|
• |
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Governmental
Interventions. Governmental and quasi-governmental authorities
and regulators throughout the world have responded to the outbreak and the
resulting economic disruptions with a variety of fiscal and monetary
policy changes, including direct capital infusions into companies and
other issuers, new monetary policy tools, and lower interest rates. An
unexpected or sudden reversal of these policies, or the ineffectiveness of
such policies, is likely to increase market volatility, which could
adversely affect the Fund’s investments. |
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• |
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Public
health crises caused by the outbreak may exacerbate other
pre-existing political,
social and economic risks in certain countries or globally.
|
Other
infectious illness outbreaks that may arise in the future could have similar or
other unforeseen effects.
performance
depends on the
performance of individual securities to which the Fund has exposure. The Fund
may be adversely affected if an issuer of underlying securities held by the Fund
is unable or unwilling to repay principal or interest when due.
Changes to the
financial condition or credit rating of an issuer of those securities may cause
the value of the securities
to decline. An
issuer may also be subject to risks associated with the countries, states and
regions in which the issuer resides, invests, sells products, or otherwise
conducts operations.
The
Fund is subject to management risk because it does not seek to replicate the
performance of a specified index. BFA and the
Portfolio Managers
will utilize a proprietary investment process, techniques and risk analyses in
making investment decisions for the Fund, but there can be no guarantee that
these decisions will produce the desired results. In addition, legislative,
regulatory, or tax developments may affect the investment techniques available
to BFA in connection with managing the Fund and may also adversely affect the
ability of the Fund to achieve its investment
objective.
The
Fund could lose money over short periods due to short-term market movements and
over longer periods during more prolonged market downturns. Market risk arises
mainly from uncertainty about future values of financial instruments and may be
influenced by price, currency and interest rate movements. It represents the
potential loss the Fund may suffer through holding financial instruments in the
face of market movements or uncertainty. The value of a security or other asset
may decline due to changes in general market conditions, economic trends or
events that are not specifically related to the issuer of the security or other
asset, or factors that affect a particular issuer or issuers, country, group of
countries, region, market, industry, group of industries, sector or asset class.
Local, regional or global events such as war, acts of terrorism, the spread of
infectious illness or other public health issue, recessions, or other events
could have a significant impact on the Fund and its investments and could result
in increased premiums or discounts to the Fund
s NAV. During a
general market downturn, multiple asset classes may be negatively affected.
Fixed-income securities with short-term maturities are generally less sensitive
to such changes than are fixed-income securities with longer-term maturities.
Changes in market conditions and interest rates generally do not have the same
impact on all types of securities and instruments.
7
Market
Trading Risk
. Although shares of the Fund are listed for trading on one or
more stock exchanges, there can be no assurance that an active trading market
for such shares will develop or be maintained by market makers or Authorized
Participants.
Risk of Secondary
Listings
. The Fund’s shares may be listed or traded on U.S. and
non-U.S.
stock
exchanges other than the U.S. stock exchange where the Fund’s primary listing is
maintained, and may otherwise be made available to
non-U.S.
investors
through funds or structured investment vehicles similar to depositary receipts.
There can be no assurance that the Fund’s shares will continue to trade on any
such stock exchange or in any market or that the Fund’s shares will continue to
meet the requirements for listing or trading on any exchange or in any market.
The Fund’s shares may be less actively traded in certain markets than in others,
and investors are subject to the execution and settlement risks and market
standards of the market where they or their broker direct their trades for
execution. Certain information available to investors who trade Fund shares on a
U.S. stock exchange during regular U.S. market hours may not be available to
investors who trade in other markets, which may result in secondary market
prices in such markets being less efficient.
Secondary Market Trading
Risk
. Shares of the Fund may trade in the secondary market at times
when the Fund does not accept orders to purchase or redeem shares. At such
times, shares may trade in the secondary market with more significant premiums
or discounts than might be experienced at times when the Fund accepts purchase
and redemption orders. Secondary market trading in Fund shares may be halted by
a stock exchange because of market conditions or for other reasons. In addition,
trading in Fund shares on a stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility pursuant to “circuit
breaker” rules on the stock exchange or market.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short.
Shares of the Fund May Trade at
Prices Other Than NAV
. Shares of the Fund trade on stock exchanges
at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is
calculated at the end of each business day and fluctuates with changes in the
market value of the Fund’s holdings. The trading price of the Fund’s shares
fluctuates continuously throughout trading hours based on both market supply of
and demand for Fund shares and the underlying value of the Fund’s portfolio
holdings or NAV. As a result, the trading prices of the Fund’s shares may
deviate significantly from NAV during periods of market volatility, including
during periods of significant redemption requests or other unusual market
conditions.
ANY OF THESE FACTORS, AMONG
OTHERS, MAY LEAD TO THE FUND
S SHARES TRADING AT A PREMIUM OR
DISCOUNT TO NAV
. However, because shares can be created and redeemed
in Creation Units at NAV, BFA believes that large discounts or premiums to the
NAV of the Fund are not likely to be sustained over the long term (unlike shares
of many
closed-end
funds,
which frequently trade at appreciable discounts from, and sometimes at premiums
to, their NAVs). While the creation/redemption feature is designed to make it
more likely that the Fund’s shares normally will trade on stock exchanges at
prices close to the Fund’s next calculated NAV, exchange prices are not expected
to correlate exactly with the Fund’s NAV due to timing reasons, supply and
demand imbalances and other factors. In addition, disruptions to creations and
redemptions, including disruptions at market makers, Authorized Participants, or
other market participants, and during periods of significant market volatility,
may result in trading prices for shares of the Fund that differ significantly
from its NAV. Authorized Participants may be less willing to create or redeem
Fund shares if there is a lack of an active market for such shares or its
underlying investments, which may contribute to the Fund’s shares trading at a
premium or discount to NAV.
Costs of Buying or Selling Fund
Shares
. Buying or selling Fund shares on an exchange involves two
types of costs that apply to all securities transactions. When buying or selling
shares of the Fund through a broker, you will likely incur a brokerage
commission and other charges. In addition, you may incur the cost of the
“spread”; that is, the difference between what investors are willing to pay for
Fund shares (the “bid” price) and the price at which they are willing to sell
Fund shares (the “ask” price). The spread, which varies over time for shares of
the Fund based on trading volume and market liquidity, is generally narrower if
the Fund has more trading volume and market liquidity and wider if the Fund has
less trading volume and market liquidity. In addition, increased market
volatility may cause wider spreads. There may also be regulatory and other
charges that are incurred as a result of trading activity. Because of the costs
inherent in buying or selling Fund shares, frequent trading may detract
significantly from investment results and an investment in Fund shares may not
be advisable for investors who anticipate regularly making small investments
through a brokerage account.
8
.
The Fund is classified as
“non-diversified.”
This
means that the Fund may invest a large percentage of its assets in securities
issued by or representing a small number of issuers. As a result, the Fund may
be more susceptible to the risks associated with these particular issuers or to
a single economic, political or regulatory occurrence affecting these issuers.
.
The Fund is exposed to operational risks arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Fund’s service providers, counterparties or other
third-parties,
failed or inadequate processes and technology or systems failures. The Fund and
BFA seek to reduce these operational risks through controls and procedures.
However, these measures do not address every possible risk and may be inadequate
to address significant operational risks.
Privately-Issued Securities
Risk
. The Fund may invest in privately-issued securities, including
those that are normally purchased pursuant to Rule 144A or Regulation S under
the 1933 Act. Privately-issued securities typically may be resold only to
qualified institutional buyers, or in a privately negotiated transaction, or to
a limited number of purchasers, or in limited quantities after they have been
held for a specified period of time and other conditions are met for an
exemption from registration. Because there may be relatively few potential
purchasers for such securities, especially under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Fund may find it more difficult to sell such securities when it may
be advisable to do so or it may be able to sell such securities only at prices
lower than if such securities were more widely held and traded. At times, it
also may be more difficult to determine the fair value of such securities for
purposes of computing the Fund’s NAV due to the absence of an active trading
market. There can be no assurance that a privately-issued security that is
deemed to be liquid when purchased will continue to be liquid for as long as it
is held by the Fund, and its value may decline as a result.
Risk of Investing in the
U.S
. A decrease in imports or exports, changes in trade regulations
and/or an economic recession in the U.S. may have a material adverse effect on
the U.S. economy and the securities listed on U.S. exchanges. Proposed and
adopted policy and legislative changes in the U.S. are changing many aspects of
financial and other regulation and may have a significant effect on the U.S.
markets generally, as well as on the value of certain securities. In addition, a
continued rise in the U.S. public debt level or the imposition of U.S. austerity
measures may adversely affect U.S. economic growth and the securities to which
the Fund has exposure.
The
U.S. has developed increasingly strained relations with a number of foreign
countries. If relations with certain countries continue to worsen, it could
adversely affect U.S. issuers as well as
non-U.S.
issuers
that rely on the U.S. for trade. The U.S. has also experienced increased
internal unrest and discord. If this trend were to continue, it may have an
adverse impact on the U.S. economy and the issuers in which the Fund invests.
.
When the Fund’s size is small, the Fund may experience low trading volume and
wide bid/ask spreads. In addition, the Fund may face the risk of being delisted
if the Fund does not meet certain conditions of the listing exchange. If the
Fund were to be required to delist from the listing exchange, the value of the
Fund may rapidly decline and performance may be negatively impacted. Any
resulting liquidation of the Fund could cause the Fund to incur elevated
transaction costs for the Fund and negative tax consequences for its
shareholders.
. There is
no guarantee that the Fund’s income will be exempt from U.S. federal income
taxes or the federal Medicare contribution tax of 3.8% on “net investment
income.” BFA relies on the bond issuer’s prospectus disclosure of the opinion
from its counsel as to the
tax-exempt
status
of the investment. Neither BFA nor the Fund guarantees that this opinion is
correct, and there is no assurance that the U.S. Internal Revenue Service
(“IRS”) will agree with the bond issuer’s counsel’s tax opinion. Issuers or
other parties generally enter into covenants requiring continuing compliance
with U.S. federal tax requirements to preserve the
tax-free
status
of interest payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the issuer did
not comply with relevant tax requirements, interest payments from a security
could become federally taxable, possibly retroactively to the date the security
was issued, and the security could decline significantly in value. BFA will
generally seek to obtain bonds that pay interest that is exempt from U.S.
federal income taxes and the federal Medicare contribution tax. The interest on
any money market instruments or other cash equivalents held by the Fund may be
subject to the federal Medicare contribution tax.
Events
occurring after the date of issuance of a municipal bond or after the Fund’s
acquisition of a municipal bond may result in a determination that interest on
that bond is includible in gross income for U.S. federal income tax or federal
Medicare contribution tax purposes retroactively to its date of issuance. Such a
determination may cause a
9
portion
of prior distributions by the Fund to its shareholders to be taxable to those
shareholders in the year of receipt. U.S. federal or state changes in income or
federal Medicare contribution tax rates or in the tax treatment of municipal
bonds may make municipal bonds less attractive as investments and cause them to
lose value. If the IRS determines an issuer of a municipal security has not
complied with applicable tax requirements, interest from the security could
become taxable, even retroactively, and the securities could decline
significantly in value.
. The
price the Fund could receive upon the sale of a security or other asset may
differ from the Fund’s valuation of the security or other asset, particularly
for securities or other assets that trade in low volume or volatile markets or
that are valued using a fair value methodology as a result of trade suspensions
or for other reasons. Because
non-U.S.
exchanges may be
open on days when the Fund does not price its shares, the value of the
securities or other assets in the Fund’s portfolio may change on days or during
time periods when shareholders will not be able to purchase or sell the Fund’s
shares.
Authorized
Participants who purchase or redeem Fund shares on days when the Fund is holding
fair-valued securities may receive fewer or more shares, or lower or higher
redemption proceeds, than they would have received had the Fund not fair-valued
securities or used a different valuation methodology. The Fund’s ability to
value investments may be impacted by technological issues or errors by pricing
services or other third-party service providers.
A
Further Discussion of Other Risks
The
Fund may also be subject to certain other
risks associated
with its investments and investment strategies.
. Securities with floating or variable interest rates can be
less sensitive to interest rate changes than securities with fixed interest
rates, but may decline in value if their interest rates do not rise as much, or
as quickly, as interest rates in general. Conversely, floating rate securities
will not generally increase in value if interest rates decline. A decline in
interest rates may result in a reduction in income received from floating rate
securities held by the Fund and may adversely affect the value of the Fund’s
shares. Generally, floating rate securities carry lower yields than fixed notes
of the same maturity. The interest rate for a floating rate note resets or
adjusts periodically by reference to a benchmark interest rate. The impact of
interest rate changes on floating rate investments is typically mitigated by the
periodic interest rate reset of the investments. Securities with longer
durations tend to be more sensitive to interest rate changes, usually making
them more volatile than securities with shorter durations. Floating rate notes
generally are subject to legal or contractual restrictions on resale, may trade
infrequently, and their value may be impaired when the Fund needs to liquidate
such loans. Benchmark interest rates, such as the London Interbank Offered Rate,
may not accurately track market interest rates.
Although
floating rate notes are less sensitive to interest rate risk than fixed-rate
securities, they are subject to credit risk and default risk, which could impair
their value.
The Fund
may be exposed to financial instruments that are tied to the London Interbank
Offered Rate (“LIBOR”) to determine payment obligations, financing terms,
hedging strategies or investment value. The Fund’s investments may pay interest
at floating rates based on LIBOR or may be subject to interest caps or floors
based on LIBOR. The Fund may also obtain financing at floating rates based on
LIBOR.
In
2017, the head of the United Kingdom’s Financial Conduct Authority announced a
desire to phase out the use of LIBOR by the end of 2021, and it is expected that
LIBOR will cease to be published after that time. The Fund may have investments
linked to other interbank offered rates, such as the Euro Overnight Index
Average (“EONIA”), which may also cease to be published. Various financial
industry groups have begun planning for the transition away from LIBOR, but
there are challenges to converting certain securities and transactions to a new
reference rate (
., the Secured
Overnight Financing Rate (“SOFR”), which is intended to replace the U.S. dollar
LIBOR).
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be
known. The transition process 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. While some existing LIBOR-based
instruments may contemplate a scenario where LIBOR is no longer available by
providing for an alternative rate-setting methodology, there may be significant
uncertainty regarding the effectiveness of any such alternative methodologies to
replicate LIBOR. Not all existing LIBOR-based instruments may have alternative
rate-setting provisions and there remains uncertainty regarding the willingness
and ability of issuers to add alternative rate-setting provisions in certain
existing instruments. In addition, a liquid market for newly-issued instruments
that use a reference rate other than LIBOR still may be developing. All of the
aforementioned may adversely affect the Fund’s performance or NAV.
10
School District Investment
Risk
. School districts rely, in part, on funding appropriations
from, among others, the federal government and state governments. As a result,
municipal securities issued by school districts may be adversely affected by
political and economic changes at the state or federal levels, such as decreased
tax or other revenues, spending reductions or changes in appropriations.
Municipal securities that are issued to finance a particular school district
project often depend on revenues from that project to make principal and
interest payments. Adverse conditions and developments affecting a particular
project can result in lower revenues to the issuer of the municipal securities.
Investors in these securities, similar to investors in municipal securities
generally, face heightened risk of loss upon insolvency of the school district
issuers because there is often no ready source of funding to pay the bonds other
than the local tax base, which a bankruptcy court or administrator does not
control.
Threshold/Underinvestment
Risk
. If certain aggregate and/or fund-level ownership thresholds
are reached through transactions undertaken by BFA, its affiliates or the Fund,
or as a result of third-party transactions or actions by an issuer or regulator,
the ability of BFA and its affiliates on behalf of clients (including the Fund)
to purchase or dispose of investments, or exercise rights or undertake business
transactions, may be restricted by regulation or otherwise impaired. The
capacity of the Fund to make investments in certain securities may be affected
by the relevant threshold limits, and such limitations may have adverse effects
on the liquidity and performance of the Fund’s portfolio holdings.
For
example, in certain circumstances where the Fund invests in securities issued by
companies that operate in certain regulated industries or in certain emerging or
international markets,
is subject to
corporate or regulatory ownership restrictions, or invests in certain futures or
other derivative transactions, there may be limits on the aggregate and/or
fund-level amount invested or voted by BFA and its affiliates for their
proprietary accounts and for client accounts (including the Fund) that may not
be exceeded without the grant of a license or other regulatory or corporate
consent or, if exceeded, may cause BFA and its affiliates, the Fund or other
client accounts to suffer disadvantages or business restrictions.
Portfolio
Holdings Information
A
description of the Trust’s policies and procedures with respect to the
disclosure of the Fund’s portfolio securities is available in the Fund’s
Statement of Additional Information (“SAI”). The
Fund discloses its
portfolio holdings
daily at
www.blackrock.com. Fund fact sheets provide information regarding the Fund’s top
holdings and may be requested by calling
Management
.
As investment adviser, BFA has overall responsibility for the general management
and administration of the Fund. BFA provides an investment program for the Fund
and manages the investment of the Fund’s assets. In managing the Fund, BFA may
draw upon the trading, research and expertise of its asset management affiliates
for portfolio decisions and management with respect to
portfolio
securities. In seeking to achieve the Fund’s investment
objective, BFA uses
teams of portfolio managers, investment strategists and other investment
specialists. This team approach brings together many disciplines and leverages
BFA’s extensive resources.
Pursuant
to the Investment Advisory Agreement between BFA and the Trust (entered into on
behalf of the Fund), BFA is responsible for substantially all expenses of the
Fund, except the management fees, interest expenses, taxes, expenses incurred
with respect to the acquisition and disposition of portfolio securities and the
execution of portfolio transactions, including brokerage commissions,
distribution fees or expenses, litigation expenses and any extraordinary
expenses (as determined by a majority of the Trustees who are not “interested
persons” of the Trust).
For
its investment advisory services to the Fund, BFA will be paid a management fee
from the Fund, based on a percentage of the Fund’s average daily net assets, at
an annual rate of 0.40%.
BlackRock
has contractually agreed to waive 0.10% of the management fee through June 30,
2023. The agreement may be terminated upon 90 days’ notice by a majority of the
non-interested
trustees
of the Trust or by a vote of a majority of the outstanding voting securities of
the Fund.
BFA
has contractually agreed to waive its management fees by the amount of
investment advisory fees the Fund pays to BFA indirectly through its investment
in money market funds managed by BFA or its affiliates, through June 30,
2023.
11
BFA
may
from time to time
voluntarily waive and/or reimburse fees or expenses in order to limit total
annual fund operating expenses (excluding acquired fund fees and expenses, if
any). Any such voluntary waiver or reimbursement may be eliminated by BFA at any
time.
BFA
is located at 400 Howard Street, San Francisco, CA 94105. It is an indirect
wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”). As of December 31,
2020, BFA and its
affiliates provided investment advisory services for assets in excess of $8.676
trillion. BFA and its affiliates trade and invest for their own accounts in the
actual securities and types of securities in which the Fund may also invest,
which may affect the price of such securities.
A
discussion regarding the basis for the approval by the Board of the Investment
Advisory Agreement with BFA will be available in the Fund’s
annual report for
the period ending July 31, 2021.
From
time to time, a manager, analyst, or other employee of BlackRock or its
affiliates may express views regarding a particular asset class, company,
security, industry, or market sector. The views expressed by any such person are
the views of only that individual as of the time expressed and do not
necessarily represent the views of BlackRock or any other person within the
BlackRock organization. Any such views are subject to change at any time based
upon market or other conditions and BlackRock disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for the Fund are based on numerous factors, may not
be relied on as an indication of trading intent on behalf of the Fund.
.
Phillip Socco and Christian Romaglino are jointly and primarily responsible for
the day-to-day management of the Fund. In managing the Fund, Messrs. Soccio and
Romaglino consult regularly with James Mauro. Each Portfolio Manager is
responsible for various functions related to portfolio management, including,
but not limited to, developing and implementing the Fund’s investment process
and investment strategy, researching and reviewing investment strategy and
overseeing members of his portfolio management team that have more limited
responsibilities.
Phillip
Soccio has been employed by BFA or its affiliates as a portfolio manager since
2007. Mr. Soccio has been with BlackRock since 1998. Mr. Soccio has been a
Portfolio Manager of the Fund since 2020. Christian Romaglino has been employed
by BFA or its affiliates as a portfolio manager since 2017. Mr. Romaglino was a
portfolio manager at Brown Brothers Harriman from 2010 to 2017. Mr. Romaglino
has been a Portfolio Manager of the Fund since 2020. James Mauro has been
employed by BFA or its affiliates as a portfolio manager since 2011. Prior to
that, Mr. Mauro was a Vice President at State Street Global Advisors. Mr. Mauro
has been a Portfolio Manager of the Fund since 2020.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation, other accounts managed by the Portfolio Managers and the Portfolio
Managers’ ownership (if any) of shares in the Fund.
Administrator, Custodian and
Transfer Agent
. State Street Bank and Trust Company (“State Street”)
is the administrator, custodian and transfer agent for the Fund.
On May 27,
2014, certain investors in the BlackRock Global Allocation Fund, Inc. (“Global
Allocation”) and the BlackRock Equity Dividend Fund (“Equity Dividend”) filed a
consolidated complaint in the United States District Court for the District of
New Jersey against BlackRock Advisors, LLC, BlackRock Investment Management, LLC
and BlackRock International Limited (collectively, the “Defendants”) under the
caption
In re BlackRock Mutual Funds
Advisory Fee Litigation
. In the lawsuit, which purports to be
brought derivatively on behalf of Global Allocation and Equity Dividend, the
plaintiffs allege that the Defendants violated Section 36(b) of the
1940 Act by
receiving allegedly excessive investment advisory fees from Global Allocation
and Equity Dividend. On June 13, 2018, the court granted in part and denied
in part the Defendants’ motion for summary judgment. On July 25, 2018, the
plaintiffs served a pleading that supplemented the time period of their alleged
damages to run through the date of trial. The lawsuit seeks, among other things,
to recover on behalf of Global Allocation and Equity Dividend all allegedly
excessive advisory fees received by the Defendants beginning twelve months
preceding the start of the lawsuit with respect to each of Global Allocation and
Equity Dividend and ending on the date of judgment, along with purported lost
investment returns on those amounts, plus interest. The
trial on the
remaining issues was completed on August 29, 2018. On February 8,
2019, the court issued an order dismissing the claims in their entirety. On
March 8, 2019, the plaintiffs provided notice that they
were appealing both
the February 8, 2019 post-trial order and the June 13, 2018 order
partially granting Defendants’ motion for summary judgment. On May 28,
2020, the appellate court affirmed the trial court’s orders. On June
26, 2020, the
plaintiffs petitioned the appeals court for a rehearing,
12
which
was denied on July
9, 2020.
Plaintiffs’ deadline to seek further appeal has passed; consequently, this
matter is now closed.
. The investment activities of BFA and its affiliates
(including BlackRock and its subsidiaries (collectively, the “Affiliates”)
), and their
respective directors, officers or employees, in the management of, or their
interest in, their own accounts and other accounts they manage, may present
conflicts of interest that could disadvantage the Fund and its shareholders. BFA
and its Affiliates
provide investment
management services to other funds and discretionary managed accounts that may
follow investment programs similar to that of the Fund. BFA
and its Affiliates
are involved
worldwide with a broad spectrum of financial services and asset management
activities and may engage in the ordinary course of business in activities in
which their interests or the interests of their clients may conflict with those
of the Fund. BFA or one or more Affiliates
act
or may act
as an investor,
research provider,
investment manager, commodity pool operator, commodity trading advisor,
financier, underwriter, adviser,
trader
, lender, index
provider, agent and/or principal, and have other direct and indirect interests
in securities, currencies, commodities, derivatives and other instruments in
which the Fund may directly or indirectly invest.
The Fund may invest
in securities of, or engage in other transactions with, companies with which an
Affiliate
has significant debt
or equity investments or other interests. The Fund may also invest in issuances
(such as structured notes) by entities for which an Affiliate
provides and is
compensated for cash management services relating to the proceeds from the sale
of such issuances. The Fund also may invest in securities of, or engage in other
transactions with, companies for which an Affiliate
provides or may in
the future provide research coverage. An Affiliate
may have business
relationships with, and purchase or distribute or sell services or products from
or to, distributors, consultants or others who recommend the Fund or who engage
in transactions with or for the Fund, and may receive compensation for such
services.
BFA or one or more
Affiliates
may engage in
proprietary trading and advise accounts and funds that have investment
objectives similar to those of the Fund and/or that engage in and compete for
transactions in the same types of securities, currencies and other instruments
as the Fund. This may include transactions in securities issued by other
open-end
and
closed-end
investment
companies (which may include investment companies that are affiliated with the
Fund and BFA, to the extent permitted under the 1940 Act
. The trading
activities of BFA and these Affiliates
are carried out
without reference to positions held directly or indirectly by the Fund and may
result in BFA or an Affiliate
having positions in
certain securities that are senior or junior to, or have interests different
from or adverse to, the securities that are owned by the Fund. Neither BlackRock
nor any Affiliate is under any obligation to share any investment opportunity,
idea or strategy with the Fund. As a result, an Affiliate may compete with the
Fund for appropriate investment opportunities. The results of the
Fund’s investment
activities, therefore, may differ from those of an Affiliate and of other
accounts managed by BlackRock or an Affiliate, and it is possible that the Fund
could sustain losses during periods in which one or more Affiliates and other
accounts achieve profits on their trading for proprietary or other accounts. The
opposite result is also possible.
In
addition, the Fund may, from time to time, enter into transactions in which BFA
or an Affiliate or
its or their
directors, officers or employees or other clients have an adverse interest.
Furthermore, transactions undertaken by clients advised or managed by BFA
or its Affiliates
may adversely impact
the Fund. Transactions by one or more clients or by BFA
or its Affiliates
or their directors,
officers or employees, may have the effect of diluting or otherwise
disadvantaging the values, prices or investment strategies of the Fund.
The
Fund’s activities may be limited because of regulatory restrictions applicable
to BFA
or one or more
Affiliates
and/or their
internal policies designed to comply with such restrictions.
Under
a securities lending program approved by the Board, the
Fund
has retained
BlackRock Institutional Trust Company, N.A., an Affiliate of BFA, to serve as
the securities lending agent for the Fund to the extent that the Fund
participates in the securities lending program. For these services, the
securities lending agent will receive a fee from the Fund, including a fee based
on the returns earned on the Fund’s investment of the cash received as
collateral for the loaned securities. In addition, one or more Affiliates
may be among the
entities to which the Fund may lend its portfolio securities under the
securities lending program.
The
activities of BFA
and its Affiliates
and their respective
directors, officers or employees, may give rise to other conflicts of interest
that could disadvantage the Fund and its shareholders. BFA has adopted policies
and procedures designed to address these potential conflicts of interest. See
the SAI for further information.
13
Shareholder
Information
Additional shareholder
information, including how to buy and sell shares of the Fund, is available free
of charge by calling toll-free:
or
visiting our website at www.blackrock.com.
Buying and Selling
Shares
. Shares of the Fund may be acquired or redeemed directly from
the Fund only in Creation Units or multiples thereof, as discussed in the
Creations and
Redemptions
section of this Prospectus. Only an Authorized
Participant
may engage in
creation or redemption transactions directly with the Fund. Once created, shares
of the Fund generally trade in the secondary market in amounts less than a
Creation Unit.
Shares
of the Fund are listed on a national securities exchange for trading during the
trading day. Shares can be bought and sold throughout the trading day like
shares of other publicly-traded companies. The Trust does not impose any minimum
investment for shares of the Fund purchased on an exchange or otherwise in the
secondary market. The Fund’s shares trade under the ticker symbol “INMU.”
Buying
or selling Fund shares on an exchange or other secondary market involves two
types of costs that may apply to all securities transactions. When buying or
selling shares of the Fund through a broker, you may incur a brokerage
commission and other charges. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price. The spread
varies over time for shares of the Fund based on the Fund’s trading volume and
market liquidity, and is generally lower if the Fund has high trading volume and
market liquidity, and higher if the Fund has little trading volume and market
liquidity (which is often the case for funds that are newly launched or small in
size). The Fund’s spread may also be impacted by the liquidity or illiquidity of
the underlying securities held by the Fund, particularly for newly launched or
smaller funds or in instances of significant volatility of the underlying
securities.
The
Board has adopted a policy of not monitoring for frequent purchases and
redemptions of Fund shares (“frequent trading”) that appear to attempt to take
advantage of a potential arbitrage opportunity presented by a lag between a
change in the value of the Fund’s portfolio securities after the close of the
primary markets for the Fund’s portfolio securities and the reflection of that
change in the Fund’s NAV (“market timing”), because the Fund sells and redeems
its shares directly through transactions that are
in-kind
and/or
for cash, subject to the conditions described below under
Creations and
Redemptions
. The Board has not adopted a policy of monitoring for
other frequent trading activity because shares of the Fund are listed for
trading on a national securities exchange.
The
national securities exchange on which the Fund’s shares are listed is open for
trading Monday through Friday and is closed on weekends and the following
holidays (or the days on which they are observed): New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The Fund’s listing exchange is
NYSE Arca, Inc. (“NYSE Arca”).
. Shares
of the Fund are held in book-entry form, which means that no stock certificates
are issued. The Depository Trust Company (“DTC”) or its nominee is the record
owner of, and holds legal title to, all outstanding shares of the Fund.
Investors
owning shares of the Fund are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Fund. DTC participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other securities that you
hold in book-entry or “street name” form.
. The
trading prices of the Fund’s shares in the secondary market generally differ
from the Fund’s daily NAV and are affected by market forces such as the supply
of and demand for ETF shares and
underlying
securities held by the Fund, economic conditions and other factors.
Determination of Net Asset
Value
. The NAV of the Fund normally is determined once daily Monday
through Friday, generally as of the regularly scheduled close of business of the
New York Stock Exchange (“NYSE”) (normally
14
4:00 p.m.,
Eastern time) on each day that the NYSE is open for trading, based on prices at
the time of closing, provided that (i) any Fund assets or liabilities
denominated in currencies other than the U.S. dollar are translated into U.S.
dollars at the prevailing market rates on the date of valuation as quoted by one
or more data service providers and (ii) U.S. fixed-income assets may be
valued as of the announced closing time for trading in fixed-income instruments
in a particular market or exchange. The NAV of the Fund is calculated by
dividing the value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of outstanding shares of the
Fund, generally rounded to the nearest cent.
The
value of the securities and other assets and liabilities held by the Fund are
determined pursuant to valuation policies and procedures approved by the Board.
The
Fund values fixed-income portfolio securities using last available bid prices or
current market quotations provided by dealers or prices (including evaluated
prices) supplied by the Fund’s approved independent third-party pricing
services, each in accordance with valuation policies and procedures approved by
the Board. Pricing services may use matrix pricing or valuation models that
utilize certain inputs and assumptions to derive values. Pricing services
generally value fixed-income securities assuming orderly transactions of an
institutional round lot size, but the Fund may hold or transact in such
securities in smaller odd lot sizes. Odd lots often trade at lower prices than
institutional round lots. An amortized cost method of valuation may be used with
respect to debt obligations with sixty days or less remaining to maturity unless
BFA determines in good faith that such method does not represent fair value.
Generally,
trading in
non-U.S.
securities,
U.S. government securities, money market instruments and certain fixed-income
securities is substantially completed each day at various times prior to the
close of business on the NYSE. The values of such securities used in computing
the NAV of the Fund are determined as of such times.
When
market quotations are not readily available or are believed by BFA to be
unreliable, the Fund’s investments are valued at fair value. Fair value
determinations are made by BFA in accordance with policies and procedures
approved by the Board. BFA may conclude that a market quotation is not readily
available or is unreliable if a security or other asset or liability does not
have a price source due to its lack of trading or other reasons, if a market
quotation differs significantly from recent price quotations or otherwise no
longer appears to reflect fair value, where the security or other asset or
liability is thinly traded, when there is
a significant event
subsequent to the most recent market quotation, or if the trading market on
which a security is listed is suspended or closed and no appropriate alternative
trading market is available. A “significant event” is deemed to occur if BFA
determines, in its reasonable business judgment prior to or at the time of
pricing the Fund’s assets or liabilities, that the event is likely to cause a
material change to the closing market price of one or more assets or liabilities
held by the Fund.
Fair
value represents a good faith approximation of the value of an asset or
liability. The fair value of an asset or liability held by the Fund is the
amount the Fund might reasonably expect to receive from the current sale of that
asset or the cost to extinguish that liability in an
arm’s-length
transaction.
Valuing the Fund’s investments using fair value pricing will result in prices
that may differ from current market valuations and that may not be the prices at
which those investments could have been sold during the period in which the
particular fair values were used.
Dividends and Distributions
.
Dividends from net investment income, if any, generally are declared and paid at
least once a year by the Fund. Distributions of net realized securities gains,
if any, generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis for the Fund. The Trust reserves the
right to declare special distributions if, in its reasonable discretion, such
action is necessary or advisable to preserve its status as a regulated
investment company
or to avoid
imposition of income or excise taxes on undistributed income or realized gains.
Dividends
and other distributions on shares of the Fund are distributed on a
basis to
beneficial owners of such shares. Dividend payments are made through DTC
participants and indirect participants to beneficial owners then of record with
proceeds received from the Fund.
Dividend Reinvestment
Service
. No dividend reinvestment service is provided by the Trust.
Broker-dealers may make available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of the Fund for reinvestment of their
dividend distributions. Beneficial owners should contact their broker to
determine the availability and costs of the service and the details of
participation therein. Brokers may require beneficial owners to adhere to
15
specific
procedures and timetables. If this service is available and used, dividend
distributions of both income and realized gains will be automatically reinvested
in additional whole shares of the Fund purchased in the secondary market.
As with any
investment, you should consider how your investment in shares of the Fund will
be taxed. The tax information in this Prospectus is provided as general
information, based on current law. You should consult your own tax professional
about the tax consequences of an investment in shares of the Fund.
Unless
your investment in Fund shares is made through a tax-exempt entity or
tax-deferred retirement account, such as an IRA, in which case your
distributions generally will be taxable when withdrawn, you need to be aware of
the possible tax consequences when the Fund makes distributions or you sell Fund
shares.
Dividends paid by the Fund that are properly reported
as tax-exempt interest dividends will not be subject to regular U.S. federal
income tax. The Fund intends to invest its assets in a manner such that dividend
distributions to its shareholders will generally be exempt from U.S. federal
income taxation (except that the interest may be includable in taxable income
for purposes of the AMT. Dividends paid by the Fund will be exempt from U.S.
federal income tax (though not necessarily exempt from state and local taxation)
to the extent of the Fund’s
tax-exempt
interest
income as long as 50% or more of the value of the Fund’s assets at the end of
each quarter is invested in state, municipal and other bonds that are excluded
from gross income for U.S. federal income tax purposes and as long as the Fund
properly reports such dividends as tax-exempt interest dividends. Exempt
interest dividends from interest earned on municipal securities of a state, or
its political subdivisions, may be exempt from income tax in that state.
However, income from municipal securities of other states generally will not
qualify for
tax-free
treatment.
Distributions
from the Fund’s net investment income other than from net tax-exempt income,
including distributions out of the Fund’s net short-term capital gains, if any,
are taxable to you as ordinary income. The Fund’s distributions of net long-term
capital gains, if any, in excess of net short-term capital losses (capital gain
dividends) are taxable to you as long-term capital gains, regardless of how long
you have held the Fund’s shares. Long-term capital gains are eligible for
taxation at a maximum rate of 15% or 20% for non-corporate shareholders,
depending on whether their income exceeds certain threshold amounts. Taxable
distributions from the Fund are subject to a 3.8% U.S. federal Medicare
contribution tax on “net investment income,” for individuals with incomes
exceeding $200,000 ($250,000 if married and filing jointly) and of estates and
trusts. Distributions from the Fund are not expected to qualify as qualified
dividend income.
Any
market discount recognized on a bond is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below
redemption value or adjusted issue price if issued with original issue discount.
To the extent the Fund does not include the market discount in income as it
accrues, gain on the Fund’s disposition of such an obligation will be treated as
ordinary income rather than capital gain to the extent of the accrued market
discount.
If
you lend your Fund shares pursuant to securities lending arrangements, you may
lose the ability to treat Fund dividends (paid while the shares are held by the
borrower) as tax-exempt income. Consult your financial intermediary or tax
advisor.
In
general, your distributions are subject to U.S. federal income tax for the year
when they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year.
If
you are neither a resident nor a citizen of the U.S. or if you are a non-U.S.
entity (other than a pass-through entity to the extent owned by U.S. persons),
the Fund’s ordinary income dividends (which include distributions of net
short-term capital gains) will generally be subject to a 30% U.S. withholding
tax, unless a lower treaty rate applies, provided that withholding tax will
generally not apply to any gain or income realized by a non-U.S. shareholder in
respect of any distributions of net tax-exempt income or long-term capital gains
or upon the sale or other disposition of shares of the Fund.
Separately,
a 30% withholding tax is currently imposed on U.S.-source dividends, interest
and other income items paid to (i) foreign financial institutions, including
non-U.S. investment funds, unless they agree to collect and disclose to the IRS
information regarding their direct and indirect U.S. account holders and (ii)
certain other foreign entities, unless they certify certain information
regarding their direct and indirect U.S. owners. To avoid withholding, foreign
16
financial
institutions will need to (i) enter into agreements with the IRS that state that
they will provide the IRS information, including the names, addresses and
taxpayer identification numbers of direct and indirect U.S. account holders,
comply with due diligence procedures with respect to the identification of U.S.
accounts, report to the IRS certain information with respect to U.S. accounts
maintained, agree to withhold tax on certain payments made to
non-compliant
foreign
financial institutions or to account holders who fail to provide the required
information, and determine certain other information concerning their account
holders, or (ii) in the event that an applicable intergovernmental agreement and
implementing legislation are adopted, provide local revenue authorities with
similar account holder information. Other foreign entities may need to report
the name, address, and taxpayer identification number of each substantial U.S.
owner or provide certifications of no substantial U.S. ownership unless certain
exceptions apply.
If
you are a resident or a citizen of the U.S., by law, backup withholding at a 24%
rate will apply to your distributions and proceeds if you have not provided a
taxpayer identification number or social security number and made other required
certifications.
Taxes When Shares are
Sold.
Currently, any capital gain or loss realized upon a sale of
Fund shares is generally treated as a long-term gain or loss if the shares have
been held for more than one year. Any capital gain or loss realized upon a sale
of Fund shares held for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares held for six months
or less is treated as long-term capital loss to the extent that capital gain
dividends were paid with respect to such shares. Any such capital gains,
including from sales of Fund shares or from capital gain dividends, are included
in “net investment income” for purposes of the 3.8% U.S. federal Medicare
contribution tax mentioned above.
The
foregoing discussion summarizes some of the consequences under current U.S.
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You may also be subject to state and local taxation on Fund
distributions and sales of shares. Consult your personal tax advisor about the
potential tax consequences of an investment in shares of the Fund under all
applicable tax laws.
Creations and
Redemptions
. Prior to trading in the secondary market, shares of the
Fund are “created” at NAV by market makers, large investors and institutions
only in
block-size
Creation
Units
or multiples
thereof. Each “creator” or authorized participant (an “Authorized Participant”)
has entered into an agreement with the Fund’s distributor, BlackRock
Investments, LLC (the “Distributor”), an affiliate of BFA. An Authorized
Participant is a member or participant of a clearing agency registered with the
SEC, which has a written agreement with the Fund or one of its service providers
that allows such member or participant to place orders for the purchase and
redemption of Creation Units.
These
transactions are usually in exchange for cash.
A
creation transaction, which is subject to acceptance by the Distributor and the
Fund, generally takes place when an Authorized Participant deposits into the
Fund a specified amount of cash and/or a designated portfolio of securities
(including any portion of such securities for which cash may be substituted) in
exchange for a specified number of Creation Units. Similarly, shares can be
redeemed only in Creation Units, generally for a specified amount of cash and/or
a designated portfolio of securities (including any portion of such securities
for which cash may be substituted). Except when aggregated in Creation Units,
shares are not redeemable by the Fund. Creation and redemption baskets may
differ and the Fund will accept “custom baskets.” More information regarding
custom baskets is contained in the Fund’s SAI.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received in an
acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units with the Fund.
Authorized Participants may create or redeem Creation Units for their own
accounts or for customers, including, without limitation, affiliates of the
Fund.
In
the event of a system failure or other interruption, including disruptions at
market makers or Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the Fund’s instructions or may not
be executed at all, or the Fund may not be able to place or change orders.
17
To
the extent the Fund engages in
in-kind
transactions,
the Fund intends to comply with the U.S. federal securities laws in accepting
securities for deposit and satisfying redemptions with redemption securities by,
among other means, assuring that any securities accepted for deposit and any
securities used to satisfy redemption requests will be sold in transactions that
would be exempt from registration under the 1933 Act. Further, an Authorized
Participant that is not a “qualified institutional buyer,” as such term is
defined in Rule 144A under the 1933 Act, will not be able to receive restricted
securities eligible for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC participant that has executed an agreement with the Distributor with
respect to creations and redemptions of Creation
Unit aggregations.
Information about the procedures regarding creation and redemption of Creation
Units (including the
cut-off
times
for receipt of creation and redemption orders) is included in the Fund’s SAI.
Because
new shares may be created and issued on an ongoing basis, at any point during
the life of the Fund a “distribution,” as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner that could render them
statutory underwriters subject to the prospectus delivery and liability
provisions of the 1933 Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances of each
particular case.
Broker-dealers
should also note that dealers who are not “underwriters” but are participating
in a distribution (as contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning of
Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of the 1933
Act. For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the 1933 Act is available only with respect to
transactions on a national securities exchange.
.
Householding is an option available to certain Fund investors. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Please contact your broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses and other shareholder
documents, or if you are currently enrolled in householding and wish to change
your householding status.
The Distributor or
its agent distributes Creation Units for the Fund on an agency basis. The
Distributor does not maintain a secondary market in shares of the Fund. The
Distributor has no role in determining the policies of the Fund or the
securities that are purchased or sold by the Fund. The Distributor’s principal
address is 1 University Square Drive, Princeton, NJ 08540.
BFA
or its affiliates make payments to broker-dealers, registered investment
advisers, banks or other intermediaries (together, “intermediaries”) related to
marketing activities and presentations, educational training programs,
conferences, the development of technology platforms and reporting systems, data
provision services, or their making shares of the Fund and certain other
BFA-advised
ETFs
available to their customers generally and in certain investment programs. Such
payments, which may be significant to the intermediary, are not made by the
Fund. Rather, such payments are made by BFA or its affiliates from their own
resources, which come directly or indirectly in part from fees paid by the
BFA-advised
ETFs.
Payments of this type are sometimes referred to as revenue-sharing payments. A
financial intermediary may make decisions about which investment options it
recommends or makes available, or the level of services provided, to its
customers based on the payments or other financial incentives it is eligible to
receive. Therefore, such payments or other financial incentives offered or made
to an intermediary create conflicts of interest between the intermediary and its
customers and may cause the intermediary to recommend the Fund or other
BFA-advised
ETFs
over another investment. More information regarding these payments is contained
in the Fund’s SAI.
Please contact your salesperson
or other investment professional for more information regarding any such
payments his or her firm may receive from BFA or its
affiliates.
18
Financial
Highlights
Financial
highlights for the Fund are not available because, as of the effective date of
this Prospectus, the Fund has not commenced operations and therefore has no
financial highlights to report.
19
Disclaimers
Shares of the Fund are not
sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation
or warranty, express or implied, to the owners of the shares of the Fund or any
member of the public regarding the ability of the Fund to achieve its investment
objective. NYSE Arca is not responsible for, nor has it participated in, the
determination of the Fund’s investments, nor in the determination of the timing
of, prices of, or quantities of shares of the Fund to be issued, nor in the
determination or calculation of the equation by which the shares are redeemable.
NYSE Arca has no obligation or liability to owners of the shares of the Fund in
connection with the administration, marketing or trading of the shares of the
Fund.
Without limiting any of the
foregoing, in no event shall NYSE Arca have any liability for any direct,
indirect, special, punitive, consequential or any other damages (including lost
profits) even if notified of the possibility of such damages.
20
Want
to know more?
Copies
of the Prospectus, SAI and other information can be found on our website at
www.blackrock.com. For more information about the Fund, you may request a copy
of the SAI. The SAI provides detailed information about the Fund and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
If
you have any questions about the Trust or shares of the Fund or you wish to
obtain the SAI free of charge, please:
|
|
|
Call: |
|
(toll
free) |
Write: |
|
c/o BlackRock Investments, LLC |
|
|
1
University Square Drive
Princeton,
NJ 08540 |
Reports
and other information about the Fund are available on the EDGAR database on the
SEC’s website at www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following
e-mail
address:
[email protected].
No person is authorized to give
any information or to make any representations about the Fund and its shares not
contained in this Prospectus and you should not rely on any other information.
Read and keep this Prospectus for future reference.
Investment
Company Act File No.:
811-23511
PRO-IMIBE-0321