalization
Company Risk. Securities of mid-capitalization companies may be
more volatile and thinly traded (that is, less liquid) than those of more established companies. These securities may have returns that
vary, sometimes significantly, from the overall securities market. Often, mid-capitalization companies and the industries in which they
focus are still evolving and, as a result, they may be more sensitive to changing market conditions. In addition, mid-capitalization companies
are typically less financially stable than larger, more established companies, and they may depend on a small number of essential personnel,
making them more vulnerable to loss of personnel. Mid-capitalization companies also normally have less diverse product lines than large-capitalization
companies and are more susceptible to adverse developments concerning their products. As such, mid-capitalization companies typically
are more likely to be adversely affected than large-capitalization companies by changes in earnings results, business prospects, investor
expectations or poor economic or market conditions.
Currency
Risk. Because the Fund’s NAV is determined in U.S. dollars,
the Fund’s NAV could decline if the currency of the non-U.S. market in which the Fund invests depreciates against the U.S. dollar,
even if the value of the Fund’s holdings, measured in the foreign currency, increases. Generally, an increase in the value of the
U.S. dollar against a foreign currency will reduce the value of a security denominated in that foreign currency, thereby decreasing the
Fund’s overall NAV. In addition, fluctuations in the exchange values of currencies could affect the economy or particular business
operations of companies in a geographic region in which the Fund invests, causing an adverse impact on the Fund. As a result, investors
have the potential for losses regardless of the length of time they intend to hold Shares.
When
the Fund receives income in foreign currencies, the Fund will compute
and distribute its income in U.S. dollars, and the computation of income will be made on the date that the Fund earns the income at the
foreign exchange rates in effect on that date. Therefore, if the values of the relevant foreign currencies fall relative to the U.S. dollar
between the earning of the income and the time at which the Fund converts the foreign currencies to U.S. dollars, the Fund may be required
to liquidate securities in order to make distributions if it has insufficient cash in U.S. dollars to meet distribution requirements.
Furthermore,
the Fund may incur costs in connection with conversions between
U.S. dollars and foreign currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forwards, futures or options contracts to purchase or sell foreign currencies.
Issuer-Specific
Changes Risk. The performance of the Fund depends on the performance
of individual securities to which the Fund has exposure. The value of an individual security or particular type of security may be more
volatile than the market as a whole and may perform worse than the market as a whole, causing the value of its securities to decline.
Poor performance may be caused by poor management decisions, competitive pressures, changes in technology, expiration of patent protection,
disruptions in supply, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. Issuers may, in
times of distress or at their own discretion, decide to reduce or eliminate dividends, which may also cause their stock prices to decline.
Non-Diversification
Risk.
To the extent the Fund becomes non-diversified, the Fund may invest
a greater portion of its assets in securities of individual issuers than can a diversified fund. As a result, changes in the market value
of a single investment could cause greater
fluctuations in Share
price than would occur in a diversified fund. This may increase the Fund’s volatility and cause the performance of a relatively
small number of issuers to have a greater impact on the Fund’s performance.
Valuation
Risk. Financial information related to securities of non-U.S. issuers
may be less reliable than information related to securities of U.S. issuers, which may make it difficult to obtain a current price for
a non-U.S. security held by the Fund. In certain circumstances, market quotations may not be readily available for some securities, and
those securities may be fair valued. The value established for a security through fair valuation may be different from what would be produced
if the security had been valued using market quotations. Fund securities that are valued using techniques other than market quotations,
including “fair valued” securities, may be subject to greater fluctuations in their value from one day to the next than would
be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value
established for it at any time, and it is possible that the Fund would incur a loss because a security is sold at a discount to its established
value.
Valuation
Time Risk. Because foreign exchanges may be open on days when the
Fund does not price its Shares, the value of the non-U.S. securities in the Fund’s portfolio may change on days when you will not
be able to purchase or sell your Shares. As a result, trading spreads and the resulting premium or discount on the Shares may widen, and,
therefore, increase the difference between the market price of the Shares and the NAV of such Shares.
Non-Correlation
Risk. The Fund’s returns may not match the returns of the
Underlying Index (that is, it may experience tracking error) for a number of reasons. For example, the Fund incurs operating expenses
not applicable to the Underlying Index and incurs costs in buying and selling securities, especially when rebalancing the Fund’s
securities holdings to reflect changes in the composition of the Underlying Index. To the extent that the Fund has recently commenced
operations and/or otherwise has a relatively small amount of assets, such transaction costs could have a proportionally greater impact
on the Fund. Additionally, if the Fund uses a sampling methodology,
it may result in returns for the Fund that are not as well-correlated with the return of the Underlying Index as would be the case if
the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index.
The
performance of the Fund and the Underlying Index may vary due to asset
valuation differences and differences between the Fund’s portfolio and the Underlying Index resulting from legal restrictions, costs
or liquidity constraints. Additionally, if the Fund issues or redeems Creation Units principally for cash, it will incur higher costs
in buying or selling securities than if it issued and redeemed Creation Units principally in-kind, which may contribute to tracking error.
The Fund may fair value certain of the securities it holds. To the extent the Fund calculates its NAV based on fair value prices, the
Fund’s ability to track the Underlying Index may be adversely affected. Since the Underlying Index is not subject to the tax diversification
requirements to which the Fund must adhere, the Fund may be required to deviate its investments from the securities contained in, and
relative weightings of, the Underlying Index. The Fund may not invest in certain securities included in the Underlying Index due to liquidity
constraints. Liquidity constraints also may delay the Fund’s purchase or sale of securities included in the Underlying Index. For
tax efficiency purposes, the Fund may sell certain securities to realize losses, causing it to deviate from the Underlying Index.
The
Fund generally attempts to remain fully invested in the constituents of
the Underlying Index. However, the Adviser may not fully invest the Fund’s assets at times, either as a result of cash flows into
the Fund, to retain a reserve of cash to meet redemptions and expenses, or because of low assets.
The
investment activities of one or more of the Adviser’s affiliates, including
other subsidiaries of the Adviser’s parent company, Invesco Ltd., for their proprietary accounts and for client accounts also may
adversely impact the Fund’s ability to track the Underlying Index. For example, in
7
regulated industries,
certain emerging or international markets and under corporate and regulatory ownership definitions, there may be limits on the aggregate
amount of investment by affiliated investors that may not be exceeded, or that may not be exceeded without the grant of a license or other
regulatory or corporate consent, or, if exceeded, may cause the Adviser, the Fund or other client accounts to suffer disadvantages or
business restrictions. As a result, the Fund may be restricted in its ability to acquire particular securities due to positions held by
the Fund and the Adviser’s affiliates.
Authorized
Participant Concentration Risk. Only APs may engage in creation
or redemption transactions directly with the Fund. The Fund has a limited number of institutions that may act as APs, and such APs have
no obligation to submit creation or redemption orders. Consequently, there is no assurance that APs will establish or maintain an active
trading market for the Shares. The risk may be heightened to the extent that securities held by the Fund are traded outside a collateralized
settlement system. In that case, APs may be required to post collateral on certain trades on an agency basis (i.e., on behalf of other
market participants), which only a limited number of APs may be able to do. In addition, to the extent that APs exit the business or are
unable to proceed with creation and/or redemption orders with respect to the Fund and no other AP is able to step forward to create or
redeem Creation Units, this may result in a significantly diminished trading market for Shares, and Shares may be more likely to trade
at a premium or discount to NAV and to face trading halts and/or delisting. Investments in non-U.S. securities, which may have lower trading
volumes or could experience extended market closures or trading halts, may increase the risk that APs may not be able to effectively create
or redeem Creation Units or the risk that the Shares may be halted and/or delisted.
Market
Trading Risk. The Fund faces numerous market trading risks, including
losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Although
Shares are listed for trading on a securities exchange, there can be no assurance that an active trading market for Shares will develop
or be maintained by market makers or APs, that Shares will continue to trade on any such exchange or that Shares will continue to meet
the requirements for listing on an exchange. Any of these factors, among others, may lead to the Shares trading at a premium or discount
to the Fund’s NAV. As a result, an investor could lose money over short or long periods. Further, the Fund may experience low trading
volume and wide bid/ask spreads. Bid/ask spreads vary over time based on trading volume and market liquidity (including for the underlying
securities held by the Fund), and are generally lower if Shares have more trading volume and market liquidity and higher if Shares have
little trading volume and market liquidity.
In
stressed market conditions, the market for Shares may become less liquid
in response to deteriorating liquidity in the markets for the Fund’s portfolio holdings, which may cause a variance in the market
price of Shares and their underlying NAV. In addition, an exchange or market may issue trading halts on specific securities or financial
instruments. As a result, the ability to trade certain securities or financial instruments may be restricted, which may disrupt the Fund’s
creation/redemption process, potentially affect the price at which Shares trade in the secondary market, and/or result in the Fund being
unable to trade certain securities or financial instruments at all. In these circumstances, the Fund may be unable to rebalance its portfolio,
may be unable to accurately price its investments and/or may incur substantial trading losses.
Operational
Risk. The Fund is exposed to operational risks arising from a number
of factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service providers,
counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund and the Adviser seek
to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may
be inadequate to address these risks.
Shares
May Trade at Prices Different than NAV. Shares trade on a stock
exchange at prices at, above or below the Fund’s most recent NAV. The Fund’s NAV is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Shares fluctuates continuously
throughout trading hours on the exchange, based on both the relative market supply of, and demand for, the Shares and the underlying value
of the Fund’s portfolio holdings. As a result, the trading prices of the Shares may deviate from the Fund’s NAV. ANY OF THESE
FACTORS, AMONG OTHERS, MAY LEAD TO THE SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. The Adviser cannot predict whether the Shares will
trade below, at or above the Fund’s NAV. Exchange prices are not expected to correlate exactly with the Fund’s NAV due to
timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions
at market makers, APs, or other market participants, or periods of significant market volatility or stress, may result in trading prices
for the Shares that differ significantly from the value of the Fund’s underlying holdings, with the result that investors may pay
significantly more or receive significantly less than the underlying value of the Shares bought or sold. This can be reflected as a spread
between the bid and ask prices for the Fund quoted during the day or a premium or discount in the closing price from the Fund’s
NAV. Additionally, APs may be less willing to create or redeem the Shares if there is a lack of an active market for such Shares or the
Fund’s underlying investments, which may contribute to the Shares trading at a premium or discount.
Non-Principal Investment
Strategies
The
Fund, after investing at least 90% of its total assets in securities that comprise the Underlying Index, may invest its remaining assets
in securities (including other funds) not included in the Underlying Index, and in money market instruments, including repurchase agreements
and other funds, including affiliated funds, that invest exclusively in money market instruments (subject to applicable limitations under
the Investment Company Act of 1940 as amended (the “1940 Act”) or exemptions therefrom), convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors,
such as the movement of a particular security or securities index) and in futures contracts, options,
options on futures contracts
or other derivatives. The Fund may use futures contracts, options,
options on futures contracts, convertible securities and structured notes to seek performance that corresponds to its
Underlying Index and to manage cash flows.
The
Adviser anticipates that it may take approximately two business days
(a business day is any day that the New York Stock Exchange (“NYSE”) is open) for additions to, and deletions from, the Underlying
Index to fully settle in the portfolio composition of the Fund.
In
accordance with 1940 Act rules, the Fund has adopted a policy to invest,
under normal circumstances, at least 80% of the value of its net assets, plus the amount of any borrowing for investment purposes, in
the particular types of securities, and/or in securities of companies operating in the particular industries, economic sectors, countries
or geographical regions, that are suggested by the Fund’s name (the “80% investment policy”). The Fund considers the
securities suggested by its name to be those securities that comprise the Underlying Index. Therefore, the Fund anticipates meeting its
80% investment policy because it already generally invests at least 90% of its total assets in the securities that comprise the Underlying
Index, in accordance with its principal investment strategies.
The
Fund’s investment objective and the 80% investment policy are non-fundamental
policies that the Board of Trustees (the “Board”)
of the Invesco Exchange-Traded Fund Trust II (the “Trust”) may change without shareholder approval, upon 60 days’ prior
written notice to shareholders.
The
fundamental and non-fundamental policies of the Fund are set forth in
the Fund’s Statement of Additional Information (“SAI”) under the section “Investment Restrictions.”
8
Borrowing
Money
The
Fund may borrow money up to the limits set forth in the Fund’s SAI under the section “Investment Restrictions.”
Securities Lending
The
Fund may lend its portfolio securities to brokers, dealers, and other financial institutions. In connection with such loans, the Fund
receives liquid collateral equal to at least 102% (105% for international securities) of the value of the loaned portfolio securities.
This collateral is marked-to-market on a daily basis.
Additional Risks of Investing
in the Fund
The
Fund may also be subject to certain other non-principal risks associated with its investments and investment strategies. The following
provides additional non-principal risk information regarding investing in the Fund.
Cash
Transaction Risk. The Fund generally expects to make in-kind redemptions
to avoid being taxed at the fund level on gains on the distributed portfolio securities. However, from time to time, the Fund reserves
the right to effect redemptions for cash, rather than in-kind. In such circumstances, the Fund may be required to sell portfolio securities
to obtain the cash needed to distribute redemption proceeds. Therefore, the Fund may recognize a capital gain on these sales that might
not have been incurred if the Fund had made a redemption in-kind. This may decrease the tax efficiency of the Fund compared to utilizing
an in-kind redemption process.
Convertible
Securities Risk. A convertible security generally is a preferred
stock that may be converted within a specified period of time into common stock. Convertible securities nevertheless remain subject to
the risks of both debt securities and equity securities. As with other equity securities, the value of a convertible security tends to
increase as the price of the underlying stock goes up, and to decrease as the price of the underlying stock goes down. Declining common
stock values therefore also may cause the value of the Fund’s investments to decline. Like a debt security, a convertible security
provides a fixed-income stream and also tends to decrease in value when interest rates rise. Moreover, many convertible securities have
credit ratings that are below investment grade and are subject to the same risks as lower-rated debt securities, which are considered
to have more speculative characteristics and greater susceptibility to default or decline in market value than investment grade (or higher-rated)
securities.
Cybersecurity
Risk. With the increased use of technologies such as the Internet
to conduct business, the Fund, like all companies, may be susceptible to operational, information security and related risks. Cybersecurity
incidents involving the Fund and its service providers (including, without limitation, the Adviser, fund accountant, custodian, transfer
agent and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially resulting in financial
losses, impediments to trading, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Similar
adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the Fund invests, counterparties
with which the Fund engages, governmental and other regulatory authorities, exchanges and other financial market operators, banks, brokers,
dealers, insurance companies, other financial institutions and other parties. The Fund and its shareholders could be negatively impacted
as a result.
Derivatives
Risk. The Fund may invest in derivatives, such as futures contracts,
options, and options on futures contracts, as applicable. Derivatives are financial instruments that derive their value from an underlying
asset, such as a security, index or exchange rate. Their use is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions. Derivatives may be riskier than other types of
investments and may be more volatile, less tax efficient and less liquid than other securities.
Derivatives
may be used to create synthetic exposure to an underlying asset
or to hedge a portfolio risk. If the Fund uses derivatives to “hedge” a portfolio risk, the change in value of a derivative
may not correlate as expected with the underlying asset being hedged, and it is possible that the hedge therefore may not succeed. In
addition, given their complexity, derivatives may be difficult to value.
Derivatives
are subject to a number of risks including credit risk, interest
rate risk, and market risk. Credit risk refers to the possibility that a counterparty will be unable and/or unwilling to perform under
the agreement. Interest rate risk refers to fluctuations in the value of an asset resulting from changes in the general level of interest
rates. Over-the-counter derivatives are also subject to counterparty risk (sometimes referred to as “default risk”),
which is the risk that the other party to the contract will not fulfill its contractual obligations.
Derivatives
may be especially sensitive to changes in economic and market conditions,
and their use may give rise to a form of leverage. Leverage may cause the portfolio of the Fund to be more volatile than if the portfolio
had not been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities and other instruments
held by the Fund. For some derivatives, such leverage could result in losses that exceed the original amount invested in the derivative.
The Fund’s use of derivatives may be limited by the requirements for taxation of the Fund as a regulated investment company, as
well as by regulatory changes.
Index
Provider Risk. The Fund seeks to track the investment results,
before fees and expenses, of the Underlying Index, as published by the Index Provider. There is no assurance that the Index Provider will
compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. While the
Index Provider gives descriptions of what the Underlying Index is designed to achieve, the Index Provider generally does not provide any
warranty or accept any liability in relation to the quality, accuracy or completeness of data in the Underlying Index, and it generally
does not guarantee that the Underlying Index will be in line with its methodology. Errors made by the Index Provider with respect to the
quality, accuracy and completeness of the data within the Underlying Index may occur from time to time and may not be identified and corrected
by the Index Provider for a period of time, if at all. Therefore, gains, losses, or costs associated with Index Provider errors will generally
be borne by the Fund and its shareholders.
Index
Rebalancing Risk. Pursuant to the methodology that the Index Provider
uses to calculate and maintain the Underlying Index, a security may be removed from the Underlying Index in the event that it does not
comply with the eligibility requirements of the Underlying Index. As a result, the Fund may be forced to sell securities at inopportune
times or for prices other than at current market values or may elect not to sell such securities on the day that they are removed from
the Underlying Index, due to market conditions or otherwise. Due to these factors, the variation between the Fund’s annual return
and the return of the Underlying Index may increase significantly.
Apart
from scheduled rebalances, the Index Provider may carry out additional
ad hoc rebalances to the Underlying Index, for example, to correct an error in the selection of index constituents. When the Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from such portfolio rebalancing will be borne by the Fund
and its shareholders. Unscheduled rebalances also expose the Fund to additional tracking error risk. Therefore, errors and additional
ad hoc rebalances carried out by the Index Provider may increase the Fund’s costs and market exposure.
Large
Shareholder Risk. Certain shareholders, including a third party
investor, the Adviser or an affiliate of the Adviser, an AP, a lead market maker, or another entity, may from time to time own a substantial
amount of Shares or may invest in the Fund and hold its investment for a limited period of time solely to facilitate the commencement
of the Fund or to facilitate the Fund achieving a specified size or scale. There can be no assurance that
9
any large shareholder
would not redeem its investment. Dispositions of a large number of Shares by these shareholders may adversely affect the Fund’s
liquidity and net assets to the extent such transactions are executed directly with the Fund in the form of redemptions through an AP,
rather than executed in the secondary market. These redemptions may also force the Fund to sell portfolio securities when it might not
otherwise do so, which may negatively impact the Fund’s NAV and increase the Fund’s brokerage costs. Further, such sales may
accelerate the realization of taxable income and/or gains to shareholders, or the Fund may be required to sell its more liquid Fund investments
to meet a large redemption, in which case the Fund’s remaining assets may be less liquid, more volatile, and more difficult to price.
To the extent the Fund permits cash purchases, large purchases of Shares may adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a larger cash position than it ordinarily would. To the extent
these large shareholders transact in shares on the secondary market, such transactions may account for a large percentage of the trading
volume on the Fund’s exchange and may, therefore, have a material upward or downward effect on the market price of the Shares. To
the extent the Fund permits redemptions in cash, the Fund may hold a relatively large proportion of its assets in cash in anticipation
of large redemptions, diluting its investment returns.
Leverage
Risk. To the extent that the Fund borrows money, it may be leveraged.
Leveraging generally exaggerates the effect on NAV of any increase or decrease in the market value of the Fund’s portfolio securities.
Borrowing creates interest expenses and other expenses (e.g., commitment fees) for the Fund that affect the Fund’s performance.
Interest expenses are excluded from the Fund expenses borne by the Adviser under the unitary management fee.
Licensing,
Custody and Settlement Risk. Approval of governmental authorities
may be required prior to investing in the securities of companies based in certain foreign countries. Delays in obtaining such an approval
would delay investments in the particular country, and, as a consequence, the Fund may not be able to invest in all of the securities
included in the Underlying Index while an approval is pending. Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and securities depositories. Certain banks in foreign countries
that are eligible foreign sub-custodians may be recently organized or otherwise lack extensive operating experience. In addition, in certain
countries there may be legal restrictions or limitations on the ability of the Fund to recover assets held in custody by a foreign sub-custodian
in the event of the bankruptcy of the sub-custodian. Settlement systems in emerging markets may be less well organized than in developed
markets. Thus, there may be a risk that settlement may be delayed and that cash or securities of the Fund may be in jeopardy because of
failures of or defects in the systems. Under the laws of certain countries in which the Fund invests, the Fund may be required to release
local shares before receiving cash payment or may be required to make cash payment prior to receiving local shares.
Money
Market Funds Risk. Money market funds are subject to management
fees and other expenses, and the Fund's investments in money market funds will cause it to bear proportionately the costs incurred by
the money market funds' operations while simultaneously paying its own management fees and expenses. An investment in a money market fund
is not a bank account and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; it is possible to lose money by investing in
a money market fund. To the extent that the Fund invests in money market funds, the Fund will be subject to the same risks that investors
experience when investing in money market funds. These risks may include the impact of significant fluctuations in assets as a result
of the cash sweep program or purchase and redemption activity in those funds.
Money
market funds are open-end registered investment companies that
historically have traded at a stable $1.00 per share price. However, money market funds that do not meet the definition of a “retail
money
market
fund” or “government money market fund” under the 1940 Act are required to transact at a floating NAV per share (i.e.,
in a manner similar to how all other non-money market mutual funds transact), instead of at a $1.00 stable share price. Money market funds
may also impose liquidity fees in certain circumstances,
including
times of market stress or heavy redemptions.
If the Fund invested in a money market fund with a floating NAV, the impact on the trading and value of the money market instrument may
negatively affect the Fund's return potential.
Natural
Disaster/Epidemic Risk. Natural or environmental disasters, such
as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including
pandemics and epidemics, have been and may be highly disruptive to economies and markets, adversely impacting individual companies, sectors,
industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Additionally, if a sector or sectors in which the Underlying Index is concentrated is negatively impacted
to a greater extent by such events, the Fund may experience heightened volatility. Given the increasing interdependence among global economies
and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have a significant adverse impact on the value of the Fund’s
investments.
Repurchase
Agreements Risk. Repurchase agreements are agreements pursuant
to which the Fund acquires securities from a third party with the understanding that the seller will repurchase them at a fixed price
on an agreed date. Repurchase agreements may be characterized as loans secured by the underlying securities. If the seller of securities
under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise,
the Fund will seek to dispose of such securities, which could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities
may be restricted. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of
the underlying securities are less than the repurchase prices.
Risks
of Futures and Options.
The Fund may enter into U.S. futures contracts, options and options
on futures contracts to simulate full investment in the Underlying Index, or to manage cash flows. The Fund will not use futures or options
for speculative purposes. The Fund intends to use futures and options contracts to limit its risk exposure to levels comparable to direct
investment in securities.
An
option gives a holder the right to buy or sell a specific security or instrument,
including a futures contract,
at a specified price within a specified period of time. An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified price at any time prior to the expiration date of
the option. Exchanges can limit the number of futures or options
positions that can be held or controlled by the Fund or the investment adviser,
thus limiting the ability to implement the
Fund’s strategies.
Options are subject to correlation risk,
and the successful use of options depends on the investment adviser’s
ability to predict correctly future price fluctuations and the degree of correlation between the markets for options and the underlying
instruments. Options
are also particularly subject to leverage risk and can be subject to liquidity risk.
Because
option
premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, the
Fund is exposed to the risk that buying and selling options can be more speculative
than investing directly in securities.
Futures
contracts are typically exchange-traded contracts that provide
for the future delivery
of a specified amount of a specific instrument at a specified future price
and date, or
for cash settlement (payment
of the gain or loss on the contract). Futures contracts are subject to the risk of imperfect correlation between movements in the price
of the instruments
10
and
the price of the underlying securities. Because futures contracts
project price levels in the future, market circumstances may cause a discrepancy between the price of an
index future and the movement in the Underlying Index. In the event of adverse price movements, the Fund would remain required to make
daily cash payments to maintain its required margin. There is no assurance that a liquid secondary market will exist for any particular
futures contract at any particular time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund’s NAV. Futures are also subject to leverage risk and liquidity
risk. The risk of loss in trading futures contracts potentially
is unlimited.
Securities
Lending Risk. Securities lending involves a risk of loss because
the borrower may fail to return the securities in a timely manner or at all. If the Fund lends its securities and is unable to recover
the securities loaned, it may sell the collateral and purchase a replacement security in the market. Lending securities entails a risk
of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased
accordingly. Any cash received as collateral for loaned securities will be invested in an affiliated money market fund. This investment
is subject to market appreciation or depreciation and the Fund will bear any loss on the investment of its cash collateral.
Structured
Notes Risk. Investments in structured notes involve risks including
interest rate risk, credit risk and market risk. Interest rate risk refers to fluctuations in the value of a note resulting from changes
in the general level of interest rates. When the general level of interest rates goes up, the prices of notes tend to go down. Credit
risk refers to the possibility that the issuer of a note will be unable and/or unwilling to make timely interest payments and/or repay
the principal on its debt. Depending on the factors used, changes in interest rates and movement of such factors may cause significant
price fluctuations. Structured notes may be less liquid than other types of securities and more volatile than the reference factor underlying
the note. This means that the Fund may lose money if the issuer of the note defaults, as the Fund may not be able to readily close out
its investment in such notes without incurring losses.
Trading
Issues Risk. Investors buying or selling Shares in the secondary
market may pay brokerage commissions or other charges, which may be a significant proportional cost for investors seeking to buy or sell
relatively small amounts of Shares. Moreover, trading in Shares on the NYSE Arca, Inc. (the “Exchange”) may be halted due
to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares
on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit
breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged. Foreign exchanges may be open on days when Shares are not priced, and therefore, if the Fund
holds securities that are primarily listed on such exchanges, the value of such securities in the Fund’s portfolio may change on
days when shareholders will not be able to purchase or sell Shares.
Tax Structure of ETFs
Unlike interests in conventional mutual funds,
which typically are bought and sold only at closing NAVs, Shares are traded throughout the day in the secondary market on a national securities
exchange, and are created and redeemed principally in-kind in Creation Units at each day’s next calculated NAV. These in-kind arrangements
are designed to protect shareholders from the adverse effects on the Fund’s portfolio that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because
the mutual fund may need to sell portfolio securities to obtain cash to meet such redemptions. These sales may generate taxable gains
that must be distributed to the shareholders of the mutual fund, whereas the
Shares’ in-kind
redemption mechanism generally will not lead to such taxable events for the Fund or its shareholders.
The
Fund may recognize gains as a result of rebalancing its securities holdings
to reflect changes in the securities included in the Underlying Index. The Fund also may be required to distribute any such gains to its
shareholders to avoid adverse federal income tax consequences. For information concerning the tax consequences of distributions, see the
section entitled “Dividends, Other Distributions and Taxes” in this prospectus.
Portfolio Holdings
A description of the Trust's policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI, which is available
at www.invesco.com/ETFs.
Management of the Fund
Invesco
Capital Management LLC is a registered investment adviser with its offices at 3500 Lacey Road, Suite 700, Downers Grove, IL 60515.
Invesco Capital Management LLC serves as the investment adviser to the Invesco Actively Managed Exchange-Traded Commodity Fund Trust,
Invesco Actively Managed Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust, Invesco Exchange-Traded Fund Trust II, Invesco
Exchange-Traded Self-Indexed Fund Trust and Invesco India Exchange-Traded Fund Trust, a family of ETFs, with combined assets under management
of $223
billion as of December 31, 2023.
As
the Fund’s investment adviser, the Adviser has overall responsibility for
selecting and continuously monitoring the Fund’s investments, managing the Fund’s business affairs, and providing certain
clerical, bookkeeping and other administrative services for the Trust.
Portfolio Managers
The
Adviser uses a team of portfolio managers, investment strategists and other investment specialists in managing the Fund. This team approach
brings together many disciplines and leverages the Adviser's extensive resources. In this regard, Peter Hubbard, Michael Jeanette, Pratik
Doshi,
CFA and
Tony Seisser (the “Portfolio Managers”) are jointly and primarily responsible for the day-to-day management of the Fund.
Each
Portfolio Manager is responsible for various functions related to portfolio
management, including investing cash flows, coordinating with other team members to focus on certain asset classes, implementing investment
strategies and researching and reviewing investment strategies.
Each
Portfolio Manager has limitations on their authority for risk management
and compliance purposes that the Adviser believes to be appropriate.
■
Peter
Hubbard, Head of Equities and Director of Portfolio Management of the Adviser and Vice President of the Trust, has been responsible for
the management of the Fund since June 2007. He has been responsible for the management of certain funds in the Invesco family of ETFs
since June 2007 and has been associated with the Adviser since 2005.
■
Michael
Jeanette, Senior Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been
responsible for the management of certain funds in the Invesco family of ETFs since August 2008 and has been associated with the Adviser
since 2008.
■
Pratik
Doshi, CFA,
Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2020. He has been responsible for
the management of certain funds in the Invesco family of ETFs since October 2019 and has been associated with the Adviser since 2018.
11
■
Tony
Seisser, Portfolio Manager of the Adviser, has been responsible for the management of the Fund since February 2015. He has been responsible
for the management of certain funds in the Invesco family of ETFs since August 2014 and has been associated with the Adviser since 2013.
The
Fund's SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that the Portfolio Managers manage and the Portfolio Managers' ownership of Shares.
Advisory Fees
Pursuant
to an investment advisory agreement between the Adviser and the Trust (the “Investment Advisory Agreement”), the Fund pays
the Adviser an annual management fee equal to 0.29% of its average daily net assets (the “Advisory Fee”).
The
Advisory Fee paid by the Fund to the Adviser is an annual unitary management
fee. Out of the unitary management fee, the Adviser pays for substantially all expenses of the Fund, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, except for distribution fees, if any, brokerage expenses, taxes, interest,
Acquired Fund Fees and Expenses, if any, litigation expenses, and other extraordinary expenses, including proxy expenses (except for such
proxies related to: (i) changes to the Investment Advisory Agreement, (ii) the election of any Board member who is an “interested
person” of the Trust, or (iii) any other matters that directly benefit the Adviser).
The
Fund may invest in money market funds that are managed by affiliates
of the Adviser and other funds (including ETFs) managed by the Adviser or affiliates of the Adviser (collectively, “Underlying Affiliated
Investments”). The indirect portion of the advisory fees that the Fund incurs through such Underlying Affiliated Investments is
in addition to the Advisory Fee payable to the Adviser by the Fund. Therefore, the Adviser has agreed to waive the Advisory Fee payable
by the Fund in an amount equal to the lesser of: (i) 100% of the net advisory fees earned by the Adviser or an affiliate of the Adviser
that are attributable to the Fund's Underlying Affiliated Investments or (ii) the Advisory Fee available to be waived. This waiver does
not apply to the Fund's investment of cash collateral received for securities lending. This waiver is in place through at least August
31, 2025,
and there is no guarantee that the Adviser will extend it past that date.
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement with respect to the Fund is available in the Fund’s Semi-Annual Report to Shareholders for the fiscal period
ended April 30, 2023.
How to Buy and Sell Shares
The Fund issues or redeems its Shares at
NAV per Share only in Creation Units or Creation Unit Aggregations.
Most
investors buy and sell Shares in secondary market transactions through
brokers. Shares are listed for trading on the secondary market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. There is no minimum investment. Although Shares generally are purchased and sold in “round lots”
of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots,” at no per share
price differential. When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase
and sale) transaction.
The
Shares trade on the Exchange under the symbol “IDHQ.”
Share
prices are reported in dollars and cents per Share.
APs
may acquire Shares directly from the Fund, and APs may tender their
Shares for redemption directly to the Fund, at NAV per Share, only in Creation Units or Creation Unit Aggregations, and in accordance
with the procedures described in the SAI.
Under
normal circumstances, the Fund will pay out redemption proceeds
to a redeeming AP within two days after the AP’s redemption request is received, in accordance with the process set forth in the
Fund’s SAI and in the agreement between the AP and the Fund’s distributor. However, the Fund reserves the right, including
under stressed market conditions, to take up to seven days after the receipt of a redemption request to pay an AP, all as permitted by
the 1940 Act. If the Fund has foreign investments in a country where local market holiday(s) prevent the Fund from delivering such foreign
investments to an AP in response to a redemption request, the Fund may take up to 15 days after the receipt of the redemption request
to deliver such investments to the AP.
The
Fund anticipates meeting redemption requests either by paying redemption
proceeds to an AP primarily through in-kind redemptions or in cash. Cash used for redemptions will be raised from the sale of portfolio
assets or may come from existing holdings of cash or cash equivalents. If the Fund holds Rule 144A securities, an AP that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities Act of 1933, as amended (the “Securities
Act”), will not be able to receive those Rule 144A securities.
The
Fund may liquidate and terminate at any time without shareholder approval.
Book Entry
Shares
are held in book-entry form, which means that no stock certificates are issued. The Depository Trust Company (“DTC”) or its
nominee is the record owner of all outstanding Shares and is recognized as the record owner of all Shares for all purposes.
Investors
owning Shares are beneficial owners as shown on the records of
DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with
DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered
in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must
rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other stocks that you hold
in book entry or “street name” form.
Share Trading Prices
The
trading prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market forces of supply and demand, economic conditions
and other factors may affect the trading prices of Shares.
Frequent Purchases and Redemptions of Shares
Shares may be purchased
and redeemed directly from the Fund only in Creation Units by APs. The vast majority of trading in Shares occurs on the secondary market
and does not involve the Fund directly. In-kind purchases and redemptions of Creation Units by APs and cash trades on the secondary market
are unlikely to cause many of the harmful effects of frequent purchases or redemptions of the Shares. Cash purchases and/or redemptions
of Creation Units, however, can result in increased tracking error, disruption of portfolio management, dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to achieve its investment objective, and may lead to the realization
of capital gains. These consequences may increase as the frequency of cash purchases and redemptions of Creation Units by APs increases.
However, direct trading by APs is critical to ensuring that Shares trade at or close to NAV.
To
minimize these potential consequences of frequent purchases and redemptions
of Shares, the Fund imposes transaction fees on purchases and redemptions of Creation Units to cover the custodial and other costs the
12
Fund incurs in effecting
trades. In addition, the Adviser monitors trades by APs for patterns of abusive trading and the Fund reserves the right not to accept
orders from APs that the Adviser has determined may be disruptive to the management of the Fund, or otherwise are not in the best interests
of the Fund. For these reasons, the Board has not adopted policies and procedures with respect to frequent purchases and redemptions of
Shares.
Dividends, Other Distributions and Taxes
Dividends and Other Distributions
Generally,
dividends from net investment income, if any, are declared and paid quarterly by the Fund. The Fund also intends to distribute its net
realized capital gains, if any, to shareholders annually. Dividends and other distributions may be declared and paid more frequently to
comply with the distribution requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and
to avoid a federal excise tax imposed on regulated investment companies.
Distributions
in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option available.
Taxes
The
Fund intends to qualify each year as a regulated investment company (“RIC”) and, as such, is not subject to entity-level tax
on the income and gain it distributes. If you are a taxable investor, dividends and distributions you receive generally are taxable to
you whether you reinvest distributions in additional Shares or take them in cash. Every year, you will be sent information showing the
amount of dividends and distributions you received during the prior calendar year. In addition, investors in taxable accounts should be
aware of the basic tax points listed below:
Fund Tax Basics
■
The
Fund earns income generally in the form of dividends or interest on its investments. This income, less expenses incurred in the operation
of the Fund, constitutes the Fund’s net investment income from which dividends may be paid to shareholders. If you are a taxable
investor, distributions of net investment income generally are taxable to you as ordinary income.
■
Distributions
of net short-term capital gains are taxable to you as ordinary income. A fund with a high portfolio turnover rate (a measure of how frequently
assets within the fund are bought and sold) is more likely to generate short-term capital gains than a fund with a low portfolio turnover
rate.
■
Distributions
of net long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned your Shares.
■
A
portion of income dividends paid by the Fund may be reported as qualified dividend income eligible for taxation by individual shareholders
at long-term capital gain rates, provided certain holding period requirements are met. These reduced rates generally are available for
dividends derived from the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. If the Fund
invests primarily in debt securities, either none or only a nominal portion of the dividends paid by the Fund will be eligible for taxation
at these reduced rates.
■
The
use of derivatives by the Fund may cause the Fund to realize higher amounts of ordinary income or short-term capital gain, distributions
from which are taxable to individual shareholders at ordinary income tax rates rather than at the more favorable tax rates for long-term
capital gain.
■
Distributions
declared to shareholders with a record date in October, November or December—if paid to you by the end of January—are taxable
for federal income tax purposes as if received in December.
■
Any
long-term or short-term capital gains realized on the sale of your Shares will be subject to federal income tax.
■
If
the Fund is terminated, a shareholder will receive a liquidating distribution(s) which should be treated as payment in exchange for the
Shares held by the shareholder. As a result, each shareholder should recognize gain or loss in an amount equal to the difference between
the shareholder’s adjusted tax basis in his or her shares and the liquidating distribution(s) he or she receives, except to the
extent the Shares are held in a tax-advantaged arrangement. A liquidating distribution may be subject to backup withholding as described
below.
■
A
shareholder’s cost basis information will be provided on the sale of any of the shareholder’s Shares, subject to certain exceptions
for exempt recipients. Please contact the broker (or other nominee) that holds your Shares with respect to reporting of your cost basis
and available elections for your account.
■
At
the time you purchase your Shares, the Fund’s NAV may reflect undistributed income or undistributed capital gains. A subsequent
distribution to you of such amounts, although constituting a return of your investment, would be taxable. Buying Shares just before the
Fund declares an income dividend or capital gains distribution is sometimes known as “buying a dividend.” In addition, the
Fund’s NAV may, at any time, reflect net unrealized appreciation, which may result in future taxable distributions to you.
■
By
law, if you do not provide the Fund with your proper taxpayer identification number and certain required certifications, you may be subject
to backup withholding on any distributions of income, capital gains, or proceeds from the sale of your Shares. The Fund also must withhold
if the IRS instructs it to do so. When withholding is required, the amount will be 24% of any distributions or proceeds paid.
■
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions
received from the Fund and net gains from taxable dispositions of Shares) of U.S. individuals, estates and trusts to the extent that such
person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in
the case of an estate or trust) exceeds a threshold amount. This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
■
You
will not be required to include the portion of dividends paid by the Fund derived from interest on U.S. government obligations in your
gross income for purposes of personal and, in some cases, corporate income taxes in many state and local tax jurisdictions. The percentage
of dividends that constitutes dividends derived from interest on federal obligations will be determined annually. This percentage may
differ from the actual percentage of interest received by the Fund on federal obligations for the particular days on which you hold shares.
■
Fund
distributions and gains from the sale of Shares generally are subject to state and local income taxes.
■
If
the Fund qualifies to pass through the tax benefits from foreign taxes it pays on its investments, and elects to do so, then any foreign
taxes it pays on these investments may be passed through to you. You will then be required to include your pro rata share of
these taxes in gross income, even though not actually received by you, and will be entitled either to deduct your share of these taxes
in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax.
■
Foreign
investors should be aware that U.S. withholding, special
13
certification
requirements to avoid U.S. backup withholding and claim any treaty benefits, and estate taxes may apply to an investment in the Fund.
■
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is imposed on income dividends made by the Fund to
certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. After December 31, 2018, FATCA withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Shares; however, based on proposed regulations issued by the
IRS, which can be relied upon currently, such withholding is no longer required unless final regulations provide otherwise (which is not
expected). The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other
parties as necessary to comply with FATCA or similar laws. Withholding also may be required if a foreign entity that is a shareholder
of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
■
To
the extent the Fund invests in an underlying fund that is taxed as a RIC, please see the section titled “Taxes – Taxation
of the Funds” in the Fund’s SAI for more information regarding the tax consequences of such investment.
■
The
above discussion concerning the taxability of Fund dividends and distributions and of sales of Shares is inapplicable to investors that
generally are exempt from federal income tax, such as retirement plans that are qualified under Section 401 and 403 of the Code and individual
retirement accounts (“IRAs”) and Roth IRAs.
Taxes on Purchase and Redemption
of Creation Units
To
the extent that the Fund permits in-kind transactions, an AP that exchanges equity securities for a Creation Unit generally will recognize
a capital gain or loss equal to the difference between the market value of the Creation Units at the time of exchange (plus any cash received
by the AP as part of the issue) and the sum of the AP's aggregate basis in the securities surrendered plus any cash component paid. Similarly,
an AP that redeems a Creation Unit in exchange for securities generally will recognize a capital gain or loss equal to the difference
between the AP's basis in the Creation Units (plus any cash paid by the AP as part of the redemption) and the aggregate market value of
the securities received (plus any cash received by the AP as part of the redemption). The IRS, however, may assert that a loss realized
upon an exchange of securities for a Creation Unit, or of a Creation Unit for securities, cannot be deducted currently under the rules
governing “wash sales” or on the ground that there has been no significant change in the AP's economic position. An AP exchanging
securities should consult its own tax advisor(s) with respect to whether wash sale rules apply and when a loss otherwise might not be
deductible.
Any
capital gain or loss realized on a redemption of a Creation Unit generally
is treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss
if the Shares have been held for one year or less, assuming that such Creation Units are held as a capital asset. If you purchase or redeem
one or more Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.
The
foregoing discussion summarizes some of the more important
possible consequences under current federal, state and local tax law of an investment in the Fund. It is not a substitute for personal
tax advice. You also may be subject to state, local and/or foreign tax on the Fund's distributions and sales and/or redemptions of Shares.
Consult your personal tax advisor(s) about the potential tax consequences of an investment in the Shares under all applicable tax laws.
Distributor
Invesco Distributors, Inc. (the “Distributor”)
serves as the distributor of Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in Shares.
The Distributor is an affiliate of the Adviser.
Net Asset Value
The NAV for the Fund
will be calculated and disseminated daily on each day that the NYSE is open for trading. The Bank of New York Mellon (“BNYM”)
normally calculates the Fund’s NAV as of the regularly scheduled close of business of the NYSE (normally 4:00 p.m., Eastern time).
The Fund’s NAV is based on prices at the time of closing, and U.S. fixed-income assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular market or exchange. NAV is calculated by deducting all of the Fund’s
liabilities from the total value of its assets and then dividing the result by the number of Shares outstanding, rounding to the nearest
cent. Generally, the portfolio securities are recorded in the NAV no later than the trade date plus one day. In determining NAV, expenses
are accrued and applied daily and securities and other assets for which market quotations are readily available and reliable are valued
at market value. The Trust’s Board has designated the Adviser to fair value the Fund’s portfolio securities and other assets
for which market quotations are not readily available and reliable in accordance with Board-approved policies and related Adviser procedures
(the “Valuation Procedures”), subject to the Board’s oversight.
Securities
listed or traded on an exchange (except convertible securities)
generally are valued at the last trade price or official closing price that day as of the close of the exchange where the security primarily
trades. Securities of investment companies that are not exchange-traded (e.g., open-end mutual funds) are valued using such company’s
end-of-business day NAV per share, whereas securities of investment companies that are exchange-traded are valued at the last trade price
or official closing price on the exchange on which they primarily trade. Deposits, other obligations of U.S. and non-U.S. banks and financial
institutions, and cash equivalents are valued at their daily account value. Fixed-income securities (including convertible securities)
normally are valued on the basis of prices provided by independent pricing services. Pricing services generally value fixed-income securities
assuming orderly transactions of institutional round lot size, but the Fund may hold or transact in the same securities in smaller, odd
lot sizes. Odd lots often trade at lower prices than institutional round lots, and their value may be adjusted accordingly. Futures contracts
are valued at the daily settlement price set by an exchange on which they are principally traded. U.S. exchange-traded options are valued
at the mean between the last bid and asked prices from the exchange on which they principally trade. Non-U.S. exchange-traded options
are valued at the final settlement price set by the exchange on which they trade. Options not listed on an exchange and swaps generally
are valued using pricing provided from independent pricing services. Unlisted securities will be valued using prices provided by independent
pricing services or by another method that the Adviser, in its judgment, believes better reflects the security’s fair value in accordance
with the Valuation Procedures. Foreign exchange-traded equity securities are valued at their market value if market quotations are available
and reliable. The Adviser may use various pricing services to obtain market quotations as well as fair value prices. The Adviser may discontinue
the use of any pricing service at any time.
At
times, a listed security’s market price may not be readily available. Moreover,
even when market quotations are available for a security, they may be stale or unreliable. A security’s last market quotation may
become stale because, among other reasons, (i) the security is not traded frequently, (ii) the security ceased trading before its exchange
closed; (iii) market or issuer-specific events occurred after the security ceased trading; or (iv) the
14
passage of time between
when the security’s trading market closes and when the Fund calculates its NAV caused the quotation to become stale. A security’s
last market quotation may become unreliable because of (i) certain issuer- or security-specific events, including a merger or insolvency,
(ii) events which affect a geographical area or an industry segment, such as political events or natural disasters, or (iii) market events,
such as a significant movement in the U.S. market. When a security’s market price is not readily available, or the Adviser determines,
in its judgment, that such price is stale or unreliable, the Adviser will value the security at fair value in good faith using the Valuation
Procedures.
Fair
value pricing involves subjective judgments, and fair value pricing methods
may change from time to time. Consequently, while such determinations may be made in good faith, it may nevertheless be more difficult
for the Adviser to accurately assign a daily value, and Fund securities that are fair valued may be subject to greater fluctuation in
their value from one day to the next than would be the case if market quotations were used. Because of the inherent uncertainties of valuation,
and the degree of subjectivity in such decisions, it is possible that a fair value determination for a security is materially different
than the value that could be realized upon the sale of the security. There is no assurance that the Fund could sell a portfolio security
for the value established for it at any time, and it is possible that the Fund would incur a loss if a security is sold at a discount
to its established value. Because the Fund seeks to track the Underlying Index, the use of fair value pricing could result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the Underlying Index, which may increase the Fund’s
tracking error.
Fund Service Providers
BNYM, 240 Greenwich Street, New York, New
York 10286, is the administrator, custodian, transfer agent and fund accounting and dividend disbursing agent for the Fund.
Stradley
Ronon Stevens & Young, LLP, 191 North Wacker Drive, Suite 1601, Chicago, Illinois 60606, and 2000 K Street, NW, Suite 700, Washington,
D.C. 20006, serves as legal counsel to the Trust.
PricewaterhouseCoopers
LLP (“PwC”), One North Wacker Drive, Chicago, Illinois 60606, serves as the Fund’s independent registered public accounting
firm. PwC is responsible for auditing the annual financial statements of the Fund and assists in the preparation and/or review of the
Fund’s federal and state income tax returns.
15
Financial Highlights
The financial highlights
table below is intended to help you understand the Fund’s financial performance for the past five fiscal years. Certain information
reflects financial results for a single Share. The total returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and other
distributions).
This information has been derived from the Fund’s financial statements, which have been audited by PwC, whose report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report for the fiscal year ended October 31, 2023,
which is available upon request.
|
|
Years
Ended October 31, | ||||
|
|
2023
|
2022
|
2021
|
2020
|
2019
|
|
Per
Share Operating Performance: |
|
|
|
|
|
|
Net
asset value at beginning of year |
$22.23
|
$31.38
|
$25.01
|
$24.47
|
$21.36
|
|
Net
investment income(a)
|
0.69
|
0.76
|
0.63
|
0.46
|
0.54
|
|
Net
realized and unrealized gain (loss) on investments |
2.91
|
(9.05)
|
6.39
|
0.55
|
3.16
|
|
Total
from investment operations |
3.60
|
(8.29)
|
7.02
|
1.01
|
3.70
|
|
Distributions
to shareholders from: |
|
|
|
|
|
|
Net
investment income |
(0.67)
|
(0.86)
|
(0.65)
|
(0.47)
|
(0.59)
|
|
Transaction
fees(a)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
0.00(b)
|
|
Net
asset value at end of year |
$25.16
|
$22.23
|
$31.38
|
$25.01
|
$24.47
|
|
Market
price at end of year(c)
|
$25.35
|
$22.23
|
$31.53
|
$25.00
|
$24.53
|
|
Net
Asset Value Total Return(d)
|
16.13%
|
(26.69)%
|
28.19%
|
4.42%
|
17.58%
|
|
Market
Price Total Return(d)
|
17.00%
|
(27.04)%
|
28.85%
|
4.09%
|
18.14%
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
Net
assets at end of year (000’s omitted) |
$176,119
|
$92,266
|
$114,522
|
$100,021
|
$47,726
|
|
Ratio
to average net assets of: |
|
|
|
|
|
|
Expenses
|
0.29%
|
0.29%
|
0.29%
|
0.29%
|
0.31%(e)
|
|
Net
investment income |
2.64%
|
2.85%
|
2.09%
|
1.83%
|
2.38%(e)
|
|
Portfolio
turnover rate(f)
|
50%
|
62%
|
61%
|
42%
|
54%
|
|
(a)
|
Based
on average shares outstanding. |
|
(b)
|
Amount
represents less than $0.005. |
|
(c)
|
The
mean between the last bid and ask prices. |
|
(d)
|
Net
asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment
of all dividends and distributions at net asset value
during
the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance
with accounting principles generally accepted in
the
United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns
for
shareholder transactions. Market price total return is calculated assuming an initial investment made at the market price at the beginning
of the period, reinvestment of all dividends and
distributions
at market price during the period, and sale at the market price on the last day of the period. Total investment returns calculated for
a period of less than one year are not annualized. |
|
(e)
|
Ratios
include non-recurring costs associated with a proxy statement of 0.02%. |
|
(f)
|
Portfolio
turnover rate is not annualized for periods less than one year, if applicable, and does not include securities received or delivered from
processing creations or redemptions. |
16
Index Provider
No entity that creates,
compiles, sponsors or maintains the Underlying Index is or will be an affiliated person, as defined in Section 2(a)(3) of the 1940
Act, or an affiliated person of an affiliated person, of the Trust, the Adviser, the Distributor or a promoter of the Fund.
Neither
the Adviser nor any affiliate of the Adviser has any rights to influence
the selection of the securities in the Underlying Index.
The
Underlying Index is calculated and maintained by the Index Provider or
its affiliate, agent or partner. The Index Provider is not affiliated with the Trust, the Adviser or the Distributor. The Adviser has
entered into a license agreement with the Index Provider. The Fund is entitled to use the Underlying Index pursuant to a sub-licensing
agreement with the Adviser.
Disclaimers
The Underlying Index is a product of S&P
Dow Jones Indices LLC or its affiliates (“S&P DJI”) and has been licensed for use by the Adviser. Standard & Poor’s®
and S&P®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by
S&P DJI and sublicensed for certain purposes to the Adviser.
The
Fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow
Jones, S&P or any of their respective affiliates. S&P DJI does not make any representation or warranty, express or implied, to
the owners of the Fund, the Adviser, any Distributor or promoter of the Fund, or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of the Underlying Index to track general market performance.
Past performance of an index is not an indication or guarantee of future results. S&P DJI’s only relationship to the Adviser
with respect to the Underlying Index is the licensing of the Underlying Index and certain trademarks, service marks and/or trade names
of S&P DJI and/or its licensors. The Underlying Index is determined, composed and calculated by S&P DJI without regard to the
Fund, the Adviser, any Distributor or promoter of the Fund. S&P DJI has no obligation to take the needs of the Adviser or the owners
of the Fund into consideration in determining, composing or calculating the Underlying Index. S&P DJI is not responsible for and has
not participated in the determination of the price and amount of the Shares, in the timing of the issuance or sale of the Shares or in
the determination or calculation of the equation by which the Shares are converted into cash, cash surrendered, redeemed, etc. as applicable.
S&P DJI has no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance
that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns.
S&P DJI is not an investment adviser or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities
on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within the Underlying Index
is not a recommendation by S&P DJI to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P
DJI DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DJI INDICES SHALL NOT BE SUBJECT TO ANY
DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS IN CALCULATING THE UNDERLYING INDEX. S&P DJI MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DJI BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT
NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DJI AND THE ADVISER, OTHER THAN THE LICENSORS OF THE UNDERLYING INDEX.
The
Adviser does not guarantee the accuracy and/or the completeness of
the Underlying Index or any data included therein, and the Adviser shall have no liability for any errors, omissions, restatements, re-calculations
or interruptions therein. The Adviser makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the Shares
or any other person or entity from the use of the Underlying Index or any data included therein. The Adviser makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying
Index or any data included therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying
Index, even if notified of the possibility of such damages.
Premium/Discount Information
Information showing the number of days the
market price of the Shares was greater (at a premium) and less (at a discount) than the Fund’s NAV for the most recently completed
calendar year and the most recently completed calendar quarters since that year (or the life of the Fund, if shorter) is available on
the Fund’s website at www.invesco.com/ETFs.
Other Information
Continuous Offering
The
method by which Creation Unit Aggregations of Shares are created and traded may raise certain issues under applicable securities laws.
Because new Creation Unit Aggregations of Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render
them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with the Distributor, breaks them down into constituent Shares
and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving the solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances pertaining to the activities of
17
the broker-dealer or
its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities
that could lead to a characterization as an underwriter.
Broker-dealer
firms also should note that dealers who are not “underwriters”
but are effecting transactions in Shares, whether or not participating in the distribution of Shares, generally are required to deliver
a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3)(C) of the Securities Act is not available in respect
of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions),
and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(a)(3)(C) of the Securities Act, will
be unable to take advantage of the prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act. For delivery of prospectuses
to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act only is available with respect to transactions
on a national exchange.
Delivery of Shareholder
Documents–Householding
Householding
is an option available to certain investors of the Fund. Householding is a method of delivery, based on the preference of the individual
investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their
accounts are registered under different names. Householding for the Fund is available through certain broker-dealers. If you are interested
in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your broker-dealer.
If you currently are enrolled in householding and wish to change your householding status, please contact your broker-dealer.
For More Information
For
more detailed information on the Trust, the Fund and the Shares, you may request a copy of the Fund’s SAI. The SAI provides detailed
information
about the Fund and is
incorporated by reference into this prospectus. This means that the SAI legally is a part of this prospectus. Additional information about
the Fund’s investments also is available in the Fund’s Annual and Semi-Annual Reports to Shareholders. In the Fund’s
current Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's
performance during the last fiscal year. If you have questions about the Fund or Shares or you wish to obtain the SAI, Annual Report and/or
Semi-Annual Report, free of charge, or to make shareholder inquiries, please:
|
Call:
|
Invesco
Distributors, Inc. at 1-800-983-0903
Monday
through Friday
8:00
a.m. to 5:00 p.m. Central Time |
|
Write:
|
Invesco
Exchange-Traded Fund Trust II
c/o
Invesco Distributors, Inc.
11
Greenway Plaza
Houston,
Texas 77046-1173 |
|
Visit:
|
www.invesco.com/ETFs
|
Reports
and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov.
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this prospectus, and you should not rely on any other information. Read and keep this prospectus
for future reference.
Dealers
effecting transactions in the Shares, whether or not participating
in this distribution, generally are required to deliver a prospectus. This is in addition to any obligation of dealers to deliver a prospectus
when acting as underwriters.
The
Trust's registration number under the 1940 Act is 811-21977.
18
