Notes to Financial Statements
The following are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as
closed-end management investment companies and are referred to herein collectively as the “Trusts”, or individually as a “Trust”:
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Herein Referred To As
|
|
Organized
|
|
Diversification
Classification
|
|
BlackRock 2022 Global Income Opportunity Trust
|
|
BGIO
|
|
Delaware
|
|
Diversified*
|
|
BlackRock Income Trust, Inc.
|
|
BKT
|
|
Maryland
|
|
Diversified
|
|
|
*
|
The Trust’s classification changed from non-diversified to diversified
during the reporting period.
|
|
The Board of Directors of BKT and Board of Trustees of BGIO are collectively referred to throughout this report as
the “Board,” and the directors/trustees thereof are collectively referred to throughout this report as “Trustees”. The Trusts determine and make available for publication the net asset values (“NAVs”) of their Common
Shares on a daily basis.
The Trusts, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the
“Manager”) or its affiliates, are included in a complex of non-index fixed-income mutual funds and all BlackRock-advised closed-end funds referred to as the
BlackRock Fixed-Income Complex.
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Trust is considered an investment company under U.S. GAAP and follows
the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Investment
Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed (the “trade dates”). Realized gains and losses on investment transactions are
determined using the specific identification method. Dividend income and capital gain distributions, if any, are recorded on the ex-dividend date. Non-cash dividends, if
any, are recorded on the ex-dividend date at fair value. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the
Trusts are informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including
amortization and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis.
Foreign Currency Translation:
Each Trust’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of trading on the
New York Stock Exchange (“NYSE”). Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency,
the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.
Each Trust does
not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not
segregated in the Statements of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. Each Trust reports realized currency gains
(losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.
Foreign Taxes: Certain Trusts may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on
investments, or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which each Trust invests. These foreign taxes, if
any, are paid by each Trust and are reflected in its Statements of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities
lending income, foreign taxes on stock dividends are presented as “Foreign taxes withheld”, and foreign taxes on capital gains from sales of investments and foreign taxes on foreign currency transactions are included in their respective
net realized gain (loss) categories. Foreign taxes payable or deferred as of December 31, 2020, if any, are disclosed in the Statements of Assets and Liabilities.
Segregation and Collateralization: In cases where a Trust enters into certain investments (e.g., dollar rolls, TBA sale commitments, futures
contracts, forward foreign currency exchange contracts, options written, swaps and short sales) or certain borrowings (e.g., reverse repurchase transactions) that would be treated as “senior securities” for 1940 Act purposes, a Trust may
segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments or borrowings. Doing so allows the investment or borrowings to be excluded from
treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Trusts may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for
certain investments or obligations.
Distributions: For BGIO, distributions from net investment income are declared monthly and paid monthly.
Distributions of capital gains are recorded on the ex-dividend date and made at least annually. Distributions paid by BKT are recorded on the ex-dividend date. Subject
to BKT’s managed distribution plan, BKT intends to make monthly cash distributions to shareholders, which may consist of net investment income and net realized and unrealized gains on investments and/or return of capital.
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
47
|
Notes to Financial Statements (continued)
The character of
distributions is determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. The portion of distributions that exceeds a Trust’s current and accumulated earnings and profits, which are measured on a tax
basis, will constitute a non-taxable return of capital. See Income Tax Information note for the tax character of each Trust’s distributions paid during the period.
Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by each Trust’s Board, the trustees who are
not “interested persons” of the Trusts, as defined in the 1940 Act (“Independent Trustees”), may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar
amounts had been invested in common shares of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Trustees. This has the same economic effect for the Independent Trustees as if the Independent Trustees had invested the
deferred amounts directly in certain funds in the BlackRock Fixed-Income Complex.
The Plan is not funded and obligations thereunder represent general
unsecured claims against the general assets of each Trust, as applicable. Deferred compensation liabilities, if any, are included in the Trustees’ and Officer’s fees payable in the Statements of Assets and Liabilities and will remain as a
liability of the Trusts until such amounts are distributed in accordance with the Plan.
Indemnifications: In the normal course of business, a
Trust enters into contracts that contain a variety of representations that provide general indemnification. A Trust’s maximum exposure under these arrangements is unknown because it involves future potential claims against a Trust, which cannot
be predicted with any certainty.
Other: Expenses directly related to a Trust are charged to that Trust. Other operating expenses shared by
several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.
|
3.
|
INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS
|
Investment Valuation Policies: Each Trust’s investments are valued at fair value (also referred to as “market value” within the
financial statements) each day that the Trust is open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an
orderly transaction between market participants at the measurement date. Each Trust determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board. If a
security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. The BlackRock
Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.
Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Trust’s assets and
liabilities:
|
|
•
|
|
Fixed-income investments for which market quotations are readily available are generally valued using the last available
bid price or current market quotations provided by independent dealers or third party pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more independent brokers or dealers as obtained from a third
party pricing service. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at
lower prices than institutional round lots. The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers),
market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed and mortgage related securities may be valued based on valuation models that consider
the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may be
used with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.
|
|
|
•
|
|
Investments in open-end U.S. mutual funds (including money market funds) are
valued at that day’s published NAV.
|
|
|
•
|
|
Futures contracts are valued based on that day’s last reported settlement price on the exchange where the contract
is traded.
|
|
|
•
|
|
Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as
of the close of trading on the NYSE based on that day’s prevailing forward exchange rate for the underlying currencies.
|
|
|
•
|
|
Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in
which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is
determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps
(“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.
|
|
|
•
|
|
Swap agreements are valued utilizing quotes received daily by independent pricing services or through brokers, which are
derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments.
|
If events (e.g., a market closure, market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value
of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment
will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global
Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in
|
|
|
|
|
48
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Notes to Financial Statements (continued)
determining fair value. When
determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Trust might reasonably expect to receive or pay from the current sale or purchase of that asset or liability
in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles
of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
For investments in equity or debt issued by privately held companies or funds (“Private Company” or collectively, the “Private
Companies”) and other Fair Valued Investments, the fair valuation approaches that are used by the Global Valuation Committee and third party pricing services utilize one or a combination of, but not limited to, the following inputs.
|
|
|
|
|
|
|
Standard Inputs Generally Considered By Third Party Pricing Services
|
|
Market approach
|
|
(i) recent market transactions,
including subsequent rounds of financing, in the underlying investment or comparable issuers;
(ii) recapitalizations and other transactions across the capital structure; and
(iii) market multiples of comparable issuers.
|
|
Income approach
|
|
(i) future cash flows discounted to
present and adjusted as appropriate for liquidity, credit, and/or market risks;
(ii) quoted prices for
similar investments or assets in active markets; and
(iii) other risk factors, such as
interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates.
|
|
Cost approach
|
|
(i) audited or unaudited financial
statements, investor communications and financial or operational metrics issued by the Private Company;
(ii) changes in the valuation of relevant indices or publicly traded companies comparable to the Private
Company;
(iii) relevant news and other public sources; and
(iv) known secondary market transactions in the Private Company’s interests and merger
or acquisition activity in companies comparable to the Private Company.
|
Investments in series of preferred stock issued by Private Companies are typically valued utilizing market approach in
determining the enterprise value of the company. Such investments often contain rights and preferences that differ from other series of preferred and common stock of the same issuer. Valuation techniques such as an option pricing model
(“OPM”), a probability weighted expected return model (“PWERM”) or a hybrid of those techniques are used in allocating enterprise value of the company, as deemed appropriate under the circumstances. The use of OPM and PWERM
techniques involve a determination of the exit scenarios of the investment in order to appropriately allocate the enterprise value of the company among the various parts of its capital structure.
The Private Companies are not subject to the public company disclosure, timing, and reporting standards applicable to other investments held by a Trust.
Typically, the most recently available information by a Private Company is as of a date that is earlier than the date a Trust is calculating its NAV. This factor may result in a difference between the value of the investment and the price a Trust
could receive upon the sale of the investment.
Fair Value Hierarchy: Various inputs are used in determining the fair value of financial
instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:
|
|
•
|
|
Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each
Trust has the ability to access;
|
|
|
•
|
|
Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or
liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield
curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs); and
|
|
|
•
|
|
Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent
observable inputs are not available (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments).
|
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by Private Companies
that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is not necessarily an
indication of the risks associated with investing in those securities.
|
4.
|
SECURITIES AND OTHER INVESTMENTS
|
Asset-Backed and Mortgage-Backed Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments.
Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations,
are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of
different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the
underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An
increased prepayment rate with respect to an asset-backed security will have the effect of shortening
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
49
|
Notes to Financial Statements (continued)
the maturity of the
security. In addition, a fund may subsequently have to reinvest the proceeds at lower interest rates. If a fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal
to the extent of the premium paid.
For mortgage pass-through securities (the “Mortgage Assets”) there are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely
payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae
guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow
from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the
borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic
downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Collateralized
Debt Obligations: Collateralized debt obligations (“CDOs”), including collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”), are types of asset-backed securities. A CDO is an entity
that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest
segment is the subordinated or “equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe
circumstances. Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive investment grade ratings from
one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance
of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.
Multiple
Class Pass-Through Securities: Multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage backed securities, may be issued by Ginnie Mae, U.S. Government
agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by a pool of residential or commercial mortgage loans or
Mortgage Assets. The payments on these are used to make payments on the CMOs or multiple pass-through securities. Multiple class pass-through securities represent direct ownership interests in the Mortgage Assets. Classes of CMOs include interest
only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has
been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise
and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the
PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, a
fund’s initial investment in the IOs may not fully recoup.
Stripped Mortgage-Backed Securities: Stripped mortgage-backed securities are
typically issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a
pool of Mortgage Assets. Stripped mortgage-backed securities may be privately issued.
Zero-Coupon Bonds: Zero-coupon bonds are normally issued
at a significant discount from face value and do not provide for periodic interest payments. These bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Securities and Trust Preferred Securities: Capital securities, including trust preferred securities, are typically issued by
corporations, generally in the form of interest-bearing notes with preferred securities characteristics. In the case of trust preferred securities, an affiliated business trust of a corporation issues these securities, generally in the form of
beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured with either a fixed or adjustable coupon that can have either a perpetual or stated maturity date. For trust preferred securities,
the issuing bank or corporation pays interest to the trust, which is then distributed to holders of these securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place
unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. These securities generally are rated below that of the issuing company’s senior debt
securities and are freely callable at the issuer’s option.
Warrants: Warrants entitle a fund to purchase a specified number of shares of
common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any. If the price of the
underlying stock does not rise above the strike price before the warrant expires, the warrant generally expires without any value and a fund will lose any amount it paid for the warrant. Thus, investments in warrants may involve more risk than
investments in common stock. Warrants may trade in the same markets as their underlying stock; however, the price of the warrant does not necessarily move with the price of the underlying stock.
Floating Rate Loan Interests: Floating rate loan interests are typically issued to companies (the “borrower”) by banks, other financial
institutions, or privately and publicly offered corporations (the “lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is
troubled or uncertain and companies that are highly leveraged or in bankruptcy proceedings. In addition, transactions in floating rate loan interests may settle on a delayed basis, which may result in proceeds from the sale not being readily
available for a fund to make additional investments or meet its redemption obligations. Floating rate loan interests may include fully funded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate
capital structure of the borrower. Floating rate loan interests generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. Since the rates reset only periodically, changes in prevailing
interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of a fund to the extent that it invests in floating rate loan interests. The base lending rates are generally the lending rate
offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rate
|
|
|
|
|
50
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Notes to Financial Statements (continued)
offered by one or more U.S.
banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreign currencies. These investments are treated as investments in debt securities for purposes of a
fund’s investment policies.
When a fund purchases a floating rate loan interest, it may receive a facility fee and when it sells a floating rate
loan interest, it may pay a facility fee. On an ongoing basis, a fund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees are typically
amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepayment penalty fees, which may be received by a fund upon the prepayment of a floating rate loan
interest by a borrower, are recorded as realized gains. A fund may invest in multiple series or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
Floating rate loan interests are usually freely callable at the borrower’s option. A fund may invest in such loans in the form of participations in
loans (“Participations”) or assignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in a fund having a contractual relationship only with the lender, not with the
borrower. A fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with
purchasing Participations, a fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of offset against the borrower. A fund may not benefit directly from any collateral supporting
the loan in which it has purchased the Participation. As a result, a fund assumes the credit risk of both the borrower and the lender that is selling the Participation. A fund’s investment in loan participation interests involves the risk of
insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling the Participation, a fund may be treated as a general creditor of the lender and may not benefit from any offset
between the lender and the borrower. Assignments typically result in a fund having a direct contractual relationship with the borrower, and a fund may enforce compliance by the borrower with the terms of the loan agreement.
Forward Commitments, When-Issued and Delayed Delivery Securities: Certain Trusts may purchase securities on a when-issued basis and may purchase or
sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. A Trust may purchase securities under such conditions with the intention of actually
acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, a Trust may be required to pay more at settlement than the security
is worth. In addition, a Trust is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, a Trust assumes the rights and risks of ownership of the security, including the risk of price
and yield fluctuations. In the event of default by the counterparty, a Trust’s maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions.
TBA Commitments: TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and
delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. When entering into
TBA commitments, a fund may take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold
declines or increases, respectively, prior to settlement date.
In order to better define contractual rights and to secure rights that will help a
fund mitigate its counterparty risk, TBA commitments may be entered into by a fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and
netting provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark-to-market amount for each
transaction under such agreement and comparing that amount to the value of the collateral currently pledged by a fund and the counterparty. Cash collateral that has been pledged to cover the obligations of a fund and cash collateral received from
the counterparty, if any, is reported separately in the Statements of Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively.
Non-cash collateral pledged by a fund, if any, is noted in the Schedules of Investments. Typically, a fund is permitted to sell, re-pledge or use the collateral it
receives; however, the counterparty is not permitted to do so. To the extent amounts due to a fund are not fully collateralized, contractually or otherwise, a fund bears the risk of loss from counterparty
non-performance.
Mortgage Dollar Roll Transactions: Certain Trusts may sell TBA mortgage-backed
securities and simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, a fund is not entitled
to receive interest and principal payments on the securities sold. Mortgage dollar roll transactions are treated as purchases and sales and a fund realizes gains and losses on these transactions. Mortgage dollar rolls involve the risk that the
market value of the securities that a fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Borrowed Bond Agreements: Repurchase agreements may be referred to as borrowed bond agreements when entered into in connection with short sales of
bonds. In a borrowed bond agreement, a fund borrows a bond from a counterparty in exchange for cash collateral. The agreement contains a commitment that the security and the cash will be returned to the counterparty and a fund at a mutually agreed
upon date. Certain agreements have no stated maturity and can be terminated by either party at any time. Earnings on cash collateral and compensation to the lender of the bond are based on agreed upon rates between a fund and the counterparty. The
value of the underlying cash collateral approximates the market value and accrued interest of the borrowed bond. To the extent that a borrowed bond transaction exceeds one business day, the value of the cash collateral in the possession of the
counterparty is monitored on a daily basis to ensure the adequacy of the collateral. As the market value of the borrowed bond changes, the cash collateral is periodically increased or decreased with a frequency and in amounts prescribed in the
borrowed bond agreement. A fund may also experience delays in gaining access to the collateral.
Reverse Repurchase Agreements: Reverse
repurchase agreements are agreements with qualified third party broker dealers in which a fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. A fund receives cash
from the sale to use for other investment purposes. During the term of the reverse repurchase agreement, a fund continues to receive the principal and interest payments on the securities sold. Certain agreements have no stated maturity and can be
terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates determined at the time of issuance. A fund may utilize reverse repurchase agreements
when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk. If a fund suffers a
loss on its investment of the transaction proceeds from a reverse repurchase agreement, a fund would still be required to pay the full repurchase price. Further, a fund
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
51
|
Notes to Financial Statements (continued)
remains subject to the risk
that the market value of the securities repurchased declines below the repurchase price. In such cases, a fund would be required to return a portion of the cash received from the transaction or provide additional securities to the counterparty.
Cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the Statements of Assets
and Liabilities at face value including accrued interest. Due to the short-term nature of the reverse repurchase agreements, face value approximates fair value. Interest payments made by a fund to the counterparties are recorded as a component of
interest expense in the Statements of Operations. In periods of increased demand for the security, a fund may receive a fee for the use of the security by the counterparty, which may result in interest income to a fund.
For the year ended December 31, 2020, the average amount of reverse repurchase agreements outstanding and the daily weighted average interest rate
for the Trusts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Average Amount
Outstanding
|
|
|
Daily Weighted Average
Interest Rate
|
|
|
BGIO
|
|
$
|
41,405,815
|
|
|
|
1.28
|
%
|
|
BKT
|
|
|
183,727,110
|
|
|
|
0.61
|
|
Borrowed bond agreements and reverse repurchase transactions are entered into by a fund under Master Repurchase Agreements
(each, an “MRA”), which permit a fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the
counterparty and create one single net payment due to or from a fund. With borrowed bond agreements and reverse repurchase transactions, typically a fund and counterparty under an MRA are permitted to sell,
re-pledge, or use the collateral associated with the transaction. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the
event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, a fund receives or posts securities and cash as collateral with a market value in excess of the repurchase price to be paid or received by a fund upon
the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty, a fund is considered an unsecured creditor with respect to excess collateral and, as such, the return of excess collateral may be delayed .
As of period end, the following table is a summary of BGIO’s open reverse repurchase agreements by counterparty which are subject to offset under an
MRA on a net basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Repurchase
|
|
|
Fair Value
of
Non-Cash Collateral
Pledged Including
|
|
|
Cash Collateral
|
|
|
|
|
|
Trust Name/Counterparty
|
|
|
Agreements
|
|
|
|
Accrued Interest
|
(a)
|
|
|
Pledged/Received
|
|
|
|
Net Amount
|
|
|
BGIO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Capital, Inc.
|
|
$
|
(7,911,488
|
)
|
|
$
|
7,911,488
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
BNP Paribas S.A.
|
|
|
(10,981,832
|
)
|
|
|
10,981,832
|
|
|
|
—
|
|
|
|
—
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
(297,919
|
)
|
|
|
297,919
|
|
|
|
—
|
|
|
|
—
|
|
|
Goldman Sachs & Co.
|
|
|
(302,837
|
)
|
|
|
302,837
|
|
|
|
—
|
|
|
|
—
|
|
|
RBC Capital Markets LLC
|
|
|
(13,785,396
|
)
|
|
|
13,785,396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,279,472
|
)
|
|
$
|
33,279,472
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Collateral with a value of $40,404,881 has been pledged in connection with open reverse repurchase agreements. Excess
of net collateral pledged to the individual counterparty is not shown for financial reporting purposes.
|
|
As of period end, the following table is a summary of BKT’s open borrowed bond agreements and reverse
repurchase agreements by counterparty which are subject to offset under an MRA on a net basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BKT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Borrowed
Bonds
|
|
|
Reverse
Repurchase
Agreements
|
|
|
Borrowed
Bonds at
Value
including
Accrued
|
|
|
Net
Amount
before
Collateral
|
|
|
Non-cash
Collateral
Received
|
|
|
Cash
Collateral
Received
|
|
|
Fair Value of
Non-cash
Collateral
Pledged
Including
Accrued
|
|
|
Cash
Collateral
Pledged
|
|
|
Net
Collateral
(Received)/
Pledged
|
|
|
Net
Exposure
Due (to)/
from
|
|
|
|
|
|
|
|
Agreements
|
(a)
|
|
|
Interest
|
(b)
|
|
|
Interest
|
(c)
|
|
|
Counterparty
|
(d)
|
|
|
|
|
|
BNP Paribas S.A.
|
|
$
|
—
|
|
|
$
|
(52,394,027
|
)
|
|
$
|
—
|
|
|
$
|
(52,394,027
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51,484,847
|
|
|
$
|
909,180
|
|
|
$
|
52,394,027
|
|
|
$
|
—
|
|
|
|
|
|
|
Cantor Fitzgerald & Company
|
|
|
—
|
|
|
|
(104,542,271
|
)
|
|
|
—
|
|
|
|
(104,542,271
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
104,542,271
|
|
|
|
—
|
|
|
|
104,542,271
|
|
|
|
—
|
|
|
|
|
|
|
Credit Suisse AG
|
|
|
1,146,250
|
|
|
|
—
|
|
|
|
(1,137,364
|
)
|
|
|
8,886
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,146,250
|
|
|
$
|
(156,936,298
|
)
|
|
$
|
(1,137,364
|
)
|
|
$
|
(156,927,412
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156,027,118
|
|
|
$
|
909,180
|
|
|
$
|
156,936,298
|
|
|
$
|
8,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included in Investments at value-unaffiliated in the Statements of Assets and Liabilities.
|
|
|
|
|
|
|
52
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Notes to Financial Statements (continued)
|
|
(b)
|
Includes accrued interest on borrowed bonds in the amount of $1,251 which is included in interest expense payable in
the Statements of Assets and Liabilities.
|
|
|
|
(c)
|
Net collateral, including accrued interest, with a value of $162,700,562 has been pledged/received in connection with
open reverse repurchase agreements. Excess of net collateral pledged to the individual counterparty is not shown for financial reporting purposes.
|
|
|
|
(d)
|
Net exposure represents the net receivable (payable) that would be due from/to the counterparty in the event of
default.
|
|
In the event the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, a fund’s
use of the proceeds from the agreement may be restricted while the counterparty, or its trustee or receiver, determines whether or not to enforce a fund’s obligation to repurchase the securities.
Short Sale Transactions: In short sale transactions, a fund sells a security it does not hold in anticipation of a decline in the market price of
that security. When a fund makes a short sale, it will borrow the security sold short (borrowed bond) and deliver the fixed-income security to the counterparty to which it sold the security short. An amount equal to the proceeds received by a fund
is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. A fund
is required to repay the counterparty interest on the security sold short, which, if applicable, is included in interest expense in the Statements of Operations. A fund is exposed to market risk based on the amount, if any, that the market value of
the security increases beyond the market value at which the position was sold. Thus, a short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. The short sale of securities involves the
possibility of an unlimited loss since there is an unlimited potential for the market price of the security sold short to increase. A gain is limited to the price at which a fund sold the security short. A realized gain or loss is recognized upon
the termination of a short sale if the market price is either less than or greater than the proceeds originally received. There is no assurance that a fund will be able to close out a short position at a particular time or at an acceptable price.
|
5.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The Trusts engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Trusts and/or to manage their
exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are
included in the Schedules of Investments. These contracts may be transacted on an exchange or OTC.
Futures Contracts: Futures contracts are
purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are exchange-traded agreements between the Trusts and a counterparty to buy or sell a specific quantity of an underlying instrument at a
specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering
into a futures contract, the Trusts are required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be
maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statements of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited, if any, are shown as cash pledged for futures
contracts in the Statements of Assets and Liabilities. Pursuant to the contract, the Trusts agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”).
Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or
loss is recorded in the Statements of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an
imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.
Forward Foreign Currency Exchange Contracts: Forward foreign currency exchange contracts are entered into to gain or reduce exposure to foreign
currencies (foreign currency exchange rate risk).
A forward foreign currency exchange contract is an agreement between two parties to buy and sell a
currency at a set exchange rate on a specified date. These contracts help to manage the overall exposure to the currencies in which some of the investments held by the Trusts are denominated and in some cases, may be used to obtain exposure to a
particular market. The contracts are traded OTC and not on an organized exchange.
The contract is marked-to-market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the Statements of Assets and Liabilities. When a contract is closed, a realized gain or loss is
recorded in the Statements of Operations equal to the difference between the value at the time it was opened and the value at the time it was closed. Non-deliverable forward foreign currency exchange contracts
are settled with the counterparty in cash without the delivery of foreign currency. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to
movements in the value of the referenced foreign currencies, and such value may exceed the amount(s)reflected in the Statements of Assets and Liabilities. Cash amounts pledged for forward foreign currency exchange contracts are considered restricted
and are included in cash pledged as collateral for OTC derivatives in the Statements of Assets and Liabilities. A Trust’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted
against any collateral held by the Trust.
Options: Certain Trusts purchase and write call and put options to increase or decrease their
exposure to the risks of underlying instruments, including equity risk, interest rate risk and/or commodity price risk and/or, in the case of options written, to generate gains from options premiums.
A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the
option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at
the exercise or strike price at any time or at a specified time during the option period.
Premiums paid on options purchased and premiums received on
options written, as well as the daily fluctuation in market value, are included in investments at value –unaffiliated and options written at value, respectively, in the Statements of Assets and Liabilities. When an instrument is purchased or
sold through the exercise of an option, the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is recorded in the Statements of Operations to
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
53
|
Notes to Financial Statements (continued)
the extent of the premiums
received or paid. When an option is closed or sold, a gain or loss is recorded in the Statements of Operations to the extent the cost of the closing transaction exceeds the premiums received or paid. When the Trusts write a call option, such option
is typically “covered,” meaning that they hold the underlying instrument subject to being called by the option counterparty. When the Trusts write a put option, cash is segregated in an amount sufficient to cover the obligation. These
amounts, which are considered restricted, are included in cash pledged as collateral for options written in the Statements of Assets and Liabilities.
|
|
•
|
|
Swaptions — Certain Trusts purchase and write options on swaps (“swaptions”) primarily to preserve a
return or spread on a particular investment or portion of the Trusts’ holdings, as a duration management technique or to protect against an increase in the price of securities it anticipates purchasing at a later date. The purchaser and writer
of a swaption is buying or granting the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
|
In purchasing and writing options, the Trusts bear the risk of an unfavorable change in the value of the underlying instrument or the risk that they may
not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Trusts purchasing or selling a security when they otherwise would not, or at a price different from the current market value.
Swaps: Swap contracts are entered into to manage exposure to issuers, markets and securities. Such contracts are agreements between the Trusts
and a counterparty to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or
centrally cleared (“centrally cleared swaps”).
For OTC swaps, any upfront premiums paid and any upfront fees received are shown as swap
premiums paid and swap premiums received, respectively, in the Statements of Assets and Liabilities and amortized over the term of the contract. The daily fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC Swaps
in the Statements of Assets and Liabilities. Payments received or paid are recorded in the Statements of Operations as realized gains or losses, respectively. When an OTC swap is terminated, a realized gain or loss is recorded in the Statements of
Operations equal to the difference between the proceeds from (or cost of) the closing transaction and the Trusts’ basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap contract, the swap contract is novated to a central counterparty (the
“CCP”) and the CCP becomes the Trusts’ counterparty on the swap. Each Trust is required to interface with the CCP through the broker. Upon entering into a centrally cleared swap, each Trust is required to deposit initial margin with
the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited is shown as
cash pledged for centrally cleared swaps in the Statements of Assets and Liabilities. Amounts pledged, which are considered restricted cash, are included in cash pledged for centrally cleared swaps in the Statements of Assets and Liabilities.
Pursuant to the contract, each Trust agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation
(depreciation) and shown as variation margin receivable (or payable) on centrally cleared swaps in the Statements of Assets and Liabilities. Payments received from (paid to) the counterparty are amortized over the term of the contract and recorded
as realized gains (losses) in the Statements of Operations, including those at termination.
|
|
•
|
|
Credit default swaps — Credit default swaps are entered into to manage exposure to the market or certain sectors of
the market, to reduce risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which a fund is not otherwise exposed (credit risk).
|
The Trusts may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of
single-name issuers or traded indexes. Credit default swaps are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a promise from the protection seller to make a specific payment should a
negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation acceleration, repudiation, moratorium or restructuring). As a buyer, if an underlying credit event occurs, the Trusts will either
(i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the
swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Trusts will either pay the buyer an amount equal to the notional amount of the swap and take
delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.
|
|
•
|
|
Interest rate swaps — Interest rate swaps are entered into to gain or reduce exposure to interest rates or to manage
duration, the yield curve or interest rate (interest rate risk).
|
Interest rate swaps are agreements in which one
party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex interest rate
swaps, the notional principal amount may decline (or amortize) over time.
Swap transactions involve, to varying degrees, elements of interest rate,
credit and market risk in excess of the amounts recognized in the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default
on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
Master Netting Arrangements: In order to define its contractual rights and to secure rights that will help it mitigate its counterparty risk, a
Trust may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between a Trust and a
counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, a Trust may, under
certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement
typically
|
|
|
|
|
54
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Notes to Financial Statements (continued)
permit a single net payment
in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency
or other events.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically
calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by
the Trust and the counterparty.
Cash collateral that has been pledged to cover obligations of the Trusts and cash collateral received from the
counterparty, if any, is reported separately in the Statements of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Trusts,
if any, is noted in the Schedules of Investments. Generally, the amount of collateral due from or to a counterparty is subject to a certain minimum transfer amount threshold before a transfer is required, which is determined at the close of business
of the Trusts. Any additional required collateral is delivered to/pledged by the Trusts on the next business day. Typically, the counterparty is not permitted to sell, re-pledge or use cash and non-cash collateral it receives. A Trust generally agrees not to use non-cash collateral that it receives but may, absent default or certain other circumstances defined in the
underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, interest may be paid pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Trusts from the counterparties are not
fully collateralized, each Trust bears the risk of loss from counterparty non-performance. Likewise, to the extent the Trusts have delivered collateral to a counterparty and stand ready to perform under the
terms of their agreement with such counterparty, each Trust bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral. Based on the terms of agreements,
collateral may not be required for all derivative contracts.
For financial reporting purposes, the Trusts do not offset derivative assets and
derivative liabilities that are subject to netting arrangements, if any, in the Statements of Assets and Liabilities.
|
6.
|
INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
|
Investment Advisory: Each Trust entered into an Investment Advisory Agreement with the Manager, the Trusts’ investment adviser and an
indirect, wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory and administrative services. The Manager is responsible for the management of each Trust’s portfolio and provides the personnel,
facilities, equipment and certain other services necessary to the operations of each Trust.
For such services, BGIO pays the Manager a monthly fee at
an annual rate equal to 0.60% of the average daily value of the Trust’s managed assets. For purposes of calculating this fee, “managed assets” are determined as total assets of the Trust (including any assets attributable to money
borrowed for investment purposes) less the sum of its accrued liabilities (other than money borrowed for investment purposes).
For such services, BKT
pays the Manager a monthly fee at an annual rate equal to 0.65% of the average weekly value of the Trust’s net assets. For purposes of calculating this fee, “net assets” means the total assets of the Trust minus the sum of its accrued
liabilities (including the aggregate indebtedness constituting financial leverage).
With respect to the BGIO, the Manager entered into separate sub-advisory agreements with each of BlackRock International Limited (“BIL”) and BlackRock (Singapore) Limited (“BRS”) (collectively, the
“Sub-Advisers”), each an affiliate of the Manager. With respect to BKT, effective March 2, 2020, the Manager entered into a sub-advisory agreement with
BIL, an affiliate of the Manager. The Manager pays BIL and, with respect to BGIO, BRS for services they provide for that portion of each Trust for which BIL and, with respect to BGIO, BRS, as applicable, acts as
sub-adviser, a monthly fee that is equal to a percentage of the investment advisory fees paid by each Trust to the Manager.
Administration: BKT has an Administration Agreement with the Manager. The administration fee paid monthly to the Manager is computed at an annual
rate of 0.15% of the Trust’s average weekly net assets. For BKT, the Manager may reduce or discontinue these arrangements at any time without notice.
Waivers: With respect to each Trust, the Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory
fees each Trust pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through June 30, 2022. The contractual agreement may be terminated upon 90 days’
notice by a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of a Trust. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year
ended December 31, 2020, the amounts waived were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Amounts Waived
|
|
|
|
|
|
BGIO
|
|
$
|
3,751
|
|
|
BKT
|
|
|
6,170
|
|
|
|
|
The Manager contractually agreed to waive its investment advisory fee with respect to any portion of each Trust’s
assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2022. The agreement can be renewed for annual periods thereafter, and may be
terminated on 90 days’ notice, each subject to approval by a majority of the Trusts’ Independent Trustees. For the year ended December 31, 2020, there were no fees waived by the Manager pursuant to this arrangement.
Trustees and Officers: Certain trustees and/or officers of the Trusts are directors and/or officers of BlackRock or its affiliates. The Trusts
reimburse the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in Trustees and Officer in the Statements of Operations.
Other Transactions: The Trusts may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to
having a common investment adviser, common officers, or common trustees. For the year ended December 31, 2020, the purchase and sale transactions and any net realized gains (losses) with affiliated funds in compliance with Rule 17a-7 under the 1940 Act were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Purchases
|
|
|
Sales
|
|
|
Net Realized
Gain (Loss)
|
|
|
|
|
|
BGIO
|
|
$
|
92,038
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
55
|
Notes to Financial Statements (continued)
For the year ended December 31, 2020, purchases and sales of investments, including paydowns/payups and mortgage dollar rolls and excluding
short-term securities, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Purchases
|
|
|
Sales
|
|
|
|
|
|
BGIO
|
|
$
|
48,877,633
|
|
|
$
|
82,654,164
|
|
|
BKT
|
|
|
402,422,074
|
|
|
|
433,303,504
|
|
|
|
|
For the year ended December 31, 2020, purchases and sales related to mortgage dollar rolls were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Purchases
|
|
|
Sales
|
|
|
|
|
|
BKT
|
|
$
|
218,433,366
|
|
|
$
|
218,678,262
|
|
|
|
|
|
8.
|
INCOME TAX INFORMATION
|
It is each Trust’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.
Each Trust files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations
on each Trust’s U.S. federal tax returns generally remains open for a period of three fiscal years after they are filed. The statutes of limitations on each Trust’s state and local tax returns may remain open for an additional year
depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Trusts as of December 31, 2020,
inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Trusts’ financial statements.
The tax character of distributions paid was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods
|
|
BGIO
|
|
|
BKT
|
|
|
|
|
|
Ordinary income
|
|
|
12/31/20
|
|
|
$
|
11,599,618
|
|
|
$
|
21,525,091
|
|
|
|
|
|
12/31/19
|
|
|
|
13,652,939
|
|
|
|
18,834,138
|
|
|
Return of capital
|
|
|
12/31/20
|
|
|
|
1,686,651
|
|
|
|
4,810,355
|
|
|
|
|
|
12/31/19
|
|
|
|
—
|
|
|
|
7,501,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12/31/20
|
|
|
$
|
13,286,269
|
|
|
$
|
26,335,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/19
|
|
|
$
|
13,652,939
|
|
|
$
|
26,335,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of period end, the tax components of accumulated earnings (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BGIO
|
|
|
BKT
|
|
|
|
|
|
Non-expiring capital loss carryforwards(a)
|
|
$
|
(15,562,507
|
)
|
|
$
|
(92,959,362
|
)
|
|
Net unrealized gains(b)
|
|
|
3,732,364
|
|
|
|
26,035,044
|
|
|
Qualified late-year losses(c)
|
|
|
(698,907
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12,529,050
|
)
|
|
$
|
(66,924,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts available to offset future realized capital gains.
|
|
|
|
(b)
|
The difference between book-basis and tax-basis net unrealized gains was
attributable primarily to the tax deferral of losses on wash sales and straddles, the realization for tax purposes of unrealized gains/losses on certain futures and foreign currency contracts, the accrual of income on securities in default,
dividends recognized for tax purposes, amortization methods for premiums and discounts on fixed income securities, the classification of investments, the accounting for swap agreements, the deferral of compensation to trustees and the timing of
distributions.
|
|
|
|
(c)
|
The Trust has elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.
|
|
As of December 31, 2020, gross unrealized appreciation and depreciation based on cost of investments
(including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BGIO
|
|
|
BKT
|
|
|
|
|
|
Tax cost
|
|
$
|
228,936,464
|
|
|
$
|
583,216,787
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
14,576,449
|
|
|
$
|
44,808,587
|
|
|
Gross unrealized depreciation
|
|
|
(8,551,908
|
)
|
|
|
(16,318,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation)
|
|
$
|
6,024,541
|
|
|
$
|
28,490,388
|
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, certain Trusts invest in securities or other instruments and may enter into certain transactions, and such activities
subject each Trust to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may
|
|
|
|
|
56
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Notes to Financial Statements (continued)
also be affected by various
factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between
various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a
significant impact on the Trusts and their investments.
BGIO will terminate on or about February 28, 2022. BGIO is not a target term fund and
thus does not seek to return its initial public offering price of $10.00 per common share upon termination. The final distribution of net assets upon termination may be more than, equal to or less than $10.00 per common share.
Each Trust may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which
are otherwise illiquid, including private placement securities. A Trust may not be able to readily dispose of such investments at prices that approximate those at which a Trust could sell such investments if they were more widely traded and, as a
result of such illiquidity, a Trust may have to sell other investments or engage in borrowing transactions if necessary to raise funds to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely
affecting a Trust’s net asset value and ability to make dividend distributions. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below
investment grade public debt securities.
Market Risk: Each Trust may be exposed to prepayment risk, which is the risk that borrowers may
exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force each Trust to reinvest in lower yielding securities. Each Trust may also be exposed to reinvestment risk, which is the
risk that income from each Trust’s portfolio will decline if each Trust invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are below each Trust portfolio’s current earnings rate.
An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines,
disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affect the economies of many nations, individual
companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result in substantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. The
duration of this pandemic and its effects cannot be determined with certainty.
Investment Objective Risk: There is no assurance that BGIO
will achieve its investment objective. A variety of circumstances may make it extremely difficult for BGIO to achieve its investment objective. Such circumstances include, but may not be limited to, the existence of an inverted yield curve, a rapid
and significant increase in interest rates, a significant decrease in issuer credit quality generally and/or increased defaults, increased volatility in currency markets and/or in currency exchange rates and negative economic, market, political
and/or social developments impacting emerging markets. Additionally, the limited term of BGIO may increase the risk that BGIO may not meet its investment objective. A limited term limits the period during which BGIO can generate returns and
increases the potential impact that a disruptive market event or one or more of the conditions outlined above could have on BGIO’s annualized returns.
Valuation Risk: The price a Trust could receive upon the sale of any particular portfolio investment may differ from a Trust’s valuation of
the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation technique or a price provided by an independent pricing service. Changes to significant unobservable inputs and assumptions
(i.e., publicly traded company multiples, growth rate, time to exit) due to the lack of observable inputs may significantly impact the resulting fair value and therefore a Trust’s results of operations. As a result, the price received upon the
sale of an investment may be less than the value ascribed by a Trust, and a Trust could realize a greater than expected loss or lesser than expected gain upon the sale of the investment. A Trust’s ability to value its investments may also be
impacted by technological issues and/or errors by pricing services or other third party service providers.
Counterparty Credit Risk: The
Trusts may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or otherwise
honoring its obligations. The Trusts manage counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability
of those counterparties. Financial assets, which potentially expose the Trusts to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Trusts’
exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Trusts.
A derivative contract may suffer a mark-to-market loss if the value of
the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
For OTC options purchased, each Trust bears the risk of loss in the amount of the premiums paid plus the positive change in market values net of any
collateral held by the Trusts should the counterparty fail to perform under the contracts. Options written by the Trusts do not typically give rise to counterparty credit risk, as options written generally obligate the Trusts, and not the
counterparty, to perform. The Trusts may be exposed to counterparty credit risk with respect to options written to the extent each Trust deposits collateral with its counterparty to a written option.
With exchange-traded futures and centrally cleared swaps, there is less counterparty credit risk to the Trusts since the exchange or clearinghouse, as
counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist
under applicable law, a Trust does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures and
centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing
broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the
clearing broker’s customers, potentially resulting in losses to the Trusts.
Concentration Risk: A diversified portfolio, where this is
appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within certain Trust’s portfolio are
disclosed in its Schedule of Investments.
|
|
|
|
|
N O T E S T O F I N A N C I A L S
T A T E M E N T S
|
|
57
|
Notes to Financial Statements (continued)
Certain Trusts invest a
significant portion of their assets in high yield securities. High yield securities that are rated below investment-grade (commonly referred to as “junk bonds”) or are unrated may be deemed speculative, involve greater levels of risk than
higher-rated securities of similar maturity and are more likely to default. High yield securities may be issued by less creditworthy issuers, and issuers of high yield securities may be unable to meet their interest or principal payment obligations.
High yield securities are subject to extreme price fluctuations, may be less liquid than higher rated fixed-income securities, even under normal economic conditions, and frequently have redemption features.
Certain Trusts invest a significant portion of their assets in fixed-income securities and/or use derivatives tied to the fixed-income markets. Changes
in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as
interest rates rise. The Trusts may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
Certain Trusts invest a significant portion of their assets in securities backed by commercial or residential mortgage loans or in issuers that hold
mortgage and other asset-backed securities. When a Trust concentrates its investments in this manner, it assumes a greater risk of prepayment or payment extension by securities issuers. Changes in economic conditions, including delinquencies and/or
defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions. Investment percentages in these securities are presented in the Schedules of Investments.
LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate
(“LIBOR”) by the end of 2021, and it is expected that LIBOR will cease to be published after that time. The Trusts may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies
or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate
effect of the LIBOR transition process on the Trusts is uncertain.
|
10.
|
CAPITAL SHARE TRANSACTIONS
|
BGIO is authorized to issue an unlimited number of shares, par value $0.001, all of which were initially classified as Common Shares. BKT is authorized
to issue 200 million shares, par value $0.01, all of which were initially classified as Common Shares. Each Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders.
For the years shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Year Ended
12/31/20
|
|
|
Year Ended
12/31/19
|
|
|
|
|
|
BGIO
|
|
|
|
|
|
|
|
|
|
Shares issued from dividend reinvestment
|
|
|
10,527
|
|
|
|
7,866
|
|
|
BKT
|
|
|
|
|
|
|
|
|
|
Shares issued from dividend reinvestment
|
|
|
—
|
|
|
|
—
|
|
|
|
|
BKT participates in an open market share repurchase program (the “Repurchase Program”). From December 1,
2019 through November 30, 2020, BKT may repurchase up to 5% of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of business on November 30, 2019, subject to certain conditions.
There is no assurance that BKT will purchase shares in any particular amounts.
On September 28, 2020, BKT announced a continuation of its open
market share repurchase program. Commencing on December 1, 2020, BKT may repurchase through November 30, 2021, up to 5% of its common shares outstanding as of the close of business on November 30, 2020, subject to certain conditions.
There is no assurance that BKT will purchase shares in any particular amounts. For the year ended December 31, 2020, BKT did not repurchase any shares.
As of December 31, 2020, BlackRock HoldCo 2, Inc., an affiliate of the Trusts, owned 17,919 Shares of BGIO.
Management’s evaluation of the impact of all subsequent events on the Trusts’ financial statements was completed through the date the financial
statements were issued and the following items were noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per Common Share
|
|
|
Trust Name
|
|
|
Paid
|
(a)
|
|
|
Declared
|
(b)
|
|
BGIO
|
|
$
|
0.050000
|
|
|
$
|
0.050000
|
|
|
BKT
|
|
|
0.034400
|
|
|
|
0.034400
|
|
|
|
(a)
|
Net investment income dividend paid on January 11, 2021 to Common Shareholders of record on December 31,
2020.
|
|
|
|
(b)
|
Net investment income dividend declared on February 1, 2021, payable to Common Shareholders of record on
February 16, 2021.
|
|
|
|
|
|
|
58
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of BlackRock 2022 Global Income Opportunity Trust and BlackRock Income Trust, Inc.
(the “Funds”), including the schedules of investments, as of December 31, 2020, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the
period then ended, the financial highlights for the periods indicated in the table below, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of
the Funds as of December 31, 2020, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the
periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.
|
|
|
|
|
Fund
|
|
Financial Highlights
|
|
BlackRock 2022 Global Income Opportunity Trust
|
|
For the three years in the period ended December 31, 2020, and the
period from February 27, 2017 (commencement of operations) through
December 31, 2017
|
|
BlackRock Income Trust, Inc
|
|
For the two years in the period ended December 31, 2020, the period
from September 1, 2018 through December 31, 2018 and for each of the
three years in the
period ended August 31, 2018
|
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on
the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian, agent banks and brokers; when replies were not received from agent banks or brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
February 23, 2021
We have served as the auditor of one or more BlackRock investment companies since 1992.
|
|
|
|
|
R E P O R T O F I N D E P E N D E N T
R E G I S T E R E D P U B L I C A C C O U N T I N G
F I R M
|
|
59
|
Important Tax Information (unaudited)
For corporate shareholders,
the percentage of ordinary income distributions paid during the fiscal year ended December 31, 2020 that qualified for the dividends-received deduction were as follows:
|
|
|
|
|
|
|
Trust Name
|
|
Dividends-Received
Deduction
|
|
|
|
BGIO
|
|
1.24%
|
|
|
The following maximum amounts are hereby designated as qualified dividend income for individuals for the fiscal year
ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Qualified Dividend
Income
|
|
|
|
|
|
BGIO
|
|
$
|
490,566
|
|
|
|
|
For the fiscal year ended December 31, 2020, the Trusts hereby designate the following maximum amounts allowable as
interest-related dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations:
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Interest-Related
Dividends
|
|
|
|
|
|
BGIO
|
|
$
|
5,397,074
|
|
|
BKT
|
|
|
21,270,135
|
|
|
|
|
|
|
|
|
|
60
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Investment Objectives, Policies and Risks
Recent Changes
The following information is a summary of certain changes since December 31, 2019. This information may not reflect all of the changes that have
occurred since you purchased the relevant Fund.
Effective February 23, 2020, BGIO’s classification changed from non-diversified to diversified.
Except as noted above, during each Trust’s most recent fiscal year, there
were no material changes in the Trust’s investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with investment in the Trust.
Investment Objectives and Policies
BlackRock Income Trust, Inc. (BKT)
The Trust’s investment objective is to manage a portfolio of high-quality securities to achieve both preservation of capital and high
monthly income. The Trust will seek to distribute monthly income that is greater than that obtainable on an annualized basis by investment in United States government securities having the same maturity as the weighted average maturity of the
Trust’s investments. The Trust’s portfolio is expected to consist primarily of mortgage-backed securities and, to a lesser extent, asset-backed securities.
Mortgage-backed securities are securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. There are three basic types of mortgage-backed securities: (i) those issued or guaranteed by the United States government or one of its agencies or instrumentalities, such as the Government National Mortgage
Association (“GNMA”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”); (ii) those issued by private issuers that are collateralized by securities
issued or guaranteed by the United States government or one of its agencies or instrumentalities; and (iii) those issued by private issuers and collateralized by securities without a government guarantee but usually with some form of private
credit enhancement.
The Trust will invest at least 65% of its assets in mortgage-backed securities. The balance of the Trust’s assets generally
will be invested in asset-backed securities, which have structural characteristics similar to mortgage-backed securities but have underlying assets that are not mortgage loans or interests in mortgage loans. The Trust may also invest in various
derivative mortgage-backed and asset-backed securities, such as collateralized mortgage obligations and asset-backed security residual interests and stripped mortgage-backed securities. In addition, for hedging purposes, the Trust may utilize a
portion of its assets for certain options, futures, interest rate swaps and related transactions. For purposes of enhancing liquidity and/or preserving capital, the Trust may invest without limit in securities issued by the United States government
and its agencies and instrumentalities, or repurchase agreements collateralized by such securities, certificates of deposit, time deposits or bankers’ acceptances of similar quality.
At least 80% of the Trust’s assets will be invested in securities that are (i) issued or guaranteed by the United States government or one of
its agencies or instrumentalities or (ii) rated at the time of investment either AAA by S&P Global Ratings (“S&P”) or Aaa by Moody’s Investors Service (“Moody’s”). Securities issued or guaranteed by the
United States government or its agencies or instrumentalities are generally considered to be of the same or higher quality than privately issued securities rated AAA or Aaa. No more than 20% of the Trust’s assets will be invested in other
securities, all of which will have been determined by BlackRock Advisors, LLC (the “Manager”) to be of comparable credit quality.
The
yield characteristics of mortgage-backed and asset-backed securities differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if the Trust purchases such a security at a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield to maturity. Conversely, if the Trust purchases these securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. The Trust may also invest in derivative securities such as stripped mortgage-backed securities or residual interests, which generally are more sensitive to changes in prepayment and
interest rates. The Manager will seek to manage these risks (and potential benefits) by investing in a variety of such securities and through hedging techniques.
Prepayments on a pool of mortgage loans are influenced by a variety of economic, geographic, social and other factors, including changes in
mortgagors’ housing needs, job transfers, unemployment, mortgagors’ net equity in the mortgaged properties and servicing decisions. Generally, however, prepayments on fixed rate mortgage loans will increase during a period of falling
interest rates and decrease during a period of rising interest rates. The same factors apply to prepayments on asset-backed securities but the predominant factor in a particular case may be different than in the case of mortgage-backed securities.
Accordingly, amounts available for reinvestment by the Trust are likely to be greater during a period of declining interest rates than during a period of rising interest rates.
The Trust’s yield will also be affected by the interest rates on instruments in which the Trust is able to reinvest the proceeds of payments and
prepayments. Accelerated prepayments on securities purchased by the Trust at a premium also impose a risk of loss of principal because the premium may not have been fully amortized at the time the principal is repaid in full.
Leverage: The Trust may borrow from time to time, at the Manager’s discretion, for purposes of investment leverage when yields on available
investments exceed interest rates and other expenses of related borrowing, or when, in the Manager’s opinion, unusual market conditions otherwise make it advantageous for the Trust to increase its investment capacity.
The Trust may also borrow for emergency purposes, for the payment of dividends or for the clearance of transactions.
The Trust may enter into reverse repurchase agreements.
|
|
|
|
|
I N V E S T M E N T O B J E C T I V E S
, P O L I C I E S A N D R I S K S
|
|
61
|
Investment Objectives, Policies and Risks (continued)
Investment Objectives and Policies
(continued)
BlackRock 2022 Global Income Opportunity Trust (BGIO)
The Trust’s investment objective is to seek to distribute a high level of current income and to earn a total return, based on the net asset value
(“NAV”) of the Trust’s common shares, that exceeds the return on the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index by 500 basis points (or 5.00%) on an annualized basis over the life of
the Trust, under normal market conditions. Because the total return of the Trust described in the Trust’s investment objective is calculated based on NAV, it is measured after expenses.
There can be no assurances that the Trust’s investment objective will be achieved or that the Trust’s investment program will be successful. A
variety of circumstances may make it extremely difficult or impossible for the Trust to achieve its investment objective. Such circumstances include, but may not be limited to, the following:
|
|
•
|
|
The existence of an inverted yield curve.
|
|
|
•
|
|
A rapid and significant increase in interest rates.
|
|
|
•
|
|
A significant decrease in issuer credit quality generally and/or increased defaults.
|
|
|
•
|
|
Increased volatility in currency markets and/or in currency exchange rates.
|
|
|
•
|
|
Negative economic, market, political and/or social developments impacting emerging markets.
|
Because the achievement of the Trust’s investment objective is measured on an annualized basis over the life of the Trust, the Trust’s
performance may be more or less than the spread over the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index contained in the Trust’s investment objective during individual annual periods or for any
period of time shorter than the life of the Trust. The Trust’s investment objective may be changed by the Board of Trustees without prior shareholder approval.
The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than three months and more than one month, are rated investment grade, and have $250 million or more of outstanding face value. In
addition, the securities in the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index must be denominated in U.S. dollars and must be fixed rate and non-convertible.
Excluded from the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index are certain special issues, such as flower bonds, TINs, state and local government series bonds, TIPs, and coupon issues that have been
stripped from bonds included in the index. The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index is market capitalization weighted and the securities in the index are updated on the last business day of
each month. The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index is unmanaged and its performance does not reflect the deduction of any fees, expenses or taxes. It is not possible to invest in an index.
The Trust’s investment policies do not contemplate any meaningful amount of investment in securities that comprise the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index under normal market conditions; rather, the Trust uses this index as a proxy for a risk-free rate of return that its investment objective seeks to exceed.
The Trust is not promoted, sponsored or endorsed by, nor in any way affiliated with Bloomberg or Barclays. Neither Bloomberg nor Barclays is responsible
for and has not reviewed the Trust, this prospectus or any associated literature or publications and neither Bloomberg nor Barclays makes any representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise.
Bloomberg and Barclays reserve the right, at any time and without notice, to alter, amend, terminate or in any way change the composition of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index. Neither
Bloomberg nor Barclays has any obligation to take the needs of the Trust or its shareholders or any other product or person into consideration in determining, composing or calculating the Bloomberg Barclays
1-3 Month U.S. Treasury Bill Index.
Under normal conditions, the Trust will invest at least 80% of its total
assets in fixed income securities and will allocate a substantial amount (40% or more under normal market conditions) of its total assets in foreign securities, which may be denominated in any currency. Foreign securities may include securities
(i) of foreign government issuers, (ii) of issuers organized or located outside the United States, (iii) of issuers which primarily trade in a market located outside the United States or (iv) of issuers doing a substantial amount
of business outside the United States. The Trust considers a company to be doing a substantial amount of business outside of the United States if such company derives at least 50% of its revenue or profits from business outside the United States or
has at least 50% of its sales or assets outside the United States. The Trust will allocate its assets among various regions and countries, including the United States (but in no less than three different countries). Additionally, up to 60% of the
Trust’s total assets may be invested in the securities of issuers located in emerging market countries. Emerging market countries generally include every nation in the world except the United States, Canada, Japan, Australia, New Zealand and
most countries located in Western Europe. These issuers may be subject to risks that do not apply to issuers in larger, more developed countries. The Trust may invest directly in fixed income securities or synthetically through the use of
derivatives. For temporary defensive purposes, the Trust may deviate substantially from the allocations described above.
In implementing its
investment strategy, the Trust may invest in a variety of fixed income securities, including bonds or other debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities;
mortgage related securities; asset-backed securities; mortgage-backed securities; sovereign debt; U.S. Government and agency securities; loans and loan participations, including senior secured floating rate and fixed rate loans or debt and second
lien or other subordinated or unsecured floating rate and fixed rate loans or debt; collateralized debt obligations, which include collateralized bond obligations, collateralized loan obligations and other similarly structured products; municipal
securities and derivative instruments with exposure to such securities; and structured instruments. Such fixed income securities may be of any type, including those with fixed, floating or variable interest rates, those with interest rates that
change based on multiples of changes in a specified reference interest rate or index of interest rates and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest. The Trust may hold
securities of any duration or maturity and does not maintain set policies with respect to the average duration or maturity of the Trust’s portfolio.
The Trust may invest any amount of its assets in securities that are rated at the time of investment below investment grade—i.e., “Ba” or
“BB” or below by Moody’s Investors Service (“Moody’s), S&P Global Ratings (“S&P”) or Fitch Ratings (“Fitch”), or securities that are judged to be of comparable quality by Blackrock Advisors, LLC
Advisor (the “Manager”) or a Sub-Advisor (as defined below). Securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect
|
|
|
|
|
62
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Investment Objectives, Policies and Risks (continued)
Investment Objectives and
Policies (continued)
to the issuer’s capacity to pay interest and repay principal, and are commonly referred to as “junk bonds” or
“high yield securities.” In the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Trust will apply the higher of the applicable ratings.
The Trust may invest up to 20% of its total assets in securities other than fixed income securities, including equity securities. In this regard, the
Manager and BlackRock International Limited (“BIL”) and BlackRock (Singapore) Limited (“BSL” and together with BRIL, the “Sub-Advisors”) have the flexibility to allocate up to 20%
of the Trust’s total assets across various segments of the securities markets and may focus on particular countries, regions, asset classes and sectors to the exclusion of others at any time and from time to time. The Trust’s allocation of
its investments across various segments of the securities markets and various countries, regions, asset classes and sectors may vary significantly over time based on the Manager’s or a Sub-Advisor’s
analysis and judgment.
The Trust may enter into any type of derivatives transaction. The Trust may purchase and sell futures contracts, enter into
various interest rate transactions such as swaps, caps, floors or collars, currency transactions such as currency forward contracts, currency futures contracts, currency swaps or options on currency or currency futures and swap contracts (including,
but not limited to, credit default swaps) and may purchase and sell exchange-listed and over-the-counter put and call options on securities and swap contracts, financial
indices and futures contracts and use other derivative instruments or management techniques (collectively, “Strategic Transactions”). The Trust may use Strategic Transactions for Hedging Purposes without limit; however, the Trust will
limit its use of Strategic Transactions for Investment Purposes to no more than 25% of its Managed Assets. Solely for purposes of this investment policy, (a) “Hedging Purposes” means the use of a Strategic Transaction for duration
management and other risk management purposes, including to attempt to protect against possible changes in the market value of the Trust’s portfolio resulting from trends in the securities markets and changes in interest rates or to protect the
Trust’s unrealized gains in the value of its portfolio securities, to facilitate the sale of portfolio securities for investment purposes or to establish a position in the securities markets as a temporary substitute for purchasing particular
securities, and (b) “Investment Purposes” means the use of a Strategic Transaction to enhance income or gain. The forgoing limit on the Trust’s use of Strategic Transactions for Investment Purposes will not apply during the six months
preceding February 28, 2022 (the “Termination Date”) or following the adoption of a plan of liquidation, whichever is earlier. Additionally, the Trust may, without limit, enter into any type of Strategic Transaction for the purpose or
effect of creating investment leverage to the maximum extent permitted by Securities and Exchange Commission (“SEC”) and/or SEC staff rules, guidance or positions.
The Trust may also invest in privately placed or restricted securities (including in Rule 144A securities, which are privately placed securities
purchased by qualified institutional buyers), illiquid securities and securities in which no secondary market is readily available, including those of private companies.
The Trust may also invest in securities of other open- or closed-end investment companies, including
exchange-traded funds and business development companies, subject to applicable regulatory limits, that invest primarily in securities the types of which the Trust may invest directly. The Trust will classify its investments in such investment
companies for purposes of its investment policies based upon such investment companies’ stated investment objectives, policies and restrictions.
The Trust will not invest more than 15% of its total assets in CDOs.
Leverage: The Trust will use leverage to seek to achieve its investment objective. The Trust’s use of leverage may increase or decrease from
time to time in its discretion and the Trust may, in the future, determine not to use leverage. The Trust may use leverage by investing in reverse repurchase agreements or other derivative instruments with leverage embedded in them, by borrowing
funds from banks or other financial institutions and/or by issuing preferred shares.
The Trust may enter into “dollar roll” transactions.
The Trust may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the
settlement of securities transactions which otherwise might require untimely dispositions of Trust securities.
Risk Factors
This section contains a discussion of the general risks of investing in each Trust. The net asset value and market price of, and dividends paid on, the
common shares will fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee that a Trust will meet its investment objective or that the Trust’s performance will be
positive for any period of time. Each risk noted below is applicable to each Trust unless the specific Trust is noted in a parenthetical.
Limited
Term Risk (BGIO): In accordance with its Agreement and Declaration of Trust, dated as of November 29, 2016 and as amended from time to time, the Trust will terminate at the close of business on the Termination Date. The Board of Trustees of
the Trust (the “Board”) may terminate the Trust, without shareholder approval, prior to the Termination Date; however, the Board does not intend to terminate the Trust earlier than August 31, 2021. The Board may also, without
shareholder approval, extend the Termination Date by up to six months to a date on or before August 31, 2022 (which date shall then become the Termination Date). The Trust is not a target term fund and thus does not seek to return its initial
public offering price of $10 per common share upon termination. As the assets of the Trust will be liquidated in connection with its termination, the Trust may be required to sell portfolio securities when it otherwise would not, including at times
when market conditions are not favorable, which may cause the Trust to lose money. As the Trust approaches its Termination Date, the portfolio composition of the Trust may change, which may cause the Trust’s returns to decrease and the market
price of the common shares to fall. Rather than reinvesting proceeds received from sales of or payments received in respect of portfolio securities, the Trust may distribute such proceeds in one or more liquidating distributions prior to the final
liquidation, which may cause the Trust’s fixed expenses to increase when expressed as a percentage of net assets attributable to common shares, or the Trust may invest the proceeds in lower yielding securities or hold the proceeds in cash or
cash equivalents, which may adversely affect the performance of the Trust. The final distribution of net assets upon termination may be more than, equal to or less than $10 per common share. Because the Trust may adopt a plan of liquidation and make
liquidating distributions in advance of the Termination Date, the total value of the Trust’s assets returned to common shareholders upon termination will be impacted by decisions of the Board and Trust management regarding the timing of
adopting a plan of liquidation and making liquidating distributions. This may result in common shareholders receiving liquidating distributions with a value more or less than the value that would have been received if the Trust had liquidated all of
its assets on the Termination Date, or any other potential target date for liquidating referenced in this prospectus, and distributed the proceeds thereof to common shareholders.
|
|
|
|
|
I N V E S T M E N T O B J E C T I V E S
, P O L I C I E S A N D R I S K S
|
|
63
|
Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
Investment and Market Discount Risk: An investment in the Trust’s common shares is subject to investment risk, including the possible loss of
the entire amount that you invest. As with any stock, the price of the Trust’s common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or less than the original investment.
Common shares are designed for long-term investors and the Trust should not be treated as a trading vehicle. Shares of closed-end management investment companies frequently trade at a discount from their net
asset value. This risk is separate and distinct from the risk that the Trust’s net asset value could decrease as a result of its investment activities. At any point in time an investment in the Trust’s common shares may be worth less than
the original amount invested, even after taking into account distributions paid by the Trust. During periods in which the Trust may use leverage, the Trust’s investment, market discount and certain other risks will be magnified.
Debt Securities Risk: Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, and prepayment risk, among other
things.
|
|
•
|
|
Interest rate risk — The market value of bonds and other fixed-income securities changes in response to interest
rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise.
|
|
|
•
|
|
The Trust may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Trust’s investments would be expected to decrease by 10%. The magnitude of these fluctuations
in the market price of bonds and other fixed-income securities is generally greater for those securities with longer maturities. Fluctuations in the market price of the Trust’s investments will not affect interest income derived from
instruments already owned by the Trust, but will be reflected in the Trust’s net asset value. The Trust may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Trust management.
|
|
|
•
|
|
To the extent the Trust invests in debt securities that may be prepaid at the option of the obligor (such as
mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment of the Trust) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset only
periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Trust to the extent that it invests in floating rate debt securities.
|
|
|
•
|
|
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faith
and credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate in value
when interest rates change.
|
|
|
•
|
|
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large
scale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavy redemptions could cause the Trust to sell assets at inopportune times or at a loss or depressed value and could hurt the Trust’s
performance.
|
|
|
•
|
|
Credit risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not
be able to make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Trust’s investment in that issuer. The
degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
|
|
|
•
|
|
Extension risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly than
anticipated, causing the value of these obligations to fall.
|
|
|
•
|
|
Prepayment risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly than
originally anticipated, and the Trust may have to invest the proceeds in securities with lower yields.
|
Yield and Ratings Risk:
The yields on debt obligations are dependent on a variety of factors, including general market conditions, conditions in the particular market for the obligation, the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of Moody’s, S&P and Fitch, represent their respective opinions as to the quality of the obligations they undertake to rate. Ratings, however, are general and are not absolute
standards of quality. Consequently, obligations with the same rating, maturity and interest rate may have different market prices. Subsequent to its purchase by the Trust, a rated security may cease to be rated. The Manager will consider such an
event in determining whether the Trust should continue to hold the security.
Mortgage- and Asset-Backed Securities Risk: Mortgage- and
asset-backed securities represent interests in “pools” of mortgages or other assets, including consumer loans or receivables held in trust. Mortgage- and asset-backed securities are subject to credit, interest rate, prepayment and
extension risks. These securities also are subject to risk of default on the underlying mortgage or asset, particularly during periods of economic downturn. Small movements in interest rates (both increases and decreases) may quickly and
significantly reduce the value of certain mortgage-backed securities.
U.S. Government Mortgage-Related Securities Risk: There are a number of
important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. Mortgage-related securities guaranteed by GNMA are guaranteed as to the timely
payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA securities also are supported by the right of GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage-related securities issued by Fannie Mae or Freddie Mac are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not backed by or entitled to the full faith and credit of the United States but are
supported by the right of the issuer to borrow from the Treasury.
Derivatives Risk: The Trust’s use of derivatives may increase its
costs, reduce the Trust’s returns and/or increase volatility. Derivatives involve significant risks, including:
|
|
•
|
|
Volatility risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate
significantly in price within a short time period. A risk of the Trust’s use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.
|
|
|
|
|
|
64
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
|
|
•
|
|
Counterparty risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in the
transaction will not fulfill its contractual obligation.
|
|
|
•
|
|
Market and illiquidity risk — The possible lack of a liquid secondary market for derivatives and the resulting
inability of the Trust to sell or otherwise close a derivatives position could expose the Trust to losses and could make derivatives more difficult for the Trust to value accurately.
|
|
|
•
|
|
Valuation risk — Valuation may be more difficult in times of market turmoil since many investors and market makers
may be reluctant to purchase complex instruments or quote prices for them.
|
|
|
•
|
|
Hedging risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlying
security, and there can be no assurance that the Trust’s hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.
|
|
|
•
|
|
Tax risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements and
commodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an
underlying asset and may adversely affect the timing, character and amount of income the Trust realizes from its investments.
|
|
|
•
|
|
Regulatory risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe,
Asia and other non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collect margin from the Trust with respect to such
derivatives. Specifically, regulations are now in effect that require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with the Trust. Shares of investment companies (other than certain money market funds) may not be posted as collateral under these
regulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now in
effect require certain bank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as the Trust, to
terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings.
The implementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to the Trust of trading
in these instruments and, as a result, may affect returns to investors in the Trust.
|
On October 28, 2020, the Securities and
Exchange Commission (the “SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Trust will be required to implement and
comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset
segregation framework currently used by funds to comply with Section 18 of the 1940, treat derivatives as senior securities so that a failure to comply with the limits would result in a statutory violation and require funds whose use of
derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
Foreign Securities Risk (BGIO): Foreign investments often involve special risks not present in U.S. investments that can increase the chances that
the Trust will lose money. These risks include:
|
|
•
|
|
The Trust generally holds its foreign securities and cash in foreign banks and securities depositories, which may be
recently organized or new to the foreign custody business and may be subject to only limited or no regulatory oversight.
|
|
|
•
|
|
Changes in foreign currency exchange rates can affect the value of the Trust’s portfolio.
|
|
|
•
|
|
The economies of certain foreign markets may not compare favorably with the economy of the United States with respect to
such issues as growth of gross national product, reinvestment of capital, resources and balance of payments position.
|
|
|
•
|
|
The governments of certain countries may prohibit or impose substantial restrictions on foreign investments in their
capital markets or in certain industries.
|
|
|
•
|
|
Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities to the same
extent as does the United States and may not have laws to protect investors that are comparable to U.S. securities laws.
|
|
|
•
|
|
Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery of
securities not typically associated with settlement and clearance of U.S. investments.
|
|
|
•
|
|
The Trust’s claims to recover foreign withholding taxes may not be successful, and if the likelihood of recovery of
foreign withholding taxes materially decreases, due to, for example, a change in tax regulation or approach in the foreign country, accruals in the Trust’s net asset value for such refunds may be written down partially or in full, which will
adversely affect the Trust’s net asset value.
|
|
|
•
|
|
The European financial markets have recently experienced volatility and adverse trends due to concerns about economic
downturns in, or rising government debt levels of, several European countries. These events may spread to other countries in Europe. These events may affect the value and liquidity of certain of the Trust’s investments.
|
Emerging Markets Risk (BGIO): Emerging markets are riskier than more developed markets because they tend to develop unevenly and may never fully
develop. Investments in emerging markets may be considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging securities
markets have far lower trading volumes and less liquidity than developed markets.
|
|
|
|
|
I N V E S T M E N T O B J E C T I V E S
, P O L I C I E S A N D R I S K S
|
|
65
|
Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
Sovereign Debt Risk (BGIO): Sovereign debt instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or
repay principal on its sovereign debt, due, for example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s debt position in relation to the economy or the
failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies.
Junk Bonds Risk (BGIO):
Although junk bonds generally pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that are considered speculative and may cause income and principal losses for the Trust.
Unrated Securities Risk (BGIO): Because the Trust may purchase securities that are not rated by any rating organization, the Manager or a Sub-Advisor may, after assessing their credit quality, internally assign ratings to certain of those securities in categories similar to those of rating organizations. Some unrated securities may not have an active
trading market or may be difficult to value, which means the Trust might have difficulty selling them promptly at an acceptable price. To the extent that the Trust invests in unrated securities, the Trust’s ability to achieve its investment
objective will be more dependent on the Manager’s or a Sub-Advisor’s credit analysis than would be the case when the Trust invests in rated securities.
Risks of Loan Assignments and Participations (BGIO): As the purchaser of an assignment, the Fund typically succeeds to all the rights and
obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund may not be able unilaterally to enforce all rights and remedies under the loan and with regard to any
associated collateral. Because assignments may be arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund as the purchaser of an assignment may differ from, and be
more limited than, those held by the assigning lender. In addition, if the loan is foreclosed, the Fund could become part owner of any collateral and could bear the costs and liabilities of owning and disposing of the collateral. The Fund may be
required to pass along to a purchaser that buys a loan from the Fund by way of assignment a portion of any fees to which the Fund is entitled under the loan. In connection with purchasing participations, the Fund generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral
supporting the loan in which it has purchased the participation. As a result, the Fund will be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a
participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.
Senior Loans Risk (BGIO): There is less readily available, reliable information about most senior loans than is the case for many other types of
securities. An economic downturn generally leads to a higher non-payment rate, and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a senior
loan may decline in value or become illiquid, which would adversely affect the senior loan’s value. No active trading market may exist for certain senior loans, which may impair the ability of the Trust to realize full value in the event of the
need to sell a senior loan and which may make it difficult to value senior loans. Although senior loans in which the Trust will invest generally will be secured by specific collateral, there can be no assurance that liquidation of such collateral
would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. To the extent that a senior loan is
collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy of the borrower. Uncollateralized senior loans involve a greater risk of loss.
Second Lien Loans Risk (BGIO): Second lien loans generally are subject to similar risks as those associated with investments in senior loans.
Because second lien loans are subordinated or unsecured and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be
insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower.
Collateralized Debt Obligations
(BGIO): In addition to the typical risks associated with fixed-income securities and asset-backed securities, collateralized debt obligations (“CDOs”), including collateralized loan obligations, carry additional risks including, but
not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the risk that the collateral may default or decline in value or be downgraded, if rated by a
nationally recognized statistical rating organization; (iii) the Trust may invest in tranches of CDOs that are subordinate to other tranches; (iv) the structure and complexity of the transaction and the legal documents could lead to
disputes among investors regarding the characterization of proceeds; (v) the investment return achieved by the Trust could be significantly different than those predicted by financial models; (vi) the lack of a readily available secondary
market for CDOs; (vii) the risk of forced “fire sale” liquidation due to technical defaults such as coverage test failures; and (viii) the CDO’s manager may perform poorly.
Municipal Securities Risks (BGIO): Municipal securities risks include the ability of the issuer to repay the obligation, the relative lack of
information about certain issuers of municipal securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks include:
|
|
•
|
|
General obligation bonds risks — Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base.
|
|
|
•
|
|
Revenue bonds risks — These payments depend on the money earned by the particular facility or class of facilities,
or the amount of revenues derived from another source.
|
|
|
•
|
|
Private activity bonds risks — Municipalities and other public authorities issue private activity bonds to finance
development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment.
|
|
|
•
|
|
Moral obligation bonds risks — Moral obligation bonds are generally issued by special purpose public authorities of
a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
|
|
|
•
|
|
Municipal notes risks — Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the
anticipated proceeds, the notes may not be fully repaid and the Fund may lose money.
|
|
|
•
|
|
Municipal lease obligations risks — In a municipal lease obligation, the issuer agrees to make payments when due on
the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
|
|
|
|
|
|
66
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
|
|
•
|
|
Tax-exempt status risk — The Fund and its investment manager will rely on
the opinion of issuers’ bond counsel and, in the case of derivative securities, sponsors’ counsel, on the tax-exempt status of interest on municipal bonds and payments under derivative securities.
Neither the Fund nor its investment manager will independently review the bases for those tax opinions, which may ultimately be determined to be incorrect and subject the Fund and its shareholders to substantial tax liabilities.
|
Structured Products Risk (BGIO): Holders of structured products bear risks of the underlying investments, index or reference
obligation and are subject to counterparty risk. The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized.
Certain structured products may be thinly traded or have a limited trading market. In addition to the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited to: the
possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the collateral may decline in value or default; and the possibility that the structured products are subordinate to
other classes. Structured notes are based upon the movement of one or more factors, including currency exchange rates, interest rates, reference bonds and stock indices, and changes in interest rates and impact of these factors may cause significant
price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero.
Variable and Floating Rate Instrument Risk (BGIO): Variable and floating rate securities provide for periodic adjustment in the interest rate paid
on the securities. These securities may be subject to greater illiquidity risk than other fixed income securities, meaning the absence of an active market for these securities could make it difficult for the Fund to dispose of them at any given
time.
Equity Securities Risk (BGIO): Stock markets are volatile. The price of equity securities fluctuates based on changes in a
company’s financial condition and overall market and economic conditions.
Investment Companies and ETFs Risk (BGIO): Subject to the
limitations set forth in the Investment Company Act of 1940, as amended, or as otherwise limited by the SEC, the Trust may acquire shares in other investment companies and in exchange-traded funds (“ETFs”), some of which may be affiliated
investment companies. These investment companies and ETFs will generally have investment exposure to the commodities markets which may subject them to greater volatility than investments in traditional securities. The market value of the shares of
other investment companies and ETFs may differ from their net asset value. As an investor in investment companies and ETFs, the Trust would bear its ratable share of that entity’s expenses, including its investment advisory and administration
fees, while continuing to pay its own advisory and administration fees and other expenses (to the extent not offset by the Manager through waivers). As a result, shareholders will be absorbing duplicate levels of fees with respect to investments in
other investment companies and ETFs (to the extent not offset by the Manager through waivers).
The securities of other investment companies and ETFs
in which the Trust may invest may be leveraged. As a result, the Trust may be indirectly exposed to leverage through an investment in such securities. An investment in securities of other investment companies and ETFs that use leverage may expose
the Trust to higher volatility in the market value of such securities and the possibility that the Trust’s long-term returns on such securities (and, indirectly, the long-term returns of shares of the Trust) will be diminished.
As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. To the extent the Trust is
held by an affiliated fund, the ability of the Trust itself to hold other investment companies may be limited.
U.S. Government Obligations Risk:
Certain securities in which the Trust may invest, including securities issued by certain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of
the United States.
Repurchase Agreements and Purchase and Sale Contracts Risk (BKT): If the other party to a repurchase agreement or purchase
and sale contract defaults on its obligation under the agreement, the Trust may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to repurchase the security in either situation and the
market value of the security declines, the Trust may lose money.
Leverage Risk: The Trust utilizes leverage for investment purposes by
entering into reverse repurchase agreements, derivative instruments with leverage embedded in them, and, if applicable, dollar rolls. The Trust’s use of leverage may increase or decrease from time to time in its discretion and the Trust may, in
the future, determine not to use leverage.
The use of leverage creates an opportunity for increased common share net investment income dividends, but
also creates risks for the holders of common shares. The Trust cannot assure you that the use of leverage will result in a higher yield on the common shares. Any leveraging strategy the Trust employs may not be successful.
Leverage involves risks and special considerations for common shareholders, including:
|
|
•
|
|
the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a
comparable portfolio without leverage;
|
|
|
•
|
|
the risk that fluctuations in interest rates or dividend rates on any leverage that the Trust must pay will reduce the
return to the common shareholders;
|
|
|
•
|
|
the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the
common shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the common shares;
|
|
|
•
|
|
leverage may increase operating costs, which may reduce total return.
|
Any decline in the net asset value of the Trust’s investments will be borne entirely by the holders of common shares. Therefore, if the market value
of the Trust’s portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if the Trust were not leveraged. This greater net asset value decrease will also tend to cause a greater
decline in the market price for the common shares.
|
|
|
|
|
I N V E S T M E N T O B J E C T I V E S
, P O L I C I E S A N D R I S K S
|
|
67
|
Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
Reverse Repurchase Agreements Risk: Reverse repurchase agreements involve the sale of securities held by the Trust with an agreement to repurchase
the securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party may fail to return the securities in a timely manner or at all. The Trust could lose money if it is unable to
recover the securities and the value of the collateral held by the Trust, including the value of the investments made with cash collateral, is less than the value of the securities. These events could also trigger adverse tax consequences for the
Trust. In addition, reverse repurchase agreements involve the risk that the interest income earned in the investment of the proceeds will be less than the interest expense.
Illiquid Investments Risk: The Trust may invest without limitation in illiquid or less liquid investments or investments in which no secondary
market is readily available or which are otherwise illiquid, including private placement securities. The Trust may not be able to readily dispose of such investments at prices that approximate those at which the Trust could sell such investments if
they were more widely traded and, as a result of such illiquidity, the Trust may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market
price of investments, thereby adversely affecting the Trust’s net asset value and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage-related securities markets in particular, have in
recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods,
some investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities are often of below investment grade quality, frequently are unrated
and present many of the same risks as investing in below investment grade public debt securities.
Market Risk and Selection Risk: Market risk
is the risk that one or more markets in which the Trust invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset may decline due to changes in general
market conditions, economic trends or events that are not specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of countries, region, market, industry,
group of industries, sector or asset class. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues like pandemics or epidemics, recessions, or other events could have a
significant impact on the Trust and its investments. Selection risk is the risk that the securities selected by Trust management will underperform the markets, the relevant indices or the securities selected by other funds with similar investment
objectives and investment strategies. This means you may lose money.
A recent outbreak of an infectious coronavirus has developed into a global
pandemic that has resulted in numerous disruptions in the market and has had significant economic impact leaving general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could
affect the economies of many nations, individual companies and the market in general ways that cannot necessarily be foreseen at the present time.
|
|
|
|
|
68
|
|
2 0 2 0 B L A C K R O C K
A N N U A L R E P O R T T O S H A R E H O L D E R S
|
Automatic Dividend Reinvestment Plan
Pursuant to BGIO and BKT’s Dividend Reinvestment Plan (the “Reinvestment
Plan”), Common Shareholders are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A. (the “Reinvestment Plan Agent”) in the respective
Trust’s Common Shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are
held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After BGIO and BKT declare a dividend or determine to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares for the
participants’ accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Trusts (“newly issued shares”) or (ii) by purchase of outstanding shares on the open
market or on the Trust’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset value per share (“NAV”) is equal to or less than the market price per share plus estimated brokerage
commissions (such condition often referred to as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be
credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the
dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often
referred to as a “market discount”), the Reinvestment Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full
dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent will invest any un-invested portion in newly issued
shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares will substitute for the dividend payment date.
You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting the Reinvestment Plan Agent, at the address
set forth below.
Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time without penalty by
notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and such notices often
will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
The Reinvestment Plan Agent’s fees for the handling of the reinvestment of distributions will be paid by each Trust. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agent’s open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not
relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.
Each Trust reserves the
right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Trust reserves the right to amend the Reinvestment Plan to include a service charge payable by the
participants. Participants in that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission fee. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company,
N.A. through the internet at computershare.com/blackrock, or in writing to Computershare, P.O. Box 505000, Louisville, KY 40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the
Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.
|
|
|
|
|
A U T O M A T I C D I V I D E N D R
E I N V E S T M E N T P L A N
|
|
69
|