BlackRock Strategic Income Opportunities/Emerging Markets Flexible Dynamic Bond
STATEMENT OF ADDITIONAL INFORMATION
BlackRock Funds V
100 Bellevue Parkway, Wilmington, Delaware 19809 • Phone No. (800) 441-7762

    
This Statement of Additional Information of BlackRock Strategic Income Opportunities Portfolio (the “Strategic Income Opportunities Portfolio”) and BlackRock Emerging Markets Flexible Dynamic Bond Portfolio (the “Emerging Markets Flexible Dynamic Bond Portfolio” and together with the Strategic Income Opportunities Portfolio, the “Portfolios” and each, a “Portfolio”), each a series of BlackRock Funds V (the “Trust”), is not a prospectus and should be read in conjunction with the Prospectuses of the Portfolios, dated April 30, 2021, as they may be amended or supplemented from time to time, which have been filed with the Securities and Exchange Commission (the “Commission”) and can be obtained, without charge, by calling (800) 441-7762 or by writing to the Portfolios at the above address. Each Portfolio’s Prospectuses are incorporated by reference into this Statement of Additional Information, and Part I of this Statement of Additional Information and the portions of Part II of this Statement of Additional Information that relate to a Portfolio have been incorporated by reference into each Portfolio’s Prospectuses. The portions of Part II of this Statement of Additional Information that do not relate to a Portfolio do not form a part of the Portfolio’s Statement of Additional Information, have not been incorporated by reference into each Portfolio’s Prospectuses and should not be relied upon by investors in the Portfolios. Each Portfolio’s audited financial statements are incorporated into this Statement of Additional Information by reference to each Portfolio’s Annual Report to Shareholders for the fiscal year ended December 31, 2020 (the “Annual Report”). You may request a copy of the Annual Report at no charge by calling (800) 441-7762 between 8:00 a.m. and 6:00 p.m. Eastern time on any business day.
References to the Investment Company Act of 1940, as amended (the “Investment Company Act” or the “1940 Act”), or other applicable law, will include any rules promulgated thereunder and any guidance, interpretations or modifications by the Commission, Commission staff or other authority with appropriate jurisdiction, including court interpretations, and exemptive, no-action or other relief or permission from the Commission, Commission staff or other authority.

BlackRock Advisors, LLC — Manager
BlackRock Investments, LLC — Distributor

Class   BlackRock
Emerging Markets
Flexible Dynamic
Bond Portfolio
Ticker Symbol
  BlackRock
Strategic Income
Opportunities
Portfolio
Ticker Symbol
Investor A Shares

  BAEDX   BASIX
Investor C Shares

  BCEDX   BSICX
Institutional Shares

  BEDIX   BSIIX
Class K Shares

  BREDX   BSIKX
  
The date of this Statement of Additional Information is April 30, 2021.


TABLE OF CONTENTS
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PART I  

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PART II  

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PART I: INFORMATION ABOUT THE PORTFOLIOS
Part I of this Statement of Additional Information (“SAI”) sets forth information about BlackRock Strategic Income Opportunities Portfolio (the “Strategic Income Opportunities Portfolio”) and BlackRock Emerging Markets Flexible Dynamic Bond Portfolio (the “Emerging Markets Flexible Dynamic Bond Portfolio” and together with the Strategic Income Opportunities Portfolio, the “Portfolios” and each, a “Portfolio”), each a series of BlackRock Funds V (the “Trust”). It includes information about the Trust’s Board of Trustees (the “Board” or the “Board of Trustees”), the management services provided to and the management fees paid by the Portfolios, and information about other fees applicable to and services provided to the Portfolios. This Part I of this SAI should be read in conjunction with the Portfolios’ Prospectuses and those portions of Part II of this SAI that pertain to the specific Portfolio.
On September 17, 2018, the Strategic Income Opportunities Portfolio and Emerging Markets Flexible Bond Portfolio acquired all of the assets, subject to the liabilities, of BlackRock Strategic Income Opportunities Portfolio (the “Strategic Income Predecessor Portfolio”) and BlackRock Emerging Markets Flexible Dynamic Bond Portfolio (the “Emerging Markets Flexible Dynamic Bond Predecessor Portfolio” and together with the Strategic Income Predecessor Portfolio, the “Predecessor Portfolios”), respectively, each a series of BlackRock Funds II (the “Predecessor Trust”), through tax-free reorganizations (together, the “Reorganization”). Each Predecessor Portfolio is the accounting survivor of the Reorganization, which means each Portfolio adopted the performance and financial history of the corresponding Predecessor Portfolio as of the date of the Reorganization. The Reorganization resulted in each Predecessor Portfolio effectively becoming a series of the Trust. Each Portfolio had the same investment objectives, strategies and policies, portfolio management team, service providers and contractual arrangements, including the same contractual fees and expenses, as those of the corresponding Predecessor Portfolio as of the date of the Reorganization. As a result, financial history and other information presented in this SAI for periods prior to the Reorganization is the information of the Predecessor Portfolios and the Predecessor Trust, as applicable.
I. Investment Objectives and Policies
In implementing each Portfolio’s investment strategy, from time to time, BlackRock Advisors, LLC (“BlackRock” or the “Manager”), each Portfolio’s investment manager, may consider and employ techniques and strategies designed to minimize and defer the U.S. federal income taxes which may be incurred by shareholders in connection with their investment in such Portfolio.
Set forth below is a listing of some of the types of investments and investment strategies that a Portfolio and, if applicable, its underlying funds may use, and the risks and considerations associated with those investments and investment strategies. Please see Part II of this SAI for further information on these investments and investment strategies. Information contained in Part II about the risks and considerations associated with investments and/or investment strategies applies only to the extent a Portfolio makes each type of investment or uses each investment strategy. Information that does not apply to a Portfolio does not form a part of that Portfolio’s SAI and should not be relied on by investors in that Portfolio.
Only information that is clearly identified as applicable to a Portfolio is considered to form a part of that Portfolio’s SAI.
  Strategic
Income
Opportunities
Portfolio
Emerging Market
Flexible Dynamic
Bond Portfolio
144A Securities X X
Asset-Backed Securities X X
Asset-Based Securities X X
Precious Metal-Related Securities X X
Bank Loans X X
Borrowing and Leverage X X
Cash Flows; Expenses X X
Cash Management X X
Collateralized Debt Obligations X X
Collateralized Bond Obligations X X
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  Strategic
Income
Opportunities
Portfolio
Emerging Market
Flexible Dynamic
Bond Portfolio
Collateralized Loan Obligations X X
Commercial Paper X X
Commodity-Linked Derivative Instruments and Hybrid Instruments X X
Qualifying Hybrid Instruments X  
Hybrid Instruments Without Principal Protection X  
Limitations on Leverage X  
Counterparty Risk X  
Convertible Securities X X
Credit Linked Securities X X
Cyber Security Issues X X
Debt Securities X X
Inflation-Indexed Bonds X X
Investment Grade Debt Obligations X X
High Yield Investments (“Junk Bonds”) X X
Mezzanine Investments X X
Pay-in-kind Bonds X X
Supranational Entities X X
Depositary Receipts (ADRs, EDRs and GDRs) X X
Derivatives X X
Hedging X X
Speculation X X
Risk Factors in Derivatives X X
Correlation Risk X X
Counterparty Risk X X
Credit Risk X X
Currency Risk X X
Illiquidity Risk X X
Leverage Risk X X
Market Risk X X
Valuation Risk X X
Volatility Risk X X
Futures X X
Swap Agreements X X
Credit Default Swaps and Similar Instruments X X
Interest Rate Swaps, Floors and Caps X X
Total Return Swaps X X
Options X X
Options on Securities and Securities Indices X X
Call Options X X
Put Options X X
Options on Government National Mortgage Association (“GNMA”) Certificates X X
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  Strategic
Income
Opportunities
Portfolio
Emerging Market
Flexible Dynamic
Bond Portfolio
Options on Swaps (“Swaptions”) X X
Foreign Exchange Transactions X X
Spot Transactions and FX Forwards X X
Currency Futures X X
Currency Options X X
Currency Swaps X X
Distressed Securities X X
Environmental, Social and Governance (“ESG”) Integration X X
Equity Securities X X
Real Estate-Related Securities X  
Securities of Smaller or Emerging Growth Companies X  
Exchange-Traded Notes (“ETNs”) X X
Foreign Investments X X
Foreign Investment Risks X X
Foreign Market Risk X X
Foreign Economy Risk X X
Currency Risk and Exchange Risk X X
Governmental Supervision and Regulation/Accounting Standards X X
Certain Risks of Holding Fund Assets Outside the United States X X
Publicly Available Information X X
Settlement Risk X X
Sovereign Debt X X
Withholding Tax Reclaims Risk X X
Funding Agreements X X
Guarantees X X
Illiquid Investments X X
Index Funds: Information Concerning the Indexes X  
S&P 500 Index    
Russell Indexes    
MSCI Indexes    
FTSE Indexes    
Bloomberg Barclays Indexes    
ICE BofA Indexes X  
Indexed and Inverse Securities X X
Inflation Risk X X
Initial Public Offering (“IPO”) Risk   X
Interfund Lending Program X X
Borrowing, to the extent permitted by the Fund’s investment policies and restrictions X X
Lending, to the extent permitted by the Fund’s investment policies and restrictions    
Investment in Emerging Markets X X
Brady Bonds X X
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  Strategic
Income
Opportunities
Portfolio
Emerging Market
Flexible Dynamic
Bond Portfolio
China Investments Risk   X
Investment in Other Investment Companies X X
Exchange-Traded Funds X X
Lease Obligations X  
LIBOR Risk X X
Life Settlement Investments    
Liquidity Risk Management X X
Master Limited Partnerships X  
Merger Transaction Risk X  
Money Market Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S. Banks X X
Money Market Securities X X
Mortgage-Related Securities X X
Mortgage-Backed Securities X X
Collateralized Mortgage Obligations (“CMOs”) X X
Adjustable Rate Mortgage Securities X X
CMO Residuals X X
Stripped Mortgage-Backed Securities X X
Tiered Index Bonds X X
TBA Commitments X X
Mortgage Dollar Rolls X X
Net Interest Margin (NIM) Securities    
Municipal Investments X X
Risk Factors and Special Considerations Relating to Municipal Bonds X  
Description of Municipal Bonds X  
General Obligation Bonds X  
Revenue Bonds X  
Private Activity Bonds (“PABs”) X  
Moral Obligation Bonds X  
Municipal Notes X  
Municipal Commercial Paper X  
Municipal Lease Obligations X  
Tender Option Bonds    
Yields X  
Variable Rate Demand Obligations (“VRDOs”) X  
Transactions in Financial Futures Contracts on Municipal Indexes X  
Call Rights X  
Municipal Interest Rate Swap Transactions X  
Insured Municipal Bonds X  
Build America Bonds X  
Tax-Exempt Municipal Investments X X
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  Strategic
Income
Opportunities
Portfolio
Emerging Market
Flexible Dynamic
Bond Portfolio
Participation Notes   X
Portfolio Turnover Rates X X
Preferred Stock X X
Tax-Exempt Preferred Shares X X
Trust Preferred Securities X X
Real Estate Investment Trusts (“REITs”) X X
Recent Market Events X X
Repurchase Agreements and Purchase and Sale Contracts X X
Restricted Securities X X
Reverse Repurchase Agreements X X
Rights Offerings and Warrants to Purchase X X
Securities Lending X X
Short Sales X See note
1 below
Special Purpose Acquisition Companies X  
Standby Commitment Agreements X X
Stripped Securities X X
Structured Notes X X
Taxability Risk X X
Temporary Defensive Measures X X
U.S. Government Obligations X X
U.S. Treasury Obligations X X
U.S. Treasury Rolls    
Utility Industries X  
When-Issued Securities, Delayed Delivery Securities and Forward Commitments X X
Yields and Ratings X X
Zero Coupon Securities X X
  

1 The Portfolio may only make short sales against the box or with respect to futures contracts and related options.
A. Strategic Income Opportunities Portfolio
Under normal market conditions, the Strategic Income Opportunities Portfolio will invest in a combination of fixed-income securities, including, but not limited to: high yield securities, international securities, emerging markets debt and mortgages. Depending on market conditions, the Strategic Income Opportunities Portfolio may invest in other market sectors. Fixed-income securities are debt obligations such as bonds and debentures, U.S. Government securities, debt obligations of domestic and non-U.S. corporations, debt obligations of non-U.S. governments and their political subdivisions, asset-backed securities, various mortgage-backed securities (both residential and commercial), other floating or variable rate obligations, convertible securities, municipal obligations and zero coupon debt securities. The Strategic Income Opportunities Portfolio may invest in preferred securities, illiquid investments, exchange-traded funds (“ETFs”), including affiliated ETFs, and corporate loans. The Strategic Income Opportunities Portfolio may have short positions in to-be-announced (“TBA”) mortgage-backed securities without limit.
The Strategic Income Opportunities Portfolio may invest significantly in non-investment grade bonds (high yield or junk bonds). Non-investment grade bonds acquired by the Strategic Income Opportunities Portfolio will generally be in the lower rating categories of the major rating agencies (BB or lower by S&P Global Ratings, a division of S&P Global, Inc. (“S&P”), or Ba or lower by Moody’s Investors Service, Inc. (“Moody’s”)) or will be determined by the management team to be of similar quality. Split rated bonds will be considered to have the higher credit rating.
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The Strategic Income Opportunities Portfolio may also invest significantly in non-dollar denominated bonds and bonds of emerging market issuers. The Strategic Income Opportunities Portfolio’s investment in non-dollar denominated bonds may be on a currency hedged or unhedged basis.
The management team may, when consistent with the Strategic Income Opportunities Portfolio’s investment goal, buy or sell options or futures on a security or an index of securities, or enter into swap agreements, including total return, interest rate and credit default swaps, or foreign currency transactions (collectively, commonly known as derivatives). The Strategic Income Opportunities Portfolio typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as currency risk. The Strategic Income Opportunities Portfolio may also use derivatives for leverage, in which case their use would involve leveraging risk. The Strategic Income Opportunities Portfolio may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or mortgage dollar rolls, which involve a sale by the Strategic Income Opportunities Portfolio of a mortgage-backed security concurrently with an agreement by the Strategic Income Opportunities Portfolio to repurchase a similar security at a later date at an agreed-upon price). The Strategic Income Opportunities Portfolio may invest in indexed and inverse floating rate securities.
The Strategic Income Opportunities Portfolio may engage in short sales for hedging purposes or to enhance total return. A short sale is a transaction in which the Strategic Income Opportunities Portfolio sells securities borrowed from others with the expectation that the price of the security will fall before the Strategic Income Opportunities Portfolio must purchase the security to return it to the lender. The Strategic Income Opportunities Portfolio will not make a short sale if, after giving effect to such sale, the market value of all securities sold short exceeds 5% of the value of its net assets. For the avoidance of doubt, such limit will not apply to short sales of TBA mortgage-backed securities.
The Strategic Income Opportunities Portfolio is classified as diversified under the Investment Company Act. This means that the Strategic Income Opportunities Portfolio may not purchase securities of an issuer (other than (i) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities and (ii) securities of other investment companies) if, with respect to 75% of its total assets, (a) more than 5% of the Strategic Income Opportunities Portfolio’s total assets would be invested in securities of that issuer or (b) the Strategic Income Opportunities Portfolio would hold more than 10% of the outstanding voting securities of that issuer.
With respect to the remaining 25% of its total assets, the Strategic Income Opportunities Portfolio can invest more than 5% of its assets in one issuer. Under the Investment Company Act, the Strategic Income Opportunities Portfolio cannot change its classification from diversified to non-diversified without shareholder approval.
The Strategic Income Opportunities Portfolio’s primary vehicle for gaining exposure to the commodities markets is expected to be through investments in the Cayman Strategic Income Opportunities Portfolio II, Ltd. (the “Subsidiary”), a wholly owned subsidiary of Strategic Income Opportunities Portfolio formed in the Cayman Islands, which invests primarily in commodity-related instruments. The Subsidiary may also hold cash and invest in other instruments, including fixed income securities, either as investments or to serve as margin or collateral for the Subsidiary’s derivative positions.
Investments in the Subsidiary. The Strategic Income Opportunities Portfolio may invest up to 25% of its total assets in the shares of its wholly-owned and controlled Subsidiary. Investments in the Subsidiary are expected to provide the Strategic Income Opportunities Portfolio with exposure to the commodity markets within the limitations of Subchapter M of the Internal Revenue Code of 1986, as amended, and recent Internal Revenue Service revenue rulings, as discussed below. The Subsidiary is advised by the Manager. The Subsidiary (unlike the Strategic Income Opportunities Portfolio) may invest without limitation in commodity-related instruments. However, the Subsidiary is otherwise subject to the same fundamental, non-fundamental and certain other investment restrictions as the Strategic Income Opportunities Portfolio, including the timing and method of the valuation of the Subsidiary’s portfolio investments and shares of the Subsidiary. The Subsidiary is managed pursuant to compliance policies and procedures that are the same, in all material respects, as the policies and procedures adopted by the Strategic Income Opportunities Portfolio. The Subsidiary is a company organized under the laws of the Cayman Islands, and is overseen by its own board of directors, which is comprised of John M. Perlowski, a Director, President and Chief Executive Officer of the Strategic Income Opportunities Portfolio, and Trent Walker, Chief Financial Officer of the Strategic Income Opportunities Portfolio. The Strategic Income Opportunities Portfolio is the sole shareholder of the Subsidiary, and shares of the Subsidiary will not be sold or offered to other investors.
The Subsidiary invests primarily in commodity-related instruments. Although the Strategic Income Opportunities Portfolio may invest in these commodity-related instruments directly, the Strategic Income Opportunities Portfolio will
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likely gain exposure to these commodity-related instruments indirectly by investing in the Subsidiary. To the extent that BlackRock believes that these commodity-related instruments provide suitable exposure to the commodities market, the Strategic Income Opportunities Portfolio’s investment in the Subsidiary will likely increase. The Subsidiary may also hold cash and invest in other instruments, including fixed income securities, either as investments or to serve as margin or collateral for the Subsidiary’s derivative positions.
The Manager manages the assets of the Subsidiary pursuant to a separate investment management agreement (the “Subsidiary Management Agreement”), but receives no additional compensation for doing so. The Manager has entered into sub-advisory agreements with BlackRock International Limited and BlackRock (Singapore) Limited with respect to the Subsidiary. BlackRock also provides certain administrative services for the Subsidiary, but receives no additional compensation for doing so. The Subsidiary will also enter into separate contracts for the provision of custody, accounting agent and audit services with the same or with affiliates of the same service providers that provide those services to the Strategic Income Opportunities Portfolio.
The financial statements of the Subsidiary will be consolidated with the Strategic Income Opportunities Portfolio’s financial statements in the Strategic Income Opportunities Portfolio’s annual and semi-annual reports. The Strategic Income Opportunities Portfolio’s annual and semi-annual reports are distributed to shareholders. Copies of the Strategic Income Opportunities Portfolio’s Annual Report are provided without charge upon request as indicated on the front cover of this SAI.
The Subsidiary is not registered under the Investment Company Act, and, unless otherwise noted in the Strategic Income Opportunities Portfolio’s prospectus or this SAI, is not subject to all the investor protections of the Investment Company Act. However, the Strategic Income Opportunities Portfolio wholly owns and controls the Subsidiary, and the Strategic Income Opportunities Portfolio and the Subsidiary are both managed by BlackRock, making it unlikely that the Subsidiary will take action contrary to the interests of the Strategic Income Opportunities Portfolio and its shareholders. The Strategic Income Opportunities Portfolio’s Board of Directors has oversight responsibility for the investment activities of the Strategic Income Opportunities Portfolio, including its investment in the Subsidiary, and the Strategic Income Opportunities Portfolio’s role as sole shareholder of the Subsidiary. As noted above, the Subsidiary will be subject to the same investment restrictions and limitations as the Strategic Income Opportunities Portfolio.
The Subsidiary is managed pursuant to compliance policies and procedures that are the same, in all material respects, as the policies and procedures adopted by the Strategic Income Opportunities Portfolio. In addition, changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Strategic Income Opportunities Portfolio and/or the Subsidiary to operate as described in the Strategic Income Opportunities Portfolio’s prospectus and this SAI and could adversely affect the Strategic Income Opportunities Portfolio. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax on the Subsidiary. If Cayman Islands law changes such that the Subsidiary must pay Cayman Islands taxes, Strategic Income Opportunities Portfolio shareholders would likely suffer decreased investment returns.
The Strategic Income Opportunities Portfolio, as a “regulated investment company” under the tax rules, is required to realize at least 90 percent of its annual gross income from investment-related sources, specifically from dividends, interest, proceeds from securities lending, gains from the sales of stocks, securities and foreign currencies, other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, or certain types of publicly traded partnerships (referred to as qualifying income). The Strategic Income Opportunities Portfolio invests in commodity-related instruments indirectly through the Subsidiary because direct investments by a regulated investment company in commodity-related instruments generally do not, under published IRS rulings, produce qualifying income. The Strategic Income Opportunities Portfolio expects its income with respect to the Subsidiary to be qualifying income. However, in the future, if the IRS issues regulations or other guidance, or Congress enacts legislation limiting the circumstances in which the Strategic Income Opportunities Portfolio’s income with respect to the Subsidiary will be considered “qualifying income,” the Strategic Income Opportunities Portfolio might be required to make changes to its operations, which may reduce the Strategic Income Opportunities Portfolio’s ability to gain investment exposure to commodities. Strategic Income Opportunities Portfolio shareholders may also experience adverse tax consequences in such circumstances.
The Subsidiary will not be subject to U.S. federal income tax. It will, however, be considered a controlled foreign corporation, and the Strategic Income Opportunities Portfolio will be required to include as income annually amounts earned by the Subsidiary during that year, whether or not the Subsidiary distributes such amounts to the Strategic Income Opportunities Portfolio. (Previously taxed income will not, however, be taxable again when distributed.)
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Furthermore, the requirement for the Strategic Income Opportunities Portfolio to distribute net investment income, if any, and net realized capital gain, if any, at least annually, will apply to such Subsidiary income, whether or not the Subsidiary makes a distribution to the Strategic Income Opportunities Portfolio during the taxable year. If the Subsidiary incurs net losses in any year, such losses will not offset the Strategic Income Opportunities Portfolio’s income or gains nor carryforward to future years.
The Strategic Income Opportunities Portfolio may engage in active and frequent trading of portfolio securities to achieve its primary investment strategies.
B. Emerging Markets Flexible Dynamic Bond Portfolio
The Emerging Markets Flexible Dynamic Bond Portfolio seeks maximum long term total return. In pursuit of this goal, the Emerging Markets Flexible Dynamic Bond Portfolio invests primarily in a global portfolio of fixed-income securities and derivatives of any maturity of issuers located in emerging markets that may be denominated in any currency (on a hedged or un-hedged basis). Fixed-income securities are debt obligations such as bonds and debentures, U.S. Government securities, debt obligations of domestic and non-U.S. corporations, debt obligations of non-U.S. governments and their political subdivisions, asset-backed securities, various mortgage-backed securities (both residential and commercial), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. Emerging markets include, but are not limited to, countries that are included in the J.P. Morgan GBI-EM Global Diversified Index. The Emerging Markets Flexible Dynamic Bond Portfolio will invest at least 80% of its assets in fixed income securities issued by governments, their political subdivisions (states, provinces and municipalities), agencies and companies tied economically to an emerging market if (1) the issuer is organized under the laws of or maintains its principal place of business in an emerging market country, (2) the issuer’s securities are traded principally in an emerging market country or (3) the issuer, during its most recent fiscal year, derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in an emerging market country or has at least 50% of its assets in an emerging market country. The full spectrum of available investments, including noninvestment grade (high yield or junk) securities (including distressed securities), securities of small cap issuers and derivatives may be utilized in satisfying the Emerging Markets Flexible Dynamic Bond Portfolio’s 80% policy. It is possible that up to 100% of the Emerging Markets Flexible Dynamic Bond Portfolio’s assets may be invested in non-investment grade (high yield or junk) securities. Many of the countries in which the Emerging Markets Flexible Dynamic Bond Portfolio invests will have sovereign ratings that are below investment grade or will be unrated. The Emerging Markets Flexible Dynamic Bond Portfolio may invest a significant portion of its assets in one country.
The Emerging Markets Flexible Dynamic Bond Portfolio may gain exposure to currencies by investing in bonds of emerging market issuers denominated in any currency. The Emerging Markets Flexible Dynamic Bond Portfolio may also gain exposure to currencies through the use of cash and derivatives. The Emerging Markets Flexible Dynamic Bond Portfolio may also invest in Brady Bonds, fixed rate instruments, floating or variable rate instruments, convertible debt of eligible issuers, securities issued by supranational entities (such as the World Bank, Asian Development Bank and the Inter-American Development Bank) and credit linked notes. Loan participations, assignments, convertible bonds and mortgage or asset-backed securities are also permitted. The Emerging Markets Flexible Dynamic Bond Portfolio may also buy when-issued securities and participate in delayed delivery transactions. The management team may, when consistent with the Emerging Markets Flexible Dynamic Bond Portfolio’s investment goal, buy or sell options or futures, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The Emerging Markets Flexible Dynamic Bond Portfolio typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk.
The Emerging Markets Flexible Dynamic Bond Portfolio may also use derivatives to enhance returns, in which case their use would involve leveraging risk. The Emerging Markets Flexible Dynamic Bond Portfolio may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls).
The Emerging Markets Flexible Dynamic Bond Portfolio may invest up to 10% of its assets in equity securities.
The Emerging Markets Flexible Dynamic Bond Portfolio may engage in active and frequent trading of portfolio securities to achieve its primary investment strategies.
The Emerging Markets Flexible Dynamic Bond Portfolio is a non-diversified portfolio under the Investment Company Act.
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C. Regulation Regarding Derivatives.
The Commodity Futures Trading Commission (“CFTC”) subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by the investment adviser either (i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (“CFTC Derivatives”), or (ii) markets itself as providing investment exposure to such instruments.
Due to each Portfolio’s potential use of CFTC Derivatives above the prescribed levels, however, each Portfolio will be considered a “commodity pool” under the Commodity Exchange Act. Accordingly, BlackRock, each Portfolio’s investment adviser, has registered as a “commodity pool operator” and is subject to CFTC regulation in respect of each Portfolio.
II. Investment Restrictions
Each Portfolio has adopted restrictions and policies relating to the investment of each Portfolio’s assets and its activities. Certain of the restrictions are fundamental policies of a Portfolio and may not be changed without the approval of the holders of a majority of the Portfolio’s outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Each Portfolio has also adopted certain non-fundamental investment restrictions, which may be changed by the Board of Trustees without shareholder approval.
Under its fundamental investment restrictions, each Portfolio may not:
1. (For Strategic Income Opportunities Portfolio only) Purchase any securities which would cause 25% or more of the value of the Portfolio’s total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) the Portfolio may cause 25% or more of its total assets at the time of purchase to be invested in the securities of one or more investment companies; (b) there is no limitation with respect to (i) instruments issued or guaranteed by the United States and tax exempt instruments issued by any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions, and (ii) repurchase agreements secured by the instruments described in clause (i); (c) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (d) utilities will be divided according to their services; for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry.
For purposes of the concentration policy, the Portfolio will look through to the portfolio holdings of the underlying funds in which it invests and will aggregate the holdings of the underlying funds (on a pro rata basis based on the Portfolio’s investment in each underlying fund) to determine concentration in a particular industry in accordance with the concentration policy provided above. For the purposes of this policy, only those underlying funds that are part of the BlackRock family of funds will be aggregated; the Portfolio will not aggregate underlying fund holdings, if any, in underlying funds outside of the BlackRock family of funds.
(For Emerging Markets Flexible Dynamic Bond Portfolio only) Purchase any securities which would cause 25% or more of the value of the Portfolio’s total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to (i) instruments issued or guaranteed by the United States and tax exempt instruments issued by any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions, and (ii) repurchase agreements secured by the instruments described in clause (i); (b) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services; for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry.
2. Issue senior securities, borrow money or pledge its assets, except that a Portfolio may borrow from banks or enter into reverse repurchase agreements or dollar rolls in amounts aggregating not more than 33 13% of the value of its total assets (calculated when the loan is made) to take advantage of investment opportunities and may pledge up to 33 13% of the value of its total assets to secure such borrowings. Each Portfolio is also authorized to borrow an additional 5% of its total assets without regard to the foregoing limitations for temporary purposes such as clearance of portfolio transactions and share redemptions. For purposes of these restrictions, the purchase or sale of securities on a “when-issued,” delayed delivery or forward commitment basis, the purchase and sale of options and
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futures contracts and collateral arrangements with respect thereto are not deemed to be the issuance of a senior security, a borrowing or a pledge of assets.
3. Purchase or sell real estate, except that each Portfolio may purchase securities of issuers which deal in real estate and may purchase securities which are secured by interests in real estate.
4. Acquire any other investment company or investment company security except in connection with a merger, consolidation, reorganization or acquisition of assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the Securities Act of 1933 except to the extent that the purchase of obligations directly from the issuer thereof, or the disposition of securities, in accordance with the Portfolio’s investment objective, policies and limitations may be deemed to be underwriting.
6. (For Strategic Income Opportunities Portfolio only) Write or sell put options, call options, straddles, spreads, or any combination thereof, except for transactions in options on securities and securities indices, futures contracts and options on futures contracts and currencies, to the extent permitted by applicable law.
(For Emerging Markets Flexible Dynamic Bond Portfolio only) Write or sell put options, call options, straddles, spreads, or any combination thereof, except for transactions in options on securities and securities indices, futures contracts and options on futures contracts and currencies.
7. Purchase securities of companies for the purpose of exercising control.
8. (For Emerging Markets Flexible Dynamic Bond Portfolio only) Purchase securities on margin, make short sales of securities or maintain a short position, except that (a) this investment limitation shall not apply to the Portfolio’s transactions in futures contracts and related options or the Portfolio’s sale of securities short against the box, and (b) the Portfolio may obtain short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities.
9. Purchase or sell commodity contracts, or invest in oil, gas or mineral exploration or development programs, except that each Portfolio may, to the extent appropriate to its investment policies, purchase securities of companies engaging in whole or in part in such activities and may enter into futures contracts and related options.
10. Make loans, except that each Portfolio may purchase and hold debt instruments and enter into repurchase agreements in accordance with its investment objective and policies and may lend portfolio securities. See “Investment Policies Risks and Considerations — Securities Lending” in Part II of this Statement of Additional Information.
11. (For Strategic Income Opportunities Portfolio only) Purchase or sell commodities except that the Portfolio may, to the extent appropriate to its investment policies, purchase securities of companies engaging in whole or in part in such activities, may engage in currency transactions and may enter into futures contracts and related options, to the extent permitted by applicable law.
(For Emerging Markets Flexible Dynamic Bond Portfolio only) Purchase or sell commodities except that the Portfolio may, to the extent appropriate to its investment policies, purchase securities of companies engaging in whole or in part in such activities, may engage in currency transactions and may enter into futures contracts and related options.
Under its non-fundamental investment restrictions, which may be changed by the board without shareholder approval, each Portfolio may not:
(a) (For Strategic Income Opportunities Portfolio only) engage in short sales in excess of 15% of the market value of the Portfolio’s total assets. However, the Portfolio may make short sales of TBA mortgage-backed securities and may make short sales “against-the-box” without regard to this limitation.
(b) purchase securities of other investment companies, except to the extent permitted by the Investment Company Act. As a matter of policy, however, the Portfolio will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time the Portfolio has knowledge that its shares are purchased by another investment company investor in reliance on the provisions of subparagraph (G) of Section 12(d)(1).
Unless otherwise indicated, all limitations apply only at the time that a transaction is undertaken. Any change in the percentage of a Portfolio’s assets invested in certain securities or other instruments resulting from market fluctuations or other changes in the Portfolio’s total assets will not require the Portfolio to dispose of an investment
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until the Manager or sub-adviser determines that it is practicable to sell or close out the investment without undue market or tax consequences.
Notations Regarding the Fundamental Investment Restrictions
The following notations are not considered to be part of a Portfolio’s fundamental investment restrictions and are subject to change without shareholder approval.
With respect to the fundamental investment restriction on the purchase of securities which would cause 25% or more of the value of a Portfolio’s total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, as set forth in (1) above, each foreign government will be considered to be a separate industry.
While certain swaps are now considered commodity interests for purposes of the Commodity Exchange Act and the rules thereunder, at the time of each Portfolio’s adoption of fundamental investment restrictions no. 6, 9 and 11 above, many swaps were treated as securities for purposes of the Portfolio’s compliance with applicable law. Accordingly, fundamental investment restriction no. 6, which does not restrict transactions in options on securities and securities indices, and fundamental investment restrictions no. 9 and 11 are being interpreted to permit each Portfolio to engage in transactions in swaps and options on swaps, as applicable, related to financial instruments, such as securities, securities indices and currencies, but not to engage in transactions in swaps or options on swaps related to physical commodities, such as oil or metals.
The Subsidiary will follow the Strategic Income Opportunities Portfolio’s fundamental and non-fundamental investment restrictions, described above, with respect to its investments.
III. Information on Trustees and Officers
The Board consists of ten individuals (each a “Trustee”), eight of whom are not “interested persons” of the Trust as defined in the Investment Company Act (the “Independent Trustees”). The registered investment companies advised by the Manager or its affiliates (the “BlackRock-advised Funds”) are organized into one complex of closed-end funds and open-end non-index fixed-income funds (the “BlackRock Fixed-Income Complex”), one complex of open-end equity, multi-asset, index and money market funds (the “BlackRock Multi-Asset Complex”) and one complex of exchange-traded funds (each, a “BlackRock Fund Complex”). The Portfolios are included in the BlackRock Fund Complex referred to as the BlackRock Fixed-Income Complex. The Trustees also oversee as board members the operations of the other open-end and closed-end registered investment companies included in the BlackRock Fixed-Income Complex.
The Board has overall responsibility for the oversight of the Trust and the Portfolios. The Co-Chairs of the Board and the Chief Executive Officer are different people. Not only is each Co-Chair of the Board an Independent Trustee, but also the Chair of each Board committee (each, a “Committee”) is an Independent Trustee. The Board has five standing Committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Executive Committee. The role of each Co-Chair of the Board is to preside over all meetings of the Board and to act as a liaison with service providers, officers, attorneys, and other Trustees between meetings. The Chair of each Committee performs a similar role with respect to the Committee. The Co-Chairs of the Board or Chair of a Committee may also perform such other functions as may be delegated by the Board or the Committee from time to time. The Independent Trustees meet regularly outside the presence of the Portfolio’s management, in executive sessions or with other service providers to the Portfolios. The Board has regular meetings five times a year, including a meeting to consider the approval of the Portfolios’ investment management agreement, and, if necessary, may hold special meetings before its next regular meeting. Each Committee meets regularly to conduct the oversight functions delegated to that Committee by the Board and reports its findings to the Board. The Board and each standing Committee conduct annual assessments of their oversight function and structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise independent judgment over management and to allocate areas of responsibility among Committees and the Board to enhance oversight.
The Board decided to separate the roles of Chief Executive Officer from the Co-Chairs because it believes that having independent Co-Chairs:
increases the independent oversight of the Portfolios and enhances the Board’s objective evaluation of the Chief Executive Officer;
allows the Chief Executive Officer to focus on the Portfolios’ operations instead of Board administration;
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provides greater opportunities for direct and independent communication between shareholders and the Board; and
provides an independent spokesman for the Portfolios.
The Board has engaged the Manager to manage the Portfolios on a day-to-day basis. The Board is responsible for overseeing the Manager, sub-advisers, other service providers, the operations of the Portfolios and associated risks in accordance with the provisions of the Investment Company Act, state law, other applicable laws, the Portfolios’ charter, and the Portfolios’ investment objective and strategies. The Board reviews, on an ongoing basis, the Portfolios’ performance, operations, and investment strategies and techniques. The Board also conducts reviews of the Manager and its role in running the operations of the Portfolios.
Day-to-day risk management with respect to the Portfolios is the responsibility of the Manager, sub-advisers or other service providers (depending on the nature of the risk), subject to the supervision of the Manager. The Portfolios are subject to a number of risks, including investment, compliance, operational and valuation risks, among others. While there are a number of risk management functions performed by the Manager, sub-advisers or other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Portfolios. Risk oversight is part of the Board’s general oversight of the Portfolios and is addressed as part of various Board and Committee activities. The Board, directly or through Committees, also reviews reports from, among others, management, the independent registered public accounting firm for the Portfolios, the Manager, sub-advisers and internal auditors for the Manager or its affiliates, as appropriate, regarding risks faced by the Portfolios and management’s or the service provider’s risk functions. The Committee system facilitates the timely and efficient consideration of matters by the Trustees and facilitates effective oversight of compliance with legal and regulatory requirements and of the Portfolios’ activities and associated risks. The Board has approved the appointment of a Chief Compliance Officer (“CCO”), who oversees the implementation and testing of the Portfolios’ compliance program and reports regularly to the Board regarding compliance matters for the Portfolios and its service providers. The Independent Trustees have engaged independent legal counsel to assist them in performing their oversight responsibilities.
Audit Committee. The Board has a standing Audit Committee composed of Michael J. Castellano (Chair), Frank J. Fabozzi, Catherine A. Lynch and Karen P. Robards, all of whom are Independent Trustees. The principal responsibilities of the Audit Committee are to assist the Board in fulfilling its oversight responsibilities relating to the accounting and financial reporting policies and practices of the Portfolios. The Audit Committee’s responsibilities include, without limitation: (i) approving, and recommending to the full Board for approval, the selection, retention, termination and compensation of the Portfolios’ independent registered public accounting firm (the “Independent Registered Public Accounting Firm”) and evaluating the independence and objectivity of the Independent Registered Public Accounting Firm; (ii) approving all audit engagement terms and fees for the Portfolios; (iii) reviewing the conduct and results of each audit; (iv) reviewing any issues raised by the Portfolios’ Independent Registered Public Accounting Firm or management regarding the accounting or financial reporting policies and practices of the Portfolios, and the internal controls, and, as appropriate, the internal controls of certain service providers and management’s response to any such issues; (v) reviewing and discussing the Portfolios’ audited and unaudited financial statements and disclosure in the Portfolios’ shareholder reports relating to the Portfolios’ performance; (vi) assisting the Board’s responsibilities with respect to the internal controls of the Portfolios and and the service providers with respect to accounting and financial matters; and (vii) resolving any disagreements between the Portfolios’ management and the Portfolios’ Independent Registered Public Accounting Firm regarding financial reporting. The Board has adopted a written charter for the Board’s Audit Committee. During the fiscal year ended December 31, 2020, the Audit Committee met 12 times.
Governance and Nominating Committee. The Board has a standing Governance and Nominating Committee composed of R. Glenn Hubbard (Chair), Michael J. Castellano, Richard E. Cavanagh, Cynthia L. Egan and Karen P. Robards, all of whom are Independent Trustees. The principal responsibilities of the Governance and Nominating Committee are: (i) identifying individuals qualified to serve as Independent Trustees and recommending Board nominees that are not “interested persons” of the Portfolios (as defined in the Investment Company Act) for election by shareholders or appointment by the Board; (ii) advising the Board with respect to Board composition, procedures and Committees of the Board (other than the Audit Committee); (iii) overseeing periodic self-assessments of the Board and Committees of the Board (other than the Audit Committee); (iv) reviewing and making recommendations in respect to Independent Trustee compensation; (v) monitoring corporate governance matters and making recommendations in respect thereof to the Board; (vi) acting as the administrative committee with respect to Board policies and procedures, committee policies and procedures (other than the Audit Committee) and codes of ethics as they relate to the Independent Trustees; and (vii) reviewing and making recommendations to the Board in respect of Portfolio share ownership by the Independent Trustees. The Board has adopted a written charter for the Board’s
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Governance and Nominating Committee. During the fiscal year ended December 31, 2020, the Governance and Nominating Committee met 4 times.
The Governance and Nominating Committee of the Board seeks to identify individuals to serve on the Board who have a diverse range of viewpoints, qualifications, experiences, backgrounds and skill sets so that the Board will be better suited to fulfill its responsibility of overseeing the Portfolios’ activities. In so doing, the Governance and Nominating Committee reviews the size of the Board, the ages of the current Trustees and their tenure on the Board, and the skills, background and experiences of the Trustees in light of the issues facing the Portfolios in determining whether one or more new trustees should be added to the Board. The Board as a group strives to achieve diversity in terms of gender, race and geographic location. The Governance and Nominating Committee believes that the Trustees as a group possess the array of skills, experiences and backgrounds necessary to guide the Portfolios. The Trustees’ biographies included herein highlight the diversity and breadth of skills, qualifications and expertise that the Trustees bring to the Portfolios.
Compliance Committee. The Board has a Compliance Committee composed of Cynthia L. Egan (Chair), Richard E. Cavanagh, R. Glenn Hubbard and W. Carl Kester, all of whom are Independent Trustees. The Compliance Committee’s purpose is to assist the Board in fulfilling its responsibility with respect to the oversight of regulatory and fiduciary compliance matters involving the Portfolios, the fund-related activities of BlackRock, and any sub-advisers and the Portfolios’ other third party service providers. The Compliance Committee’s responsibilities include, without limitation: (i) overseeing the compliance policies and procedures of the Portfolios and its service providers and recommending changes or additions to such policies and procedures; (ii) reviewing information on and, where appropriate, recommending policies concerning the Portfolios’ compliance with applicable law; (iii) reviewing information on any significant correspondence with or other actions by regulators or governmental agencies with respect to the Portfolios and any employee complaints or published reports that raise concerns regarding compliance matters; and (iv) reviewing reports from, overseeing the annual performance review of, and making certain recommendations in respect of, each Portfolio’s CCO, including, without limitation, determining the amount and structure of the CCO’s compensation. The Board has adopted a written charter for the Board’s Compliance Committee. During the fiscal year ended December 31, 2020, the Compliance Committee met 4 times.
Performance Oversight Committee. The Board has a Performance Oversight Committee composed of Frank J. Fabozzi (Chair), Michael J. Castellano, Richard E. Cavanagh, Cynthia L. Egan, R. Glenn Hubbard, W. Carl Kester, Catherine A. Lynch and Karen P. Robards, all of whom are Independent Trustees. The Performance Oversight Committee’s purpose is to assist the Board in fulfilling its responsibility to oversee the Portfolios’ investment performance relative to the Portfolios’ investment objective, policies and practices. The Performance Oversight Committee’s responsibilities include, without limitation: (i) reviewing the Portfolios’ investment objective, policies and practices; (ii) recommending to the Board any required action in respect of changes in fundamental and non-fundamental investment restrictions; (iii) reviewing information on appropriate benchmarks and competitive universes; (iv) reviewing the Portfolios’ investment performance relative to such benchmarks; (v) reviewing information on unusual or exceptional investment matters; (vi) reviewing whether the Portfolios have complied with its investment policies and restrictions; and (vii) overseeing policies, procedures and controls regarding valuation of the Portfolios’ investments. The Board has adopted a written charter for the Board’s Performance Oversight Committee. During the fiscal year ended December 31, 2020, the Performance Oversight Committee met 4 times.
Executive Committee. The Board has an Executive Committee composed of Richard E. Cavanagh (Chair) and Karen P. Robards, both of whom are Independent Trustees, and John M. Perlowski, who serves as an interested Trustee. The principal responsibilities of the Executive Committee include, without limitation: (i) acting on routine matters between meetings of the Board; (ii) acting on such matters as may require urgent action between meetings of the Board; and (iii) exercising such other authority as may from time to time be delegated to the Executive Committee by the Board. The Board has adopted a written charter for the Board’s Executive Committee. During the fiscal year ended December 31, 2020, the Executive Committee did not meet.
The Independent Trustees have adopted a statement of policy that describes the experiences, qualifications, skills and attributes that are necessary and desirable for potential Independent Trustee candidates (the “Statement of Policy”). The Board believes that each Independent Trustee satisfied, at the time he or she was initially elected or appointed a Trustee, and continues to satisfy, the standards contemplated by the Statement of Policy as well as the standards set forth in the Trust’s Bylaws. Furthermore, in determining that a particular Trustee was and continues to be qualified to serve as a Trustee, the Board has considered a variety of criteria, none of which, in isolation, was controlling. The Board believes that, collectively, the Trustees have balanced and diverse experiences, skills, attributes and qualifications, which allow the Board to operate effectively in governing the Portfolios and protecting the interests of shareholders. Among the attributes common to all Trustees is their ability to review critically,
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evaluate, question and discuss information provided to them, to interact effectively with the Manager, sub-advisers, other service providers, counsel and independent auditors, and to exercise effective business judgment in the performance of their duties as Trustees. Each Trustee’s ability to perform his or her duties effectively is evidenced by his or her educational background or professional training; business, consulting, public service or academic positions; experience from service as a board member of the Trust or the other funds in the BlackRock Fund Complexes (and any predecessor funds), other investment funds, public companies, or not-for-profit entities or other organizations; ongoing commitment and participation in Board and Committee meetings, as well as his or her leadership of standing and other committees throughout the years; or other relevant life experiences.
The table below discusses some of the experiences, qualifications and skills of each Trustee that support the conclusion that he or she should serve on the Board.
Trustees   Experience, Qualifications and Skills
Independent Trustees    
Richard E. Cavanagh   Richard E. Cavanagh brings to the Board a wealth of practical business knowledge and leadership as an experienced director/trustee of various public and private companies. In particular, because Mr. Cavanagh served for over a decade as President and Chief Executive Officer of The Conference Board, Inc., a global business research organization, he is able to provide the Board with expertise about business and economic trends and governance practices. Mr. Cavanagh created the “blue ribbon” Commission on Public Trust and Private Enterprise in 2002, which recommended corporate governance enhancements. Mr. Cavanagh’s service as a director of The Guardian Life Insurance Company of America and as a senior advisor and director of The Fremont Group provides added insight into investment trends and conditions. Mr. Cavanagh’s long-standing service as a director/trustee/chair of the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Portfolios, their operations, and the business and regulatory issues facing the Portfolios. Mr. Cavanagh is also an experienced board leader, having served as the lead independent director of a NYSE public company (Arch Chemicals) and as the Board Chairman of the Educational Testing Service. Mr. Cavanagh’s independence from the Trust and the Manager enhances his service as Co-Chair of the Board, Chair of the Executive Committee, and a member of the Compliance Committee, the Governance and Nominating Committee and the Performance Oversight Committee.
Karen P. Robards   The Board benefits from Karen P. Robards’s many years of experience in investment banking and the financial advisory industry where she obtained extensive knowledge of the capital markets and advised clients on corporate finance transactions, including mergers and acquisitions and the issuance of debt and equity securities. Ms. Robards’s prior position as an investment banker at Morgan Stanley provides useful oversight of the Portfolios’ investment decisions and investment valuation processes. Additionally, Ms. Robards’s experience as a director of publicly held and private companies allows her to provide the Board with insight into the management and governance practices of other companies. Ms. Robards’s long-standing service on the boards of directors/trustees of closed-end funds in the BlackRock Fixed-Income Complex also provides her with a specific understanding of the Portfolios, their operations, and the business and regulatory issues facing the Portfolios. Ms. Robards’s knowledge of financial and accounting matters qualifies her to serve as Co-Chair of the Board and a member of the Audit Committee. Ms. Robards’s independence from the Portfolios and the Manager enhances her service as a member of the Governance and Nominating Committee, the Performance Oversight Committee and the Executive Committee.
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Trustees   Experience, Qualifications and Skills
Michael J. Castellano   The Board benefits from Michael J. Castellano’s career in accounting which spans over forty years. Mr. Castellano has served as Chief Financial Officer of Lazard Ltd. and as a Managing Director and Chief Financial Officer of Lazard Group. Prior to joining Lazard, Mr. Castellano held various senior management positions at Merrill Lynch & Co., including Senior Vice President — Chief Control Officer for Merrill Lynch’s capital markets businesses, Chairman of Merrill Lynch International Bank and Senior Vice President — Corporate Controller. Prior to joining Merrill Lynch & Co., Mr. Castellano was a partner with Deloitte & Touche where he served a number of investment banking clients over the course of his 24 years with the firm. Mr. Castellano currently serves as a director for CircleBlack Inc. Mr. Castellano’s knowledge of financial and accounting matters qualifies him to serve as Chair of the Audit Committee. Mr. Castellano’s independence from the Portfolios and the Manager enhances his service as a member of the Governance and Nominating Committee and the Performance Oversight Committee.
Cynthia L. Egan   Cynthia L. Egan brings to the Board a broad and diverse knowledge of investment companies and the retirement industry as a result of her many years of experience as President, Retirement Plan Services, for T. Rowe Price Group, Inc. and her various senior operating officer positions at Fidelity Investments, including her service as Executive Vice President of FMR Co., President of Fidelity Institutional Services Company and President of the Fidelity Charitable Gift Fund. Ms. Egan has also served as an advisor to the U.S. Department of Treasury as an expert in domestic retirement security. Ms. Egan began her professional career at the Board of Governors of the Federal Reserve and the Federal Reserve Bank of New York. Ms. Egan is also a director of UNUM Corporation, a publicly traded insurance company providing personal risk reinsurance, and of The Hanover Group, a public property casualty insurance company. Ms. Egan’s independence from the Portfolios and the Manager enhances her service as Chair of the Compliance Committee, and a member of the Governance and Nominating Committee and the Performance Oversight Committee.
Frank J. Fabozzi   Frank J. Fabozzi has served for over 25 years on the boards of registered investment companies. Dr. Fabozzi holds the designations of Chartered Financial Analyst and Certified Public Accountant. Dr. Fabozzi was inducted into the Fixed Income Analysts Society’s Hall of Fame and is the 2007 recipient of the C. Stewart Sheppard Award and the 2015 recipient of the James R. Vertin Award, both given by the CFA Institute. The Board benefits from Dr. Fabozzi’s experiences as a professor and author in the field of finance. Dr. Fabozzi’s experience as a professor at various institutions, including EDHEC Business School, Yale, MIT, and Princeton, as well as Dr. Fabozzi’s experience as a Professor in the Practice of Finance and Becton Fellow at the Yale University School of Management and as editor of the Journal of Portfolio Management demonstrates his wealth of expertise in the investment management and structured finance areas. Dr. Fabozzi has authored and edited numerous books and research papers on topics in investment management and financial econometrics, and his writings have focused on fixed income securities and portfolio management, many of which are considered standard references in the investment management industry. Dr. Fabozzi’s long-standing service on the boards of directors/trustees of the closed-end funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Portfolios, their operations and the business and regulatory issues facing the Portfolios. Moreover, Dr. Fabozzi’s knowledge of financial and accounting matters qualifies him to serve as a member of the Audit Committee. Dr. Fabozzi’s independence from the Portfolios and the Manager enhances his service as Chair of the Performance Oversight Committee.
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Trustees   Experience, Qualifications and Skills
R. Glenn Hubbard   R. Glenn Hubbard has served in numerous roles in the field of economics, including as the Chairman of the U.S. Council of Economic Advisers of the President of the United States. Dr. Hubbard has served as the Dean of Columbia Business School, as a member of the Columbia Faculty and as a Visiting Professor at the John F. Kennedy School of Government at Harvard University, the Harvard Business School and the University of Chicago. Dr. Hubbard’s experience as an adviser to the President of the United States adds a dimension of balance to the Portfolios’ governance and provides perspective on economic issues. Dr. Hubbard’s service on the boards of ADP and Metropolitan Life Insurance Company provides the Board with the benefit of his experience with the management practices of other financial companies. Dr. Hubbard’s long-standing service on the boards of directors/trustees of the closed-end funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Portfolios, their operations, and the business and regulatory issues facing the Portfolios. Dr. Hubbard’s independence from the Portfolios and the Manager enhances his service as Chair of the Governance and Nominating Committee and a member of the Compliance Committee and the Performance Oversight Committee.
W. Carl Kester   The Board benefits from W. Carl Kester’s experiences as a professor and author in finance, and his experience as the George Fisher Baker Jr. Professor of Business Administration at Harvard Business School and as Deputy Dean of Academic Affairs at Harvard Business School from 2006 through 2010 adds to the Board a wealth of expertise in corporate finance and corporate governance. Dr. Kester has authored and edited numerous books and research papers on both subject matters, including co-editing a leading volume of finance case studies used worldwide. Dr. Kester’s long-standing service on the boards of directors/trustees of the closed-end funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Portfolios, their operations, and the business and regulatory issues facing the Portfolios. Dr. Kester’s independence from the Portfolios and the Manager enhances his service as a member of the Compliance Committee and the Performance Oversight Committee.
Catherine A. Lynch   Catherine A. Lynch, who served as the Chief Executive Officer and Chief Investment Officer of the National Railroad Retirement Investment Trust, benefits the Board by providing business leadership and experience and a diverse knowledge of pensions and endowments. Ms. Lynch also holds the designation of Chartered Financial Analyst. Ms. Lynch’s knowledge of financial and accounting matters qualifies her to serve as a member of the Audit Committee. Ms. Lynch’s independence from the Portfolios and the Manager enhances her service as a member of the Performance Oversight Committee.
Interested Trustees    
Robert Fairbairn   Robert Fairbairn has more than 25 years of experience with BlackRock, Inc. and over 30 years of experience in finance and asset management. In particular, Mr. Fairbairn’s positions as Vice Chairman of BlackRock, Inc., Member of BlackRock’s Global Executive and Global Operating Committees and Co-Chair of BlackRock’s Human Capital Committee provide the Board with a wealth of practical business knowledge and leadership. In addition, Mr. Fairbairn has global investment management and oversight experience through his former positions as Global Head of BlackRock’s Retail and iShares® businesses, Head of BlackRock’s Global Client Group, Chairman of BlackRock’s international businesses and his previous oversight over BlackRock’s Strategic Partner Program and Strategic Product Management Group. Mr. Fairbairn also serves as a board member for the funds in the BlackRock Multi-Asset Complex.
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Trustees   Experience, Qualifications and Skills
John M. Perlowski   John M. Perlowski’s experience as Managing Director of BlackRock, Inc. since 2009, as the Head of BlackRock Global Accounting and Product Services since 2009, and as President and Chief Executive Officer of the Portfolios provides him with a strong understanding of the Portfolios, their operations, and the business and regulatory issues facing the Portfolios. Mr. Perlowski’s prior position as Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, and his former service as Treasurer and Senior Vice President of the Goldman Sachs Mutual Funds and as Director of the Goldman Sachs Offshore Funds provides the Board with the benefit of his experience with the management practices of other financial companies. Mr. Perlowski also serves as a board member for the funds in the BlackRock Multi-Asset Complex. Mr. Perlowski’s experience with BlackRock enhances his service as a member of the Executive Committee.
  
Biographical Information
Certain biographical and other information relating to the Trustees is set forth below, including their address and year of birth, principal occupations for at least the last five years, length of time served, total number of registered investment companies and investment portfolios overseen in the BlackRock-advised Funds and any currently held public company and other investment company directorships.
Name
and Year of Birth1,2
  Position(s)
Held
(Length of Service)3
  Principal Occupation(s)
During Past Five Years
  Number of
BlackRock-
Advised
Registered
Investment
Companies
(“RICs”)
Consisting of
Investment
Portfolios
(“Portfolios”)
Overseen
  Public
Company
and Other
Investment
Company
Directorships
Held During
Past Five Years
Independent Trustees                
Richard E. Cavanagh
1946
  Co-Chair of the Board
and Trustee
(Since 2019)
  Director, The Guardian Life Insurance Company of America since 1998; Board Chair, Volunteers of America (a not-for-profit organization) from 2015 to 2018 (board member since 2009); Director, Arch Chemicals (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007 and Executive Dean from 1987 to 1995; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007.   73 RICs consisting of 98 Portfolios   None
Karen P. Robards
1950
  Co-Chair of the Board
and Trustee
(Since 2019)
  Principal of Robards & Company, LLC (consulting and private investing) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Injections, LLC (medical devices) since 2019; Investment Banker at Morgan Stanley from 1976 to 1987.   73 RICs consisting of 98 Portfolios   Greenhill & Co., Inc.; AtriCure, Inc. (medical devices) from 2000 until 2017
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Name
and Year of Birth1,2
  Position(s)
Held
(Length of Service)3
  Principal Occupation(s)
During Past Five Years
  Number of
BlackRock-
Advised
Registered
Investment
Companies
(“RICs”)
Consisting of
Investment
Portfolios
(“Portfolios”)
Overseen
  Public
Company
and Other
Investment
Company
Directorships
Held During
Past Five Years
Michael J. Castellano
1946
  Trustee
(Since 2019)
  Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015 and from 2017 to September 2020; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) from 2015 to July 2020.   73 RICs consisting of 98 Portfolios   None
Cynthia L. Egan
1955
  Trustee
(Since 2019)
  Advisor, U.S. Department of the Treasury from 2014 to 2015; President, Retirement Plan Services, for T. Rowe Price Group, Inc. from 2007 to 2012; executive positions within Fidelity Investments from 1989 to 2007.   73 RICs consisting of 98 Portfolios   Unum (insurance); The Hanover Insurance Group (Board Chair) (insurance); Huntsman Corporation (chemical products); Envestnet (investment platform) from 2013 until 2016
Frank J. Fabozzi4
1948
  Trustee
(Since 2019)
  Editor of The Journal of Portfolio Management since 1986; Professor of Finance, EDHEC Business School (France) since 2011; Visiting Professor, Princeton University for the 2013 to 2014 academic year and Spring 2017 semester; Professor in the Practice of Finance, Yale University School of Management from 1994 to 2011 and currently a Teaching Fellow in Yale’s Executive Programs; Board Member, BlackRock Equity-Liquidity Funds from 2014 to 2016; affiliated professor Karlsruhe Institute of Technology from 2008 to 2011; Visiting Professor, Rutgers University for the Spring 2019 semester; Visiting Professor, New York University for the 2019 academic year; Adjunct Professor of Finance, Carnegie Mellon University in fall 2020 semester.   75 RICs consisting of 100 Portfolios   None
R. Glenn Hubbard
1958
  Trustee
(Since 2019)
  Dean, Columbia Business School from 2004 to 2019; Faculty member, Columbia Business School since 1988.   73 RICs consisting of 98 Portfolios   ADP (data and information services) from 2004 to 2020; Metropolitan Life Insurance Company (insurance); KKR Financial Corporation (finance) from 2004 until 2014
W. Carl Kester4
1951
  Trustee
(Since 2019)
  George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008; Deputy Dean for Academic Affairs from 2006 to 2010; Chairman of the Finance Unit, from 2005 to 2006; Senior Associate Dean and Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981.   75 RICs consisting of 100 Portfolios   None
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Name
and Year of Birth1,2
  Position(s)
Held
(Length of Service)3
  Principal Occupation(s)
During Past Five Years
  Number of
BlackRock-
Advised
Registered
Investment
Companies
(“RICs”)
Consisting of
Investment
Portfolios
(“Portfolios”)
Overseen
  Public
Company
and Other
Investment
Company
Directorships
Held During
Past Five Years
Catherine A. Lynch4
1961
  Trustee
(Since 2019)
  Chief Executive Officer, Chief Investment Officer and various other positions, National Railroad Retirement Investment Trust from 2003 to 2016; Associate Vice President for Treasury Management, The George Washington University from 1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.   75 RICs consisting of 100 Portfolios   None
Interested Trustees5                
Robert Fairbairn
1965
  Trustee
(Since 2015)
  Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s Global Executive and Global Operating Committees; Co-Chair of BlackRock’s Human Capital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRock’s Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retail and iShares® businesses from 2012 to 2016.   103 RICs consisting of 250 Portfolios   None
John M. Perlowski4
1964
  Trustee
(Since 2015)

President
and Chief
Executive
Officer
(Since 2010)
  Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009.   105 RICs consisting of 252 Portfolios   None
  

1 The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.
2 Each Independent Trustee holds office until his or her successor is duly elected and qualifies or until his or her earlier death, resignation, retirement or removal as provided by the Trust’s by-laws or charter or statute, or until December 31 of the year in which he or she turns 75. Trustees who are “interested persons,” as defined in the Investment Company Act, serve until their successor is duly elected and qualifies or until their earlier death, resignation, retirement or removal as provided by the Trust’s by-laws or statute, or until December 31 of the year in which they turn 72. The Board may determine to extend the terms of Independent Trustees on a case-by-case basis, as appropriate.
3 Length of service includes service as a trustee of the Predecessor Trust, as applicable. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. Certain Independent Trustees first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; R. Glenn Hubbard, 2004; W. Carl Kester, 1995; and Karen P. Robards, 1998. Certain other Independent Trustees became members of the boards of the closed-end funds in the BlackRock Fixed-Income Complex as follows: Michael J. Castellano, 2011; Cynthia L. Egan, 2016; and Catherine A. Lynch, 2016.
4 Dr. Fabozzi, Dr. Kester, Ms. Lynch and Mr. Perlowski are also trustees of the BlackRock Credit Strategies Fund and BlackRock Private Investments Fund.
5 Mr. Fairbairn and Mr. Perlowski are both “interested persons,” as defined in the Investment Company Act, of the Trust based on their positions with BlackRock, Inc. and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the BlackRock Multi-Asset Complex.
Certain biographical and other information relating to the officers of the Trust who are not Trustees is set forth below, including their address and year of birth, principal occupations for at least the last five years and length of time served.
Name
and Year of Birth1,2
  Position(s) Held
(Length of Service)3
  Principal Occupation(s)
During Past Five Years
Officers Who Are Not Trustees        
Jennifer McGovern
1977
  Vice President
(Since 2014)
  Managing Director of BlackRock, Inc. since 2016; Director of BlackRock, Inc. from 2011 to 2015; Head of Americas Product Development and Governance for BlackRock’s Global Product Group since 2019; Head of Product Structure and Oversight for BlackRock’s U.S. Wealth Advisory Group from 2013 to 2019.
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Name
and Year of Birth1,2
  Position(s) Held
(Length of Service)3
  Principal Occupation(s)
During Past Five Years
Trent Walker
1974
  Chief
Financial
Officer
(Since 2021)
  Managing Director of BlackRock, Inc. since September 2019; Executive Vice President of PIMCO from 2016 to 2019; Senior Vice President of PIMCO from 2008 to 2015; Treasurer from 2013 to 2019 and Assistant Treasurer from 2007 to 2017 of PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series, PIMCO Equity Series VIT, PIMCO Managed Accounts Trust, 2 PIMCO-sponsored interval funds and 21 PIMCO-sponsored closed-end funds.
Jay M. Fife
1970
  Treasurer
(Since 2007)
  Managing Director of BlackRock, Inc. since 2007.
Charles Park
1967
  Chief Compliance Officer (Since 2014)   Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012.
Lisa Belle
1968
  Anti-Money Laundering Compliance Officer
(Since 2019)
  Managing Director of BlackRock, Inc. since 2019; Global Financial Crime Head for Asset and Wealth Management of JP Morgan from 2013 to 2019; Managing Director of RBS Securities from 2012 to 2013; Head of Financial Crimes for Barclays Wealth Americas from 2010 to 2012.
Janey Ahn
1975
  Secretary
(Since 2019)
  Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017.
  

1 The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.
2 Officers of the Trust serve at the pleasure of the Board.
3 Length of service includes service in such capacity for the Predecessor Trust.
Share Ownership
Information relating to each Trustee’s share ownership in the Portfolios and in all BlackRock-advised Funds that are currently overseen by the respective Trustee (“Supervised Funds”) as of December 31, 2020 is set forth in the chart below.
Name   Dollar Range of
Equity Securities
in the Strategic
Income
Opportunities
Portfolio
  Dollar Range of
Equity Securities
in the Emerging
Market Flexible
Dynamic Bond
Portfolio
  Aggregate Dollar
Range of Equity
Securities in
Supervised Funds*
Independent Trustees:            
Michael J. Castellano

  $10,001-$50,000   None   Over $100,000
Richard E. Cavanagh

  $10,001-$50,000   None   Over $100,000
Cynthia L. Egan

  None   None   Over $100,000
Frank J. Fabozzi

  $10,001-$50,000   None   Over $100,000
R. Glenn Hubbard

  $50,001-$100,000   None   Over $100,000
W. Carl Kester

  $10,001-$50,000   None   Over $100,000
Catherine A. Lynch

  $10,001-$50,000   None   Over $100,000
Karen P. Robards

  $1-$10,000   None   Over $100,000
             
Interested Trustees:            
Robert Fairbairn

  $10,001-$50,000   None   Over $100,000
John M. Perlowski

  $10,001-$50,000   None   Over $100,000
  

* Includes share equivalents owned under the deferred compensation plan in the Supervised Funds by certain Independent Trustees who have participated in the deferred compensation plan of the Supervised Funds.
As of April 5, 2021, the Trustees and officers of the Trust as a group owned an aggregate of less than 1% of any class of the outstanding shares of the Portfolios. As of December 31, 2020, none of the Independent Trustees of the Trust or their immediate family members owned beneficially or of record any securities of the Portfolios’ investment
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adviser, sub-advisers, principal underwriter, or any person directly or indirectly controlling, controlled by, or under common control with such entities.
Compensation of Trustees
Effective January 1, 2021, each Trustee who is an Independent Trustee is paid an annual retainer of $370,000 per year for his or her services as a Board member of the BlackRock-advised Funds, including the Portfolios, and each Independent Trustee may also receive a $10,000 Board meeting fee for special unscheduled meetings or meetings in excess of six Board meetings held in a calendar year, together with out-of-pocket expenses in accordance with a Board policy on travel and other business expenses relating to attendance at meetings. In addition, each Co-Chair of the Board is paid an additional annual retainer of $100,000. The Chairs of the Audit Committee, Performance Oversight Committee, Compliance Committee, and Governance and Nominating Committee are paid an additional annual retainer of $45,000, $37,500, $45,000 and $37,500, respectively. Each of the members of the Audit Committee and Compliance Committee are paid an additional annual retainer of $30,000 and $25,000, respectively, for his or her service on such committee. The Portfolios will pay a pro rata portion quarterly (based on relative net assets) of the foregoing Trustee fees paid by the funds in the BlackRock Fixed-Income Complex.
The Independent Trustees have agreed that a maximum of 50% of each Independent Trustee’s total compensation paid by funds in the BlackRock Fixed-Income Complex may be deferred pursuant to the BlackRock Fixed-Income Complex’s deferred compensation plan. Under the deferred compensation plan, deferred amounts earn a return for the Independent Trustees as though equivalent dollar amounts had been invested in shares of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Trustees. This has approximately the same economic effect for the Independent Trustees as if they had invested the deferred amounts in such funds in the BlackRock Fixed-Income Complex. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of a fund and are recorded as a liability for accounting purposes.
Prior to January 1, 2021, each Trustee who was an Independent Trustee was paid an annual retainer of $330,000 per year for his or her services as a Board member of the BlackRock-advised Funds, including the Fund. The Chairs of the Performance Oversight Committee and Governance and Nominating Committee were paid an additional annual retainer of $30,000 and $20,000, respectively.
The following table sets forth the compensation paid to the Trustees by the Trust, on behalf of the Portfolios for the fiscal year ended December 31, 2020, and the aggregate compensation, including deferred compensation amounts, paid to them by all BlackRock-advised Funds for the calendar year ended December 31, 2020.
Name1   Compensation
from Strategic
Income Opportunities
Portfolio
  Compensation
from Emerging
Markets Flexible
Dynamic Bond
Portfolio
  Estimated Annual
Benefits upon
Retirement
  Aggregate
Compensation from
the Portfolio and
Other BlackRock-
Advised Funds2,3
Independent Trustees:                
Michael J. Castellano

  $32,580   $286   None   $405,000
Richard E. Cavanagh

  $36,786   $299   None   $455,000
Cynthia L. Egan

  $32,160   $284   None   $400,000
Frank J. Fabozzi

  $31,319   $282   None   $420,000
Henry Gabbay4

  $7,613   $65   None   $90,000
R. Glenn Hubbard

  $30,057   $278   None   $375,000
W. Carl Kester

  $28,375   $272   None   $385,000
Catherine A. Lynch

  $28,795   $274   None   $390,000
Karen P. Robards

  $37,206   $301   None   $460,000
Interested Trustees:                
Robert Fairbairn

  None   None   None   None
John M. Perlowski

  None   None   None   None
  

1 For the number of BlackRock-advised Funds from which each Trustee receives compensation see the Biographical Information Chart beginning on page I-18.
2 For the Independent Trustees, this amount represents the aggregate compensation earned from the funds in the BlackRock Fixed-Income Complex during the calendar year ended December 31, 2020. Of this amount, Mr. Castellano, Mr. Cavanagh, Dr. Fabozzi, Dr. Hubbard, Dr. Kester, Ms. Lynch and Ms. Robards deferred $121,500, $150,150, $84,000, $187,500, $50,000, $58,500, and $23,000, respectively, pursuant to the BlackRock Fixed-Income Complex’s deferred compensation plan. Ms. Egan and Mr. Gabbay did not participate in the deferred compensation plan as of December 31, 2020.
3 Total amount of deferred compensation payable by the BlackRock Fixed-Income Complex to Mr. Castellano, Mr. Cavanagh, Dr. Fabozzi, Dr.
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  Hubbard, Dr. Kester, Ms. Lynch and Ms. Robards is $1,219,536, $1,833,807, $1,005,663, $2,999,679, $1,481,108, $283,963 and $1,068,129, respectively, as of December 31, 2020. Ms. Egan and Mr. Gabbay did not participate in the deferred compensation plan as of December 31, 2020.
4 Mr. Gabbay resigned as a Trustee of the Trust effective February 19, 2020.
IV. Management, Advisory and Other Service Arrangements
The Trust, on behalf of each Portfolio, has entered into an investment advisory agreement with the Manager (the “Management Agreement”), pursuant to which the Manager receives as compensation for its services to each Portfolio, a fee with respect to each Portfolio at the end of each month at the rates described below.
ANNUAL CONTRACTUAL FEE RATE
FOR THE PORTFOLIOS (BEFORE WAIVERS)
The annual management fees payable to BlackRock (as a percentage of average daily net assets other than net assets attributable to investments in Underlying Funds (as defined in the Prospectuses of the Strategic Income Opportunities Portfolio)) for the Strategic Income Opportunities Portfolio are calculated as follows:
Average Daily Net Assets   Strategic Income Opportunities Portfolio Management Fee
Not exceeding $1 billion

  0.550%
In excess of $1 billion but not more than $2 billion

  0.500%
In excess of $2 billion but not more than $3 billion

  0.475%
In excess of $3 billion but not more than $35 billion

  0.450%
In excess of $35 billion

  0.430%
  
    
Average Daily Net Assets   Emerging Markets Flexible Dynamic Bond Portfolio Management Fee
Not exceeding $1 billion

  0.600%
In excess of $1 billion but not more than $2 billion

  0.550%
In excess of $2 billion but not more than $3 billion

  0.525%
In excess of $3 billion

  0.500%
  
Effective April 29, 2020, BlackRock has contractually agreed to waive its management fees by the amount of investment advisory fees each Portfolio pays to BlackRock indirectly through its investment in money market funds managed by BlackRock or its affiliates, through June 30, 2023. Prior to April 29, 2020, such agreement to waive a portion of each Portfolio’s management fee in connection with the Portfolio’s investment in affiliated money market funds was voluntary. The contractual agreements 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 Portfolio.
The Manager has contractually agreed to waive the management fee with respect to any portion of Strategic Income Opportunities Portfolio’s assets estimated to be attributable to investments in other equity and fixed-income exchange-traded funds managed by the Manager or its affiliates that have a contractual management fee, through June 30, 2023. This 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 the Portfolio.
The Manager has contractually agreed to waive and/or reimburse fees or expenses of the Strategic Income Opportunities Portfolio in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses (as defined in the Portfolio’s Prospectuses)) as a percentage of average daily net assets to 0.90% for Investor A Shares, 1.65% for Investor C Shares and 0.65% for Institutional Shares of the Portfolio through June 30, 2023. This 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 the Portfolio.
The Manager has contractually agreed to waive the management fee with respect to any portion of the Emerging Market Flexible Dynamic Bond Portfolio’s assets estimated to be attributable to investments in other equity and fixed-income mutual funds and exchange-traded funds managed by the Manager or its affiliates that have a contractual management fee, through June 30, 2023. 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 the Emerging Markets Flexible Dynamic Bond Portfolio.
The Manager has contractually agreed to waive and/or reimburse fees or expenses of the Emerging Markets Flexible Dynamic Bond Portfolio in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and
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certain other Fund expenses (as defined in the Portfolio’s Prospectuses)) as a percentage of average daily net assets to 0.93% for Investor A Shares, 1.68% for Investor C Shares, 0.68% for Institutional Shares and 0.63% for Class K Shares through June 30, 2023. Prior to March 29, 2018, the Manager had agreed to contractually agreed to waive and/or reimburse fees or expenses of the Emerging Markets Flexible Dynamic Bond Portfolio in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses (as defined in the Portfolio’s Prospectuses)) as a percentage of average daily net assets to 1.03% for Investor A Shares, 1.78% for Investor C Shares, 0.78% for Institutional Shares and 0.73% for Class K Shares of the Predecessor Portfolio. 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 the Emerging Markets Flexible Dynamic Bond Portfolio.
Pursuant to the Management Agreement, the Manager may from time to time, in its sole discretion to the extent permitted by applicable law, appoint one or more sub-advisers, including, without limitation, affiliates of the Manager, to perform investment advisory services with respect to the Portfolios. In addition, the Manager may delegate certain of its investment advisory functions under the Management Agreement to one or more of its affiliates to the extent permitted by applicable law. The Manager may terminate any or all sub-advisers or such delegation arrangements in its sole discretion at any time to the extent permitted by applicable law.
The Manager has entered into sub-advisory agreements (the “Sub-Advisory Agreements”) with respect to both Portfolios, with BlackRock International Limited (“BIL”) and, with respect to the Strategic Income Opportunities Portfolio, a sub-advisory agreement with BlackRock (Singapore) Limited (“BRS,” and together with BIL, the “Sub-Advisers”), pursuant to which each Sub-Adviser receives for the services it provides for that portion of the Portfolio for which the Sub-Adviser served as sub-adviser a monthly fee at an annual rate equal to a percentage of the management fee paid to the Manager under the Management Agreement.
In rendering investment advisory services to the Strategic Income Opportunities Portfolio, the Manager uses the portfolio management, research and other resources of BlackRock Investment Management (Australia) Limited (“BlackRock Australia”), a foreign affiliate of BlackRock that is not registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). BlackRock Australia provides services to the Strategic Income Opportunities Portfolio through a “participating affiliate” arrangement, as that term is used in relief granted by the staff of the SEC allowing U.S. registered investment advisers to use portfolio management or research resources of advisory affiliates subject to the regulatory supervision of the registered investment adviser. Under the participating affiliate arrangement, BlackRock Australia is considered a participating affiliate of BlackRock, and BlackRock Australia and certain designated employees are considered “associated persons” of BlackRock (as that term is defined in the Advisers Act) and investment professionals from BlackRock Australia may render portfolio management, research and other services to the Strategic Income Opportunities Portfolio, subject to the supervision of BlackRock. The Strategic Income Opportunities Portfolio pays no additional fees and expenses as a result of such arrangement.
The tables below set forth information about the total management fees paid by the Portfolios to the Manager (which includes amounts paid by the Manager to the Sub-Advisers), and the amounts waived and/or reimbursed by the Manager, for the periods indicated:
Strategic Income Opportunities Bond Portfolio
Fiscal Year Ended December 31,
  Paid to the
Manager
  Waived by
the Manager
  Reimbursed by
the Manager
2020

  $147,816,777   $4,054,409   $75
2019

  $151,680,944   $2,116,355   $8,172
2018

  $158,975,007   $1,368,850   $931
  
    
Emerging Market Flexible Dynamic Bond Portfolio
Fiscal Year Ended December 31,
  Paid to the
Manager
  Waived by
the Manager
  Reimbursed by
the Manager
2020

  $579,167   $417,283   $15,248
2019

  $626,959   $401,120   $22,599
2018

  $763,796   $428,062   $95,966
  
Administration Agreement. BlackRock serves as the Portfolios’ administrator pursuant to an administration agreement (the “Administration Agreement”). BlackRock has agreed to maintain office facilities for the Portfolios; furnish the Portfolios with clerical, bookkeeping and administrative services; oversee the determination and publication of the Portfolios’ net asset value; oversee the preparation and filing of Federal, state and local income tax returns; prepare certain reports required by regulatory authorities; calculate various contractual expenses; determine the amount of dividends and distributions available for payment by each Portfolio to its shareholders; prepare and arrange for the printing of dividend notices to shareholders; provide the Portfolios’ service providers with such
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information as is required to effect the payment of dividends and distributions; and serve as liaison with the Trust’s officers, independent accountants, legal counsel, custodian, accounting agent and transfer and dividend disbursing agent in establishing the accounting policies of each Portfolio and monitoring financial and shareholder accounting services. BlackRock may from time to time voluntarily waive administration fees with respect to each Portfolio and may voluntarily reimburse the Portfolio for expenses.
Under the Administration Agreement with BlackRock, the Trust, on behalf of the Portfolio, pays to BlackRock a fee, computed daily and payable monthly, at an aggregate annual rate of (i) 0.0425% of the first $500 million of the Portfolio’s average daily net assets, 0.040% of the next $500 million of the Portfolio’s average daily net assets, 0.0375% of the next $1 billion of the Portfolio’s average daily net assets, 0.035% of the next $2 billion of the Portfolio’s average daily net assets, 0.0325% of the next $9 billion of the Portfolio’s average daily net assets and 0.030% of the average daily net assets of the Portfolio in excess of $13 billion and (ii) 0.020% of average daily net assets allocated to each class of shares of the Portfolio.
The table below sets forth information about the administration fees paid by the Trust, on behalf of each Portfolio, to BlackRock, and the amounts waived, for the past three fiscal years.
Strategic Income Opportunities Portfolios
Fiscal Year Ended December 31,
  Fees Paid   Waivers
2020

  $16,741,885   $36,392
2019

  $17,170,739   $164,497
2018

  $17,991,067   $257,175
  
    
Emerging Market Flexible Dynamic Bond Portfolio
Fiscal Year Ended December 31,
  Fees Paid   Waivers
2020

  $60,328   $18,425
2019

  $65,307   $20,832
2018

  $79,561   $24,731
  
In addition, pursuant to a Shareholders’ Administrative Services Agreement, BlackRock provides certain shareholder liaison services in connection with the Trust’s investor service center. The Trust, on behalf of each Portfolio, reimburses BlackRock for its costs in maintaining the service center, which costs include, among other things, employee salaries, leasehold expenses, and other out-of-pocket expenses.
For the periods shown, the Trust, on behalf of each Portfolio, paid to BlackRock and BlackRock waived fees for shareholder liaison services pursuant to such agreement as follows:
Strategic Income Opportunities Portfolio
Fiscal Year Ended December 31,
  Paid to
BlackRock
  Waived by
BlackRock
2020

  $63,903   $0
2019

  $83,701   $450
2018

  $85,194   $393
  
    
Emerging Markets Flexible Dynamic Bond Portfolio
Fiscal Year Ended December 31,
  Paid to
BlackRock
  Waived by
BlackRock
2020

  $204   $186
2019

  $2,375   $2,374
2018

  $1,747   $1,675
  
Information Regarding the Portfolio Managers
Rick Rieder, Bob Miller and David Rogal are the portfolio managers and are jointly and primarily responsible for the day-to-day management of Strategic Income Opportunities Portfolio.
Sergio Trigo Paz, Laurent Develay and Michal Wozniak are the portfolio managers and are jointly and primarily responsible for the day-to-day management of Emerging Markets Flexible Dynamic Bond Portfolio.
Other Funds and Accounts Managed
The following tables set forth information about the funds and accounts other than the Portfolio for which the portfolio managers are primarily responsible for the day-to-day portfolio management as of December 31, 2020.
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Strategic Income Opportunities Portfolio
  Number of Other Accounts Managed
and Assets by Account Type
Number of Other Accounts and Assets
for Which Advisory Fee is Performance-Based
Name of Portfolio Manager Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
Bob Miller 18 17 16 0 1 6
  $44.98 Billion $22.33 Billion $4.92 Billion $0 $2.70 Billion $3.07 Billion
Rick Rieder 20 37 24 0 7 7
  $77.39 Billion $43.67 Billion $10.61 Billion $0 $3.27 Billion $7.84 Billion
David Rogal 10 10 3 0 0 0
  $36.15 Billion $19.10 Billion $123.97 Million $0 $0 $0
  
Emerging Markets Flexible Dynamic Bond Portfolio
  Number of Other Accounts Managed
and Assets by Account Type
Number of Other Accounts and Assets
for Which Advisory Fee is Performance-Based
Name of Portfolio Manager Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
Laurent Develay 1 15 12 0 0 1
  $198.65 Million $5.42 Billion $2.51 Billion $0 $0 $1.22 Billion
Sergio Trigo Paz 2 37 27 0 0 1
  $223.09 Million $10.43 Billion $4.89 Billion $0 $0 $1.22 Billion
Michal Wozniak 1 17 12 0 0 1
  $198.65 Million $5.54 Billion $2.51 Billion $0 $0 $1.22 Billion
  
Portfolio Manager Compensation Overview
The discussion below describes the portfolio managers’ compensation as of December 31, 2020.
BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.
Base Compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation
Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Portfolios or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation based on the performance of the Portfolios and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed-income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Portfolios and other accounts are:
Portfolio Manager(s)   Portfolio Managed   Applicable Benchmarks
Bob Miller
Rick Rieder
David Rogal
  Strategic Income Opportunities Portfolio   A combination of market-based indices (e.g., Bloomberg Barclays U.S. Aggregate Bond Index), certain customized indices and certain fund industry peer groups.
Sergio Trigo Paz   Emerging Markets Flexible Dynamic Bond Portfolio   A combination of JP Morgan GBI-EM Global Diversified Index and USD LIBOR.
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Portfolio Manager(s)   Portfolio Managed   Applicable Benchmarks
Laurent Develay
Michal Wozniak
      A combination of market-based indices (e.g., JPMorgan GBI-EM Global Diversified Index), certain customized indices and certain fund industry peer groups.
  
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash, deferred BlackRock, Inc. stock awards, and/or deferred cash awards that notionally track the return of certain BlackRock investment products.
Portfolio managers receive their annual discretionary incentive compensation in the form of cash. Portfolio managers whose total compensation is above a specified threshold also receive deferred BlackRock, Inc. stock awards annually as part of their discretionary incentive compensation. Paying a portion of discretionary incentive compensation in the form of deferred BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key employees as part of a long-term incentive award to aid in retention, align interests with long-term shareholders and motivate performance. Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of these Portfolios have deferred BlackRock, Inc. stock awards.
For certain portfolio managers, a portion of the discretionary incentive compensation is also distributed in the form of deferred cash awards that notionally track the returns of select BlackRock investment products they manage, which provides direct alignment of portfolio manager discretionary incentive compensation with investment product results. Deferred cash awards vest ratably over a number of years and, once vested, settle in the form of cash. Only portfolio managers who manage specified products and whose total compensation is above a specified threshold are eligible to participate in the deferred cash award program.
Other Compensation Benefits. In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:
Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($285,000 for 2020). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. Messrs. Miller, Rieder and Rogal are eligible to participate in these plans.
Incentive Savings Plans — United Kingdom-based portfolio managers are also eligible to participate in broad-based plans offered generally to BlackRock employees, including broad-based retirement, health and other employee benefit plans. For example, BlackRock has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including the BlackRock Retirement Savings Plan (RSP) and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution to the RSP is between 10% and 15% of eligible pay capped at £160,000 per annum. The RSP offers a range of investment options, including several collective investment funds managed by the firm. BlackRock contributions follow the investment direction set by participants for their own contributions or, in the absence of an investment election being made, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a US dollar value of $25,000 based on its fair market value on the purchase date. Messrs. Trigo Paz, Develay and Wozniak are eligible to participate in these plans.
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Portfolio Manager Beneficial Holdings
As of December 31, 2020, the dollar range of securities beneficially owned by each portfolio manager in the Portfolio is shown below:
Portfolio Manager   Portfolio Managed   Dollar Range of Equity Securities
Beneficially Owned1
Rick Rieder   Strategic Income Opportunities Portfolio   Over $1 Million
Bob Miller   Strategic Income Opportunities Portfolio   $500,001-$1,000,000
David Rogal   Strategic Income Opportunities Portfolio   $100,001-$500,000
Sergio Trigo Paz   Emerging Markets Flexible Dynamic Bond Portfolio   $10,001-$50,000
Laurent Develay   Emerging Markets Flexible Dynamic Bond Portfolio   $50,001-$100,000
Michal Wozniak   Emerging Markets Flexible Dynamic Bond Portfolio   $1-$10,000
  

1 Includes securities attributable to the portfolio manager’s participation in certain deferred compensation and retirement programs.
Portfolio Manager Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Portfolios, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Portfolios. In addition, BlackRock, its affiliates and significant shareholders and any officer, director, shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Portfolios. BlackRock, or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions than those recommended to the Portfolios by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock or any of its affiliates or significant shareholders or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for the Portfolios. It should also be noted that Messrs. Miller, Rieder and Rogal may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or long only accounts, subject to incentive fees. Messrs. Miller, Rieder and Rogal may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of the Emerging Market Flexible Dynamic Bond Portfolio are not entitled to receive a portion of incentive fees of other accounts.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base, as appropriate.
Custodian and Transfer Agency Agreements
JPMorgan Chase Bank, N.A. (“JPM”), which has its principal offices at 383 Madison Avenue, New York, New York 10179, serves as the custodian for the Strategic Income Opportunities Portfolio. Among other responsibilities, JPM maintains a custody account or accounts in the name of the Strategic Income Opportunities Portfolio, receives and
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delivers all assets for the Strategic Income Opportunities Portfolio upon purchase and upon sale or maturity, and collects and receives all income and other payments and distributions on account of the assets of the Strategic Income Opportunities Portfolio.
For the fiscal year ended December 31, 2020, $0 in custody credits was earned with respect to the Strategic Income Opportunities Portfolio under this arrangement.
Pursuant to the terms of a custodian agreement (the “Custodian Agreement”) between the Emerging Markets Flexible Dynamic Bond Portfolio and Brown Brothers Harriman & Co. (“BBH”), BBH acts as the custodian for the Emerging Markets Flexible Dynamic Bond Portfolio. BBH is responsible for safeguarding and controlling the Emerging Markets Flexible Dynamic Bond Portfolio’s investments cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Emerging Markets Flexible Dynamic Bond Portfolio’s investments. BBH is authorized to establish separate accounts in foreign currencies and to cause foreign securities owned by the Emerging Markets Flexible Dynamic Bond Portfolio to be held in its offices outside the United States and with certain foreign banks and securities depositories.
For the fiscal year ended December 31, 2020, custody credits earned under these arrangements were as follows: $0 with respect to the Emerging Markets Flexible Dynamic Bond Portfolio.
BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”), which has its principal place of business at 301 Bellevue Parkway, Wilmington, Delaware 19809, serves as the transfer and dividend disbursement agent for the Portfolios.
Accounting Services. JPM serves as the accounting services provider for the each Portfolio. JPM records investment, capital share and income and expense activities; verifies and transmits trade tickets; maintains accounting ledgers for investment securities; maintains tax lots; reconciles cash with the Portfolios’ custodians; reports cash balances to BlackRock; prepares certain financial statements; calculates expenses, gains, losses and income; controls disbursements; works with independent pricing sources; and computes and reports net asset value. In connection with its accounting services, JPM also provides certain administration services to the Portfolios. Prior to January 29, 2018, BNY Mellon provided these services to the Strategic Income Predecessor Portfolio. Prior to August 28, 2017, BNY Mellon provided these services to the Emerging Markets Flexible Dynamic Bond Predecessor Portfolio.
The table below shows the amount paid by the Trust, on behalf of the Portfolios, to JPM or BNY, as applicable, for accounting services for the periods indicated:
Strategic Income Opportunities Portfolio
For the Fiscal Year Ended December 31,
  Fees Paid to JPM or
BNY Mellon
2020

  $1,759,368
2019

  $1,602,827
2018

  $1,887,158
  
    
Emerging Markets Flexible Dynamic Bond Portfolio
For the Fiscal Year Ended December 31,
  Fees Paid to JPM or
BNY Mellon
2020

  $76,216
2019

  $77,950
2018

  $66,671
  
Credit Agreement
The Trust, on behalf of the Portfolios, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion credit agreement with a group of lenders, which facility terminates on April 14, 2022 unless otherwise extended or renewed (the “Credit Agreement”). Excluding commitments designated for a certain Participating Fund, the Participating Funds, including the Portfolios, can borrow up to an aggregate commitment amount of $1.75 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The Portfolios may borrow under the Credit Agreement to meet shareholder redemptions and for other lawful purposes. However, the Portfolios may not borrow under the Credit Agreement for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current Prospectuses and SAI, subject to various other legal, regulatory or contractual limits. Borrowing results in interest expense and other fees and expenses for the Portfolios which may impact the Portfolios’ net expenses. The costs of borrowing may reduce the Portfolios’ returns. Each Portfolio is charged its pro rata share of upfront fees and commitment fees on the aggregate commitment amount based on its net assets. If a Portfolio borrows pursuant to
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the Credit Agreement, the Portfolio will be charged interest at a variable rate. Such variable interest rate may be based on the one-month London interbank offered rate for U.S. dollar obligations (“LIBOR”) plus a spread. If LIBOR ceases to be published or representative before the termination of the Credit Agreement, LIBOR would be replaced under the terms of the Credit Agreement by a variable rate based on the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. There is no assurance that any variable rate based on SOFR will be the economic equivalent of LIBOR. SOFR-based rates will differ from LIBOR, and the differences may be material.
Organization and Management of Wholly-Owned Subsidiary
The Strategic Income Opportunities Portfolio intends to gain exposure to commodity markets by investing up to 25% of its total assets in the Subsidiary. The Subsidiary invests primarily in commodity-related instruments.
The Subsidiary is a company organized under the laws of the Cayman Islands, whose registered office is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman KYI-1104, Cayman Islands. The Subsidiary’s affairs are overseen by a board of directors, which is comprised of John M. Perlowski and Trent Walker.
The Manager provides investment management and administrative services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing it with investment advisory or administrative services. However, the Strategic Income Opportunities Portfolio pays the Manager based on the Strategic Income Opportunities Portfolio ’s assets, including the assets invested in the Subsidiary. The Subsidiary entered into contracts for the provision of custody, accounting agent and audit services with the same service providers that provide those services to the Strategic Income Opportunities Portfolio.
The Subsidiary is managed pursuant to compliance policies and procedures that are the same, in all material respects, as the policies and procedures adopted by the Strategic Income Opportunities Portfolio. As a result, the Manager, in managing the Subsidiary’s portfolio, is subject to the same investment policies and restrictions that apply to the management of the Strategic Income Opportunities Portfolio, and, in particular, to the requirements relating to portfolio leverage, liquidity, brokerage, and the timing and method of the valuation of the Subsidiary’s portfolio investments and shares of the Subsidiary. These policies and restrictions are described elsewhere in detail in this SAI. The Fund’s Chief Compliance Officer oversees implementation of the Subsidiary’s policies and procedures, and makes periodic reports to the Fund’s Board regarding the Subsidiary’s compliance with its policies and procedures. The Strategic Income Opportunities Portfolio and the Subsidiary test for compliance with certain investment restrictions on a consolidated basis, except that with respect to its investments in certain securities that may involve leverage, the Subsidiary complies with asset segregation requirements to the same extent as the Strategic Income Opportunities Portfolio.
V. Information on Sales Charges and Distribution Related Expenses
Distribution Agreement and Distribution and Service Plan. The Trust has entered into a distribution agreement with BlackRock Investments, LLC (“BRIL,” or the “Distributor”) under which BRIL, as agent, offers shares of the Portfolios on a continuous basis. BRIL has agreed to use appropriate efforts to effect sales of the shares, but it is not obligated to sell any particular amount of shares. BRIL’s principal business address is 40 East 52nd Street, New York, New York 10022. BRIL is an affiliate of BlackRock.
The Trust may also pay shareholder servicing fees (also referred to as general shareholder liaison services fees) to affiliated and unaffiliated brokers, dealers, financial institutions, insurance companies, retirement plan record-keepers and other financial intermediaries (including BlackRock, BRIL and their affiliates) (collectively, “Service Organizations”) for certain support services rendered by Service Organizations to their customers who are the beneficial owners of Investor A and Investor C Shares of the Portfolios.
Set forth below is information on sales charges (including any contingent deferred sales charges (“CDSCs”)) received by the Portfolios, including the amounts paid to affiliates of BlackRock, for the periods indicated.
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Strategic Income Opportunities Portfolio
Investor A Sales Charges Information
    Investor A Shares
Fiscal Year Ended December 31,   Gross Sales
Charges Collected
  Sales Charges
Retained by
BRIL
  Sales Charges
Paid to
Affiliates
  CDSCs Received
on Redemption
of Load-Waived
Shares
2020

  $410,533   $31,739   $31,739   $22,491
2019

  $392,420   $29,515   $29,515   $27,753
2018

  $378,801   $29,001   $29,001   $101,898*
  

* CDSC amount for the fiscal year ended December 31, 2018 has been restated from the CDSC amount in the 2018 Annual Report (as defined below).
Investor C Sales Charges Information
    Investor C Shares
For the Fiscal Year Ended December 31,   CDSCs
Received
by BRIL
  CDSCs
Paid To
Affiliates
2020

  $23,636   $23,636
2019

  $21,288   $21,288
2018

  $48,233   $42,933*
  

* CDSC amount for the fiscal year ended December 31, 2018 has been restated from the CDSC amount in the 2018 Annual Report (as defined below).
Emerging Markets Flexible Dynamic Bond Portfolios
Investor A Sales Charges Information
    Investor A Shares
Fiscal Year Ended December 31,   Gross Sales
Charges Collected
  Sales Charges
Retained by
BRIL
  Sales Charges
Paid to
Affiliates
  CDSCs Received
on Redemption
of Load-Waived
Shares
2020

  $3,282   $228   $228   $0
2019

  $5,104   $416   $416   $402
2018

  $6,774   $663   $663   $939*
  

* CDSC amount for the fiscal year ended December 31, 2018 has been restated from the CDSC amount in the 2018 Annual Report (as defined below).
Investor C Sales Charges Information
    Investor C Shares
For the Fiscal Year Ended December 31,   CDSCs
Received
by BRIL
  CDSCs
Paid To
Affiliates
2020

  $0   $0
2019

  $221   $221
2018

  $192   $174*
  

* CDSC amount for the fiscal year ended December 31, 2018 has been restated from the CDSC amount in the 2018 Annual Report (as defined below).
The tables below provide information for the fiscal year ended December 31, 2020 about the 12b-1 fees each Portfolio paid to BRIL under the Portfolios, 12b-1 plans. A significant amount of the fees collected by BRIL were paid to affiliates, for providing shareholder servicing activities for Investor A Shares and for providing shareholder servicing and distribution-related activities and services for Investor C Shares.
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Strategic Income Opportunities Portfolio
Class Name   Paid to
BRIL
Investor A Shares

  $3,606,667
Investor C Shares

  $3,456,087
  
Emerging Markets Flexible Dynamic Bond Portfolio
Class Name   Paid to
BRIL
Investor A Shares

  $17,295
Investor C Shares

  $11,605
  
VI. Computation of Offering Price Per Share
An illustration of the computation of the public offering price of the Investor A Shares of each Portfolio, based on the value of the Portfolio’s Investor A Shares’ net assets and number of Investor A Shares outstanding as of December 31, 2020 follows:
  Strategic Income
Opportunities
Portfolio
Investor A
Shares
  Emerging Markets
Flexible Dynamic
Bond Portfolio
Investor A
Shares
Net Assets

$1,583,745,411   $7,709,734
Number of Shares Outstanding

$152,771,495   865,190
Net Asset Value Per Share (net assets divided by number of shares outstanding)

$10.37   $8.91
Sales Charge (4.00% of offering price; 4.17% of net asset value per share)1

0.43%   0.37%
Offering Price

$10.80   $9.28
  

1 Assumes maximum sales charge applicable.
The offering price for the Portfolio’s other share classes is equal to the share class’ net asset value computed as set forth above for Investor A Shares. Though not subject to a sales charge, certain share classes may be subject to a CDSC on redemption. For more information on the purchasing and valuation of shares, please see “Purchase of Shares” and “Pricing of Shares” in Part II of this SAI.
The Subsidiary is subject to the same valuation policies as the Strategic Income Opportunities Portfolio as described in “Pricing of Shares” in Part II of this SAI. The Strategic Income Opportunities Portfolio’s investment in the Subsidiary is valued based on the value of the Subsidiary’s portfolio investments. The Subsidiary prices its portfolio investments pursuant to the same pricing and valuation methodologies and procedures used by the Strategic Income Opportunities Portfolio , which require, among other things, that each of the Subsidiary’s portfolio investments be marked-to-market (that is, the value on the Subsidiary’s books changes) each business day to reflect changes in the market value of the investment.
VII. Portfolio Transactions and Brokerage
See “Portfolio Transactions and Brokerage” in Part II of this SAI for more information.
Information about the brokerage commissions paid by the Portfolios, including commissions paid to Affiliates, for the last three fiscal years is set forth in the following table:
    Strategic Income
Opportunities Portfolio
  Emerging Markets
Flexible Dynamic
Bond Portfolio
Fiscal Year Ended December 31,   Aggregate
Brokerage
Commissions
Paid
  Commissions
Paid to
Affiliates
  Aggregate
Brokerage
Commissions
Paid
  Commissions
Paid to
Affiliates
2020

  $29,381,219   $0   $8,303   $0
2019

  $29,447,241   $0   $7,527   $0
2018

  $33,901,195   $0   $19,312   $0
  
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The following table shows the dollar amount of brokerage commissions each Portfolio paid to brokers for providing third-party research services to the Portfolio and the approximate dollar amount of the transactions involved for the fiscal year ended December 31, 2020. The provision of third-party research services was not necessarily a factor in the placement of all brokerage business with such brokers.
Portfolio   Amount of Commissions
Paid to Brokers for
Providing Research Services
  Amount of Brokerage
Transactions Involved
Strategic Income Opportunities Portfolio

  $796,073   $2,074,416,220
Emerging Markets Flexible Dynamic Bond Portfolio

  $0   $0
  
As of December 31, 2020, the value of the Strategic Income Opportunities Portfolio’s holdings of the securities of its regular brokers or dealers (as defined in Rule 10b-1 under the Investment Company Act), if any portion of such holdings were purchased during the fiscal year ended December 31, 2020, is as follows:
Regular Broker/Dealer   Debt(D)/Equity (E)   Aggregate Holdings
BofA Securities, Inc.

  D   $242,805
Credit Suisse Securities (USA) LLC

  D   $233,038
J.P. Morgan Securities LLC

  D   $214,427
Citigroup Global Markets Inc.

  D   $109,845
Morgan Stanley & Co. LLC

  D   $97,964
Goldman Sachs & Co. LLC

  D   $81,317
Barclays Capital, Inc.

  D   $63,381
Wells Fargo Securities, LLC

  D   $46,187
UBS Securities LLC

  D   $42,701
BofA Securities, Inc.

  E   $40,350
Goldman Sachs & Co. LLC

  E   $33,798
Barclays Capital, Inc.

  E   $25,397
J.P. Morgan Securities LLC

  E   $21,602
BNP Paribas Securities Corp.

  D   $16,749
Citigroup Global Markets Inc.

  E   $13,695
Merrill Lynch, Pierce, Fenner & Smith Inc.

  D   $10,614
Nomura Securities International, Inc.

  D   $2,829
Morgan Stanley & Co. LLC

  E   $845
  
The Subsidiary follows the same brokerage practices as the Strategic Income Opportunities Portfolio.
As of December 31, 2020, the value of the Emerging Markets Flexible Dynamic Bond Portfolio’s holdings of the securities of its regular brokers or dealers (as defined in Rule 10b-1 under the Investment Company Act), if any portion of such holdings were purchased during the fiscal year ended December 31, 2020, is as follows:
Regular Broker/Dealer   Debt(D)/Equity (E)   Aggregate Holdings (000s)
Citigroup Global Markets Inc.

  D   $110.00
  
Securities Lending
Each Portfolio conducts its securities lending pursuant to an exemptive order from the Commission permitting it to lend portfolio securities to borrowers affiliated with the Portfolio and to retain an affiliate of the Portfolio as lending agent. To the extent that a Portfolio engages in securities lending, BlackRock Investment Management, LLC (“BIM”), an affiliate of the Manager, acts as securities lending agent for the Portfolio, subject to the overall supervision of the Manager. BIM administers the lending program in accordance with guidelines approved by each Portfolio’s Board.
To the extent a Portfolio engages in securities lending, the Portfolio retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral (and excludes collateral investment expenses as defined below), and any fees or other payments to and from borrowers of securities. As securities lending agent, BIM bears all operational costs directly related to securities lending. Each Portfolio is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the
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private investment company to an annual rate of 0.04%. In addition, in accordance with the exemptive order, the investment adviser to the private investment company will not charge any advisory fees with respect to shares purchased by the Portfolios. Such shares also will not be subject to a sales load, redemption fee, distribution fee or service fee. If the private investment company’s weekly liquid assets fall below 30% of its total assets, BIM, as managing member of the private investment company, is permitted at any time, if it determines it to be in the best interests of the private investment company, to impose a liquidity fee of up to 2% of the value of units withdrawn or impose a redemption gate that temporarily suspends the right of withdrawal out of the private investment company. In addition, if the private investment company’s weekly liquid assets fall below 10% of its total assets at the end of any business day, the private investment company will impose a liquidity fee in the default amount of 1% of the amount withdrawn, generally effective as of the next business day, unless BIM determines that a higher (not to exceed 2%) or lower fee level or not imposing a liquidity fee is in the best interests of the private investment company. The shares of the private investment company purchased by the Portfolios would be subject to any such liquidity fee or redemption gate imposed.
Under the securities lending program, each Portfolio is categorized into a specific asset class. The determination of each Portfolio’s asset class category (fixed income, domestic equity, international equity, or fund of funds), each of which may be subject to a different fee arrangement, is based on a methodology agreed to between the Trust and BIM.
Pursuant to the current securities lending agreement the Strategic Income Opportunities Portfolio (i) retains 82% of securities lending income (which excludes collateral investment expenses), and (ii) this amount can never be less than 70% of the sum of securities lending income plus collateral investment expenses.
Pursuant to the current securities lending agreement: (i) if the Emerging Markets Flexible Dynamic Bond Portfolio were to engage in securities lending, the Fund retains 82% of securities lending income (which excludes collateral investment expenses), and (ii) this amount can never be less than 70% of the sum of securities lending income plus collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Fixed-Income Complex in a calendar year exceeds a specified threshold, the Strategic Income Opportunities Portfolio, pursuant to the current securities lending agreement, will receive for the remainder of that calendar year securities lending income as follows: (i) for the Strategic Income Opportunities Portfolio, 85% of securities lending income (which excludes collateral investment expenses); and (ii) this amount can never be less than 70% of the sum of securities lending income plus collateral investment expenses. With respect to the Emerging Markets Flexible Dynamic Bond Portfolio, (iii) if the Portfolio were to engage in securities lending, it would receive for the remainder of that calendar year securities lending income as follows: 85% of securities lending income (which excludes collateral investment expenses); and (iv) this amount can never be less than 70% of the sum of securities lending income plus collateral investment expenses.
Prior to January 1, 2021, the Strategic Income Opportunities Portfolio was subject to a different securities lending arrangement.
The services provided to the Strategic Income Opportunities Portfolio by BIM, in the most recent fiscal year ended December 31, 2020, primarily included the following:
(1) selecting borrowers from an approved list of borrowers and executing a securities lending agreement as agent on behalf of the Strategic Income Opportunities Portfolio with each such borrower;
(2) negotiating the terms of securities loans, including the amount of fees;
(3) directing the delivery of loaned securities;
(4) monitoring the daily value of the loaned securities and directing the payment of additional collateral or the return of excess collateral, as necessary;
(5) investing cash collateral received in connection with any loaned securities;
(6) monitoring distributions on loaned securities (for example, interest and dividend activity);
(7) in the event of default by a borrower with respect to any securities loan, using the collateral or the proceeds of the liquidation of collateral to purchase replacement securities of the same issue, type, class and series as that of the loaned securities; and
(8) terminating securities loans and arranging for the return of loaned securities to the Strategic Income Opportunities Portfolio at loan termination.
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The following table shows the dollar amounts of income and fees/compensation related to the securities lending activities of during its most recent fiscal year ended December 31, 2020.
  Strategic Income Opportunities Portfolio
Gross income from securities lending activities

$2,495,825
Fees and/or compensation for securities lending activities and related services  
Securities lending income paid to BIM for services as securities lending agent

$339,821
Cash collateral management expenses not included in securities lending income paid to BIM

$93,424
Administrative fees not included in securities lending income paid to BIM

$0
Indemnification fees not included in securities lending income paid to BIM

$0
Rebates (paid to borrowers)

$961,779
Other fees not included in securities lending income paid to BIM

$0
Aggregate fees/compensation for securities lending activities

$1,395,024
Net income from securities lending activities

$1,100,801
  
The Emerging Markets Flexible Dynamic Bond Portfolio had no income and income/fees and compensation related to its securities lending activities during the most recent fiscal year.
Portfolio Turnover. The Manager will effect portfolio transactions without regard to holding period, if, in its judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in the general market, or a change in economic or financial conditions. Each Portfolio’s portfolio turnover rate is calculated by dividing the lesser of the Portfolio’s annual sales or purchases of portfolio securities (exclusive of purchases or sales of all securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year.
High portfolio turnover may result in an increase in capital gain dividends and/or ordinary income dividends. See “Dividends and Taxes.” High portfolio turnover may also involve correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by each Portfolio.
The Emerging Markets Flexible Dynamic Bond Portfolio experienced significant variation in the portfolio turnover rate over the fiscal year ended December 31, 2020. The increase in portfolio turnover from 118% for the fiscal year ended December 31, 2019 to 324% for the fiscal year ended December 31, 2020 was due to increased trading activity.
VIII. Additional Information
The Trust was organized as a Massachusetts business trust on April 19, 2018 and is registered under the Investment Company Act as an open-end, management investment company. The Trust and its series were organized for the purpose of acquiring the assets of corresponding series of BlackRock Funds II in reorganizations that occurred on September 17, 2018. Shares of each class of shares each Portfolio bear their pro-rata portion of all operating expenses paid by a Portfolio, except transfer agency fees, certain administrative/servicing fees and amounts payable under the Trust’s Distribution and Service Plan. Each share of a Portfolio has a par value of $.001, represents an interest in that Portfolio and is entitled to the dividends and distributions earned on that Portfolio’s assets that are declared in the discretion of the Board. The number of shares of each series of the Trust, and class thereof, is unlimited. The Trust’s shareholders are entitled to one vote for each full share held and proportionate fractional votes for fractional shares held, and shares of each series will be voted in the aggregate and not by class, except where otherwise required by law or as determined by the Board.
Shares of the Trust have non-cumulative voting rights and, accordingly, the holders of more than 50% of the Trust’s outstanding shares (irrespective of series or class) may elect all of the Trustees. Shares have no preemptive rights and only such conversion and exchange rights as the Board may grant in its discretion. When issued for payment, shares will be fully paid and non-assessable by the Trust.
There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as required by law. At that time, the Trustees then in office will call a shareholders meeting to elect Trustees. Except as set forth above, the Trustees shall continue to hold office and may appoint successor Trustees. The Trust’s Declaration of Trust provides that meetings of the shareholders of the Trust shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares entitled to vote.
Rule 18f-2 under the Investment Company Act provides that any matter required by the provisions of the Investment Company Act or applicable state law, or otherwise, to be submitted to the holders of the outstanding voting securities of an investment company such as the Trust shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each investment portfolio affected by such matter. Rule 18f-2 further provides that an investment portfolio shall be deemed to be affected by a matter unless the interests of each investment portfolio in the matter are substantially identical or the matter does not
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affect any interest of the investment portfolio. Under Rule 18f-2, the approval of an investment advisory agreement, a distribution plan subject to Rule 12b-1 under the Investment Company Act or any change in a fundamental investment policy would be effectively acted upon with respect to an investment portfolio only if approved by a majority of the outstanding shares of such investment portfolio. However, Rule 18f-2 also provides that the ratification of the appointment of independent accountants, the approval of principal underwriting contracts and the election of Trustees may be effectively acted upon by shareholders of the Trust voting together in the aggregate without regard to a particular investment portfolio.
The proceeds received by each Portfolio for each issue or sale of its shares, and all net investment income, realized and unrealized gain and proceeds thereof, subject only to the rights of creditors, will be specifically allocated to and constitute the underlying assets of that Portfolio. The underlying assets of each Portfolio will be segregated on the books of account, and will be charged with the liabilities in respect to that Portfolio and with a share of the general liabilities of the Trust. As stated herein, certain expenses of a Portfolio may be charged to a specific class of shares representing interests in that Portfolio.
The Trust’s Declaration of Trust authorizes the Board, without shareholder approval (unless otherwise required by applicable law), to: (i) sell and convey the assets belonging to a series of the Trust to another management investment company for consideration which may include securities issued by the purchaser and, in connection therewith, to cause all outstanding shares of such series to be redeemed at a price which is equal to their net asset value and which may be paid in cash or by distribution of the securities or other consideration received from the sale and conveyance; (ii) sell and convert the assets belonging to one or more series into money and, in connection therewith, to cause all outstanding shares of such series to be redeemed at their net asset value; or (iii) combine the assets belonging to a series with the assets belonging to one or more other series, if the Board reasonably determines that such combination will not have a material adverse effect on the shareholders of any class of shares participating in such combination and, in connection therewith, to cause all outstanding shares of any such class to be redeemed or converted into shares of another class of shares at their net asset value. The Board may authorize the liquidation and termination of any series. Upon any liquidation of a Portfolio, shareholders of each class of the Portfolio are entitled to share pro-rata in the net assets belonging to that class available for distribution.
Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for the obligations of the Trust. However, the Trust’s Declaration of Trust provides that shareholders shall not be subject to any personal liability in connection with the assets of the Trust for the acts or obligations of the Trust, and that every note, bond, contract, order or other undertaking made by the Trust shall contain a provision to the effect that the shareholders are not personally liable thereunder. The Declaration of Trust provides for indemnification out of Trust property of any shareholder held personally liable solely by reason of his being or having been a shareholder and not because of such shareholder’s acts or omissions or some other reason. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust, and shall satisfy any judgment thereon.
The Declaration of Trust further provides that all persons having any claim against the Trustees or Trust shall look solely to the Trust property for payment; that no Trustee of the Trust shall be personally liable for or on account of any contract, debt, tort, claim, damage, judgment or decree arising out of or connected with the administration or preservation of the Trust property or the conduct of any business of the Trust; and that no Trustee shall be personally liable to any person for any action or failure to act except by reason of such Trustee’s own bad faith, willful misfeasance, gross negligence or reckless disregard of his duties as a Trustee. With the exception stated, the Declaration of Trust provides that a Trustee is entitled to be indemnified against all liabilities and expenses reasonably incurred by such Trustee in connection with the defense or disposition of any proceeding in which he may be involved or with which he may be threatened by reason of his being or having been a Trustee, and that the Trust will indemnify officers, representatives and employees of the Trust to the same extent that trustees are entitled to indemnification.
Counsel. Willkie Farr & Gallagher LLP, with offices at 787 Seventh Avenue, New York, New York 10019, serves as the Trust’s counsel.
Independent Registered Public Accounting Firm. Deloitte & Touche LLP, with offices located at 200 Berkeley Street, Boston, Massachusetts 02116, serves as each Portfolio’s independent registered public accounting firm.
Principal Shareholders
To the knowledge of the Trust, the following entities owned of record or beneficially 5% or more of a class of the Portfolio’s shares as of April 1, 2021:
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Strategic Income Opportunities Portfolio
Name   Address   Percentage   Class
MERRILL LYNCH PIERCE FENNER   4800 E DEERLAKE DR 3RD FLR
JACKSONVILLE, FL 32246-6484
  32.81%   Investor A Shares
CHARLES SCHWAB & CO INC   101 MONTGOMERY ST
SAN FRANCISCO, CA 94104-4122
  20.85%   Investor A Shares
NATIONAL FINANCIAL SERVICES LLC   499 WASHINGTON BLVD FL 5
JERSEY CITY, NJ 07310-2010
  9.47%   Investor A Shares
MORGAN STANLEY SMITH BARNEY LLC   1 NEW YORK PLAZA FL 12
NEW YORK, NY 10004-1901
  7.45%   Investor A Shares
WELLS FARGO CLEARING SERVICES   2801 MARKET STREET
SAINT LOUIS, MO 63103
  17.03%   Investor C Shares
RAYMOND JAMES   880 CARILLON PKWY
SAINT PETERSBURG, FL 33716-1102
  11.94%   Investor C Shares
AMERICAN ENTERPRISE INVESTMENT SVC   707 2ND AVE S
MINNEAPOLIS, MN 55402-2405
  10.93%   Investor C Shares
MERRILL LYNCH PIERCE FENNER   4800 E DEERLAKE DR 3RD FLR
JACKSONVILLE, FL 32246-6484
  9.89%   Investor C Shares
MORGAN STANLEY SMITH BARNEY LLC   1 NEW YORK PLAZA FL 12
NEW YORK, NY 10004-1901
  8.60%   Investor C Shares
NATIONAL FINANCIAL SERVICES LLC   499 WASHINGTON BLVD FL 5
JERSEY CITY, NJ 07310-2010
  7.81%   Investor C Shares
PERSHING LLC   1 PERSHING PLAZA
JERSEY CITY NJ 07399-0001
  7.38%   Investor C Shares
LPL FINANCIAL   4707 EXECUTIVE DRIVE
SAN DIEGO, CA 92121-3091
  6.79%   Investor C Shares
UBS WM USA   1000 HARBOR BLVD
WEEHAWKEN, NJ 07086
  6.43%   Investor C Shares
NATIONAL FINANCIAL SERVICES LLC   499 WASHINGTON BLVD FL 5
JERSEY CITY, NJ 07310-2010
  21.05%   Institutional Shares
CHARLES SCHWAB & CO INC   101 MONTGOMERY ST
SAN FRANCISCO, CA 94104-4122
  17.25%   Institutional Shares
MERRILL LYNCH PIERCE FENNER   4800 E DEERLAKE DR 3RD FLR
JACKSONVILLE, FL 32246-6484
  9.19%   Institutional Shares
AMERICAN ENTERPRISE INVESTMENT SVC   707 2ND AVE S
MINNEAPOLIS, MN 55402-2405
  8.22%   Institutional Shares
MORGAN STANLEY SMITH BARNEY LLC   1 NEW YORK PLAZA FL 12
NEW YORK, NY 10004-1901
  6.26%   Institutional Shares
CHARLES SCHWAB & CO INC   211 MAIN ST
SAN FRANCISCO CA 94105
  5.67%   Institutional Shares
NATIONAL FINANCIAL SERVICES LLC   499 WASHINGTON BLVD FL 5
JERSEY CITY, NJ 07310-2010
  39.22%   Class K Shares
  
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Emerging Market Flexible Dynamic Bond Portfolio
Name   Address   Percentage   Class
Merrill Lynch Pierce Fenner   4800 E. Deerlake Drive
3rd Floor
Jacksonville, FL 32246-6484
  30.53%   Investor A Shares
National Financial Services LLC   499 Washington Boulevard
Jersey City, NJ 07310-2010
  23.14%   Investor A Shares
Wells Fargo Clearing Services   2801 Market Street
Saint Louis, MO 63103
  11.78%   Investor A Shares
Pershing LLC   1 Pershing Plaza
Jersey City, NJ 07399-0001
  9.21%   Investor A Shares
LPL Financial   4707 Executive Drive
San Diego, CA 92121-3091
  6.45%   Investor A Shares
Pershing LLC   1 Pershing Plaza
Jersey City, NJ 07399-0001
  19.82%   Investor C Shares
National Financial Services LLC   499 Washington Boulevard
Jersey City, NJ 07310-2010
  18.72%   Investor C Shares
Wells Fargo Clearing Services   2801 Market Street
Saint Louis, MO 63103
  9.02%   Investor C Shares
LPL Financial   4707 Executive Drive
San Diego, CA 92121-3091
  6.51%   Investor C Shares
Merrill Lynch Pierce Fenner   4800 E. Deerlake Drive
3rd Floor
Jacksonville, FL 32246-6484
  6.33%   Investor C Shares
Ginger R Swaney TOD   301 Bellevue Parkway
Wilmington DE 19809
  6.20%   Investor C Shares
RBC Capital Markets LLC   60 S 6th St
Minneapolis MN 55402-4400
  6.16%   Investor C Shares
Raymond James   880 Carillon Pkwy
Saint Petersburg FL 33716-1102
  5.19%   Investor C Shares
Merrill Lynch Pierce Fenner   4800 E. Deerlake Drive
3rd Floor
Jacksonville, FL 32246-6484
  24.99%   Institutional Shares
National Financial Services LLC   499 Washington Boulevard
Jersey City, NJ 07310-2010
  19.61%   Institutional Shares
Wells Fargo Clearing Services   PO Box 1533
Minneapolis, MN 55480
  14.14%   Institutional Shares
Wells Fargo Clearing Services   PO Box 1533
Minneapolis, MN 55480
  13.75%   Institutional Shares
Wells Fargo Clearing Services   2801 Market Street
Saint Louis, MO 63103
  11.28%   Institutional Shares
UBS WM USA   100 Harbor Boulevard
Weehawken, NJ 07086
  6.92%   Institutional Shares
Providentia Prima Trust   5072 Abbuncation Circle
STE:317
Ave Maria, FL 34142-9730
  24.27%   Class K Shares
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Name   Address   Percentage   Class
The BlackRock Charitable Foundation   40 East 52nd ST
New York NY 10022-5911
  22.69%   Class K Shares
National Financial Services LLC   499 Washington Boulevard
Jersey City, NJ 07310-2010
  19.35%   Class K Shares
BlackRock Holdco2 Inc.   40 E. 52nd Street
Floor: 10
New York, NY 10022-5911
  18.21%   Class K Shares
AXA Equitable Life Insurance Co.   525 Washington Boulevard
Jersey City, NJ 07310-1606
  15.40%   Class K Shares
  
Shareholder Approvals. As used in this SAI and in the Prospectuses, a “majority of the outstanding shares” of a class, series or Portfolio means, with respect to the approval of an investment advisory agreement, a distribution plan or a change in a fundamental investment policy, the lesser of (1) 67% of the shares of the particular class, series or Portfolio represented at a meeting at which the holders of more than 50% of the outstanding shares of such class, series or Portfolio are present in person or by proxy, or (2) more than 50% of the outstanding shares of such class, series or Portfolio.
IX. Financial Statements
The audited financial statements, financial highlights and notes thereto in each Portfolio’s Annual Report to Shareholders for the fiscal year ended December 31, 2020 (the “2020 Annual Report”) are incorporated in this SAI by reference. No other parts of the 2020 Annual Report are incorporated by reference herein. The financial statements and financial highlights included in the 2020 Annual Report have been audited by Deloitte & Touche LLP. The report of Deloitte & Touche LLP incorporated herein by reference. Such financial statements and financial highlights have been incorporated herein in reliance upon the report of such firm given their authority as experts in accounting and auditing. Additional copies of the 2020 Annual Report may be obtained at no charge by telephoning the Distributor at the telephone number appearing on the front page of this SAI.
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PART II
Throughout this Statement of Additional Information (“SAI”), each BlackRock-advised fund may be referred to as a “Fund” or collectively with others as the “Funds.” Certain Funds may also be referred to as “Municipal Funds” if they invest certain of their assets in municipal investments described below.
Each Fund is organized either as a Maryland corporation, a Massachusetts business trust or a Delaware statutory trust. In each jurisdiction, nomenclature varies. For ease and clarity of presentation, shares of common stock and shares of beneficial interest are referred to herein as “shares” or “Common Stock,” holders of shares of Common Stock are referred to as “shareholders,” the trustees or directors of each Fund are referred to as “Directors,” the boards of trustees/directors of each Fund are referred to as the “Board of Directors” or the “Board,” BlackRock Advisors, LLC, BlackRock Fund Advisors or their respective affiliates is the investment adviser or manager of each Fund and is referred to herein as the “Manager” or “BlackRock,” and the investment advisory agreement or management agreement applicable to each Fund is referred to as the “Management Agreement.” Each Fund’s Articles of Incorporation or Declaration of Trust, together with all amendments thereto, is referred to as its “charter.” The Investment Company Act of 1940, as amended, is referred to herein as the “Investment Company Act.” The Securities Act of 1933, as amended, is referred to herein as the “Securities Act.” The Securities and Exchange Commission is referred to herein as the “Commission” or the “SEC.”
Certain Funds are “feeder” funds (each, a “Feeder Fund”) that invest all or a portion of their assets in a corresponding “master” portfolio (each, a “Master Portfolio”) of a master limited liability company (each, a “Master LLC”), a mutual fund that has the same objective and strategies as the Feeder Fund. All investments are generally made at the level of the Master Portfolio. This structure is sometimes called a “master/feeder” structure. A Feeder Fund’s investment results will correspond directly to the investment results of the underlying Master Portfolio in which it invests. For simplicity, this SAI uses the term “Fund” to include both a Feeder Fund and its Master Portfolio.
In addition to containing information about the Funds, Part II of this SAI contains general information about all funds in the BlackRock-advised fund complex. Certain information contained herein may not be relevant to a particular Fund.
Investment Risks and Considerations
Set forth below are descriptions of some of the types of investments and investment strategies that one or more of the Funds may use, and the risks and considerations associated with those investments and investment strategies. Please see each Fund’s prospectuses (the “Prospectus”) and the “Investment Objective and Policies” or “Investment Objectives and Policies” section, as applicable, of Part I of this SAI for further information on each Fund’s investment policies and risks. Information contained in this section about the risks and considerations associated with a Fund’s investments and/or investment strategies applies only to those Funds specifically identified in Part I of this SAI as making each type of investment or using each investment strategy (each, a “Covered Fund”). Information that does not apply to a Covered Fund does not form a part of that Covered Fund’s SAI and should not be relied on by investors in that Covered Fund. Only information that is clearly identified as applicable to a Covered Fund is considered to form a part of that Covered Fund’s SAI.
144A Securities. A Fund may purchase securities that can be offered and sold only to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act. See “Restricted Securities” below.
Asset-Backed Securities. Asset-backed securities are securities backed by home equity loans, installment sale contracts, credit card receivables or other assets. Asset-backed securities are “pass-through” securities, meaning that principal and interest payments — net of expenses — made by the borrower on the underlying assets (such as credit card receivables) are passed through to a Fund. The value of asset-backed securities, like that of traditional fixed-income securities, typically increases when interest rates fall and decreases when interest rates rise. However, asset-backed securities differ from traditional fixed-income securities because of their potential for prepayment. The price paid by a Fund for its asset-backed securities, the yield the Fund expects to receive from such securities and the average life of the securities are based on a number of factors, including the anticipated rate of prepayment of the underlying assets. In a period of declining interest rates, borrowers may prepay the underlying assets more quickly than anticipated, thereby reducing the yield to maturity and the average life of the asset-backed securities. Moreover, when a Fund reinvests the proceeds of a prepayment in these circumstances, it will likely receive a rate of interest that is lower than the rate on the security that was prepaid. To the extent that a Fund purchases asset-backed securities at a premium, prepayments may result in a loss to the extent of the premium paid. If a Fund buys such securities at a discount, both scheduled payments and unscheduled prepayments will increase current and total returns and unscheduled prepayments will also accelerate the recognition of income which, when distributed to
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shareholders, will be taxable as ordinary income. In a period of rising interest rates, prepayments of the underlying assets may occur at a slower than expected rate, creating maturity extension risk. This particular risk may effectively change a security that was considered short- or intermediate-term at the time of purchase into a longer term security. Since the value of longer-term securities generally fluctuates more widely in response to changes in interest rates than does the value of shorter-term securities, maturity extension risk could increase the volatility of the Fund. When interest rates decline, the value of an asset-backed security with prepayment features may not increase as much as that of other fixed-income securities, and, as noted above, changes in market rates of interest may accelerate or retard prepayments and thus affect maturities.
Asset-Based Securities. Certain Funds may invest in debt, preferred or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of some natural resource asset such as gold bullion. These securities are referred to as “asset-based securities.” A Fund will purchase only asset-based securities that are rated, or are issued by issuers that have outstanding debt obligations rated, investment grade (for example, AAA, AA, A or BBB by S&P Global Ratings (“S&P”) or Fitch Ratings (“Fitch”), or Baa by Moody’s Investors Service, Inc. (“Moody’s”) or commercial paper rated A-1 by S&P or Prime-1 by Moody’s) or by issuers that the Manager has determined to be of similar creditworthiness. Obligations ranked in the fourth highest rating category, while considered “investment grade,” may have certain speculative characteristics and may be more likely to be downgraded than securities rated in the three highest rating categories. If an asset-based security is backed by a bank letter of credit or other similar facility, the Manager may take such backing into account in determining the creditworthiness of the issuer. While the market prices for an asset-based security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or claim on the underlying natural resource asset. The asset-based securities in which a Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Certain asset-based securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because no Fund presently intends to invest directly in natural resource assets, a Fund would sell the asset-based security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying asset.
Precious Metal-Related Securities. A Fund may invest in the equity and other securities of companies that explore for, extract, process or deal in precious metals (e.g., gold, silver and platinum), and in asset-based securities indexed to the value of such metals. Such securities may be purchased when they are believed to be attractively priced in relation to the value of a company’s precious metal-related assets or when the values of precious metals are expected to benefit from inflationary pressure or other economic, political or financial uncertainty or instability. Based on historical experience, during periods of economic or financial instability the securities of companies involved in precious metals may be subject to extreme price fluctuations, reflecting the high volatility of precious metal prices during such periods. In addition, the instability of precious metal prices may result in volatile earnings of precious metal-related companies, which may, in turn, adversely affect the financial condition of such companies. The major producers of gold include the Republic of South Africa, Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. Economic, financial, social and political factors within South Africa may significantly affect South African gold production.
Bank Loans. Certain Funds may invest in bank loans. Bank loans are generally non-investment grade floating rate instruments. Usually, they are freely callable at the issuer’s option. Certain Funds may invest in fixed and floating rate loans (“Loans”) arranged through private negotiations between a corporate borrower or a foreign sovereign entity and one or more financial institutions (“Lenders”). A Fund may invest in such Loans in the form of participations in Loans (“Participations”) and assignments of all or a portion of Loans from third parties (“Assignments”). A Fund considers these investments to be investments in debt securities for purposes of its investment policies. Participations typically will result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund will have 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, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loans, nor any rights of set-off against the borrower, and the Fund may not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund will assume 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 the 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
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borrower. The Fund will acquire Participations only if the Lender interpositioned between the Fund and the borrower is determined by the Fund’s manager to be creditworthy. When the Fund purchases Assignments from Lenders, the Fund will acquire direct rights against the borrower on the Loan, and will not have exposure to a counterparty’s credit risk. The Funds may enter into Participations and Assignments on a forward commitment or “when-issued” basis, whereby a Fund would agree to purchase a Participation or Assignment at set terms in the future. For more information on forward commitments and when-issued securities, see “When-Issued Securities, Delayed Delivery Securities and Forward Commitments” below.
A Fund may have difficulty disposing of Assignments and Participations. In certain cases, the market for such instruments may lack sufficient liquidity, and therefore the Fund anticipates that in such cases such instruments could be sold only to a limited number of institutional investors. The lack of a sufficiently liquid secondary market may have an adverse impact on the value of such instruments and on the Fund’s ability to dispose of particular Assignments or Participations in response to a specific economic event, such as deterioration in the creditworthiness of the borrower.
Leading financial institutions often act as agent for a broader group of Lenders, generally referred to as a syndicate. The syndicate’s agent arranges the loans, holds collateral and accepts payments of principal and interest. If the agent develops financial problems, a Fund may not recover its investment or recovery may be delayed.
The Loans in which the Fund may invest are subject to the risk of loss of principal and income. Although borrowers frequently provide collateral to secure repayment of these obligations they do not always do so. If they do provide collateral, the value of the collateral may not completely cover the borrower’s obligations at the time of a default. If a borrower files for protection from its creditors under the U.S. bankruptcy laws, these laws may limit a Fund’s rights to its collateral. In addition, the value of collateral may erode during a bankruptcy case. In the event of a bankruptcy, the holder of a Loan may not recover its principal, may experience a long delay in recovering its investment and may not receive interest during the delay.
Transactions in corporate loans may settle on a delayed basis. As a result, the proceeds from the sale of corporate loans may not be readily available to make additional investments or to meet a Fund’s redemption obligations. To the extent the extended settlement process gives rise to short-term liquidity needs, a Fund may hold additional cash, sell investments or temporarily borrow from banks and other lenders.
In certain circumstances, Loans may not be deemed to be securities under certain federal securities laws. Therefore, in the event of fraud or misrepresentation by a borrower or an arranger, Lenders and purchasers of interests in Loans, such as the Funds, may not have the protection of the anti-fraud provisions of the federal securities laws as would otherwise be available for bonds or stocks. Instead, in such cases, parties generally would rely on the contractual provisions in the Loan agreement itself and common-law fraud protections under applicable state law.
Borrowing and Leverage. Each Fund may borrow as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to settle securities transactions. Certain Funds will not purchase securities at any time when borrowings exceed 5% of their total assets, except (a) to honor prior commitments or (b) to exercise subscription rights when outstanding borrowings have been obtained exclusively for settlements of other securities transactions.
Certain Funds may also borrow in order to make investments, to the extent disclosed in such Fund’s Prospectus. The purchase of securities while borrowings are outstanding will have the effect of leveraging the Fund. Such leveraging increases the Fund’s exposure to capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates an opportunity for greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes in the net asset value (“NAV”) of Fund shares and in the yield on the Fund’s portfolio. Although the principal of such borrowings will be fixed, the Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income or capital appreciation derived from securities purchased with borrowed funds exceeds the interest the Fund will have to pay on the borrowings, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return to the Fund will be less than if leverage had not been used and, therefore, the amount available for distribution to shareholders as dividends will be reduced. In the latter case, the Manager in its best judgment nevertheless may determine to maintain the Fund’s leveraged position if it expects that the benefits to the Fund’s shareholders of maintaining the leveraged position will outweigh the current reduced return.
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Certain types of borrowings by a Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such covenants would impede the Manager from managing a Fund’s portfolio in accordance with the Fund’s investment objectives and policies. However, a breach of any such covenants not cured within the specified cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may be disadvantageous to do so.
Each Fund may at times borrow from affiliates of the Manager, provided that the terms of such borrowings are no less favorable than those available from comparable sources of funds in the marketplace.
To the extent permitted by a Fund’s investment policies and restrictions and subject to the conditions of an exemptive order issued by the SEC, as described below under “Investment Risks and Considerations—Interfund Lending Program,” such Fund may borrow for temporary purposes through the Interfund Lending Program (as defined below).
Cash Flows; Expenses. The ability of each Fund to satisfy its investment objective depends to some extent on the Manager’s ability to manage cash flow (primarily from purchases and redemptions and distributions from the Fund’s investments). The Manager will make investment changes to a Fund’s portfolio to accommodate cash flow while continuing to seek to replicate the total return of the Fund’s target index. Investors should also be aware that the investment performance of each index is a hypothetical number which does not take into account brokerage commissions and other transaction costs, custody and other costs of investing, and any incremental operating costs (e.g., transfer agency and accounting costs) that will be borne by the Funds. Finally, since each Fund seeks to replicate the total return of its target index, the Manager generally will not attempt to judge the merits of any particular security as an investment.
Cash Management. Generally, the Manager will employ futures and options on futures to provide liquidity necessary to meet anticipated redemptions or for day-to-day operating purposes. However, if considered appropriate in the opinion of the Manager, a portion of a Fund’s assets may be invested in certain types of instruments with remaining maturities of 397 days or less for liquidity purposes. Such instruments would consist of: (i) obligations of the U.S. Government, its agencies, instrumentalities, authorities or political subdivisions (“U.S. Government Securities”); (ii) other fixed-income securities rated Aa or higher by Moody’s or AA or higher by S&P or, if unrated, of comparable quality in the opinion of the Manager; (iii) commercial paper; (iv) bank obligations, including negotiable certificates of deposit, time deposits and bankers’ acceptances; and (v) repurchase agreements. At the time the Fund invests in commercial paper, bank obligations or repurchase agreements, the issuer or the issuer’s parent must have outstanding debt rated Aa or higher by Moody’s or AA or higher by S&P or outstanding commercial paper, bank obligations or other short-term obligations rated Prime-1 by Moody’s or A-1 by S&P; or, if no such ratings are available, the instrument must be of comparable quality in the opinion of the Manager. For more information on money market instruments, see “Money Market Securities” below.
Collateralized Debt Obligations. Certain Funds may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”) and other similarly structured securities. CDOs are types of asset-backed securities. A CBO is ordinarily issued by a trust or other special purpose entity (“SPE”) and is typically backed by a diversified pool of fixed-income securities (which may include high risk, below investment grade securities) held by such issuer. A CLO is ordinarily issued by a trust or other SPE and is typically collateralized by a pool of loans, which may include, among others, domestic and non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans, held by such issuer. Investments in a CLO organized outside of the United States may not be deemed to be foreign securities if the CLO is collateralized by a pool of loans, a substantial portion of which are U.S. loans. Although certain CDOs may benefit from credit enhancement in the form of a senior-subordinate structure, over-collateralization or bond insurance, such enhancement may not always be present, and may fail to protect a Fund against the risk of loss on default of the collateral. Certain CDO issuers may use derivatives contracts to create “synthetic” exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments described elsewhere in this SAI. CDOs may charge management fees and administrative expenses, which are in addition to those of a Fund.
For both CBOs and CLOs, the cash flows from the SPE are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche, which bears the first loss from defaults from the bonds or loans in the SPE and serves to protect the other, more senior tranches from default (though such protection is not complete). Since it is partially protected from defaults, a senior tranche from a CBO or CLO typically has higher ratings and lower yields than its underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, downgrades
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of the underlying collateral by rating agencies, forced liquidation of the collateral pool due to a failure of coverage tests, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults as well as investor aversion to CBO or CLO securities as a class. Interest on certain tranches of a CDO may be paid in kind or deferred and capitalized (paid in the form of obligations of the same type rather than cash), which involves continued exposure to default risk with respect to such payments.
The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus are not registered under the securities laws. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for Rule 144A transactions. In addition to the normal risks associated with fixed-income securities and asset-backed securities generally discussed elsewhere in this SAI, CDOs 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 (“NRSRO”); (iii) a Fund 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 Fund 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.
Commercial Paper. Certain Funds may purchase commercial paper. Commercial paper purchasable by each Fund includes “Section 4(a)(2) paper,” a term that includes debt obligations issued in reliance on the “private placement” exemption from registration afforded by Section 4(a)(2) of the Securities Act. Section 4(a)(2) paper is restricted as to disposition under the Federal securities laws, and is frequently sold (and resold) to institutional investors such as the Fund through or with the assistance of investment dealers who make a market in the Section 4(a)(2) paper, thereby providing liquidity. Certain transactions in Section 4(a)(2) paper may qualify for the registration exemption provided in Rule 144A under the Securities Act. Most Funds can purchase commercial paper rated (at the time of purchase) “A-1” by S&P or “Prime-1” by Moody’s or when deemed advisable by a Fund’s Manager or sub-adviser, “high quality” issues rated “A-2”, “Prime-2” or “F-2” by S&P, Moody’s or Fitch, respectively.
Commodity-Linked Derivative Instruments and Hybrid Instruments. Certain Funds seek to gain exposure to the commodities markets primarily through investments in hybrid instruments. Hybrid instruments are either equity or debt derivative securities with one or more commodity-dependent components that have payment features similar to a commodity futures contract, a commodity option contract, or a combination of both. Therefore, these instruments are “commodity-linked.” They are considered “hybrid” instruments because they have both commodity-like and security-like characteristics. Hybrid instruments are derivative instruments because at least part of their value is derived from the value of an underlying commodity, futures contract, index or other readily measurable economic variable.
The prices of commodity-linked derivative instruments may move in different directions than investments in traditional equity and debt securities when the value of those traditional securities is declining due to adverse economic conditions. As an example, during periods of rising inflation, debt securities have historically tended to decline in value due to the general increase in prevailing interest rates. Conversely, during those same periods of rising inflation, the prices of certain commodities, such as oil and metals, have historically tended to increase. Of course, there cannot be any guarantee that these investments will perform in that manner in the future, and at certain times the price movements of commodity-linked instruments have been parallel to those of debt and equity securities. Commodities have historically tended to increase and decrease in value during different parts of the business cycle than financial assets. Nevertheless, at various times, commodities prices may move in tandem with the prices of financial assets and thus may not provide overall portfolio diversification benefits. Under favorable economic conditions, the Fund’s investments may be expected to under-perform an investment in traditional securities. Over the long term, the returns on the Fund’s investments are expected to exhibit low or negative correlation with stocks and bonds.
Qualifying Hybrid Instruments. Certain Funds may invest in hybrid instruments that qualify for exclusion from regulation under the Commodity Exchange Act and the regulations adopted thereunder. A hybrid instrument that qualifies for this exclusion from regulation must be “predominantly a security.” A hybrid instrument is considered to be predominantly a security if (a) the issuer of the hybrid instrument receives payment in full of the purchase price of the hybrid instrument, substantially contemporaneously with delivery of the hybrid instrument; (b) the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase price paid under subparagraph (a), whether as margin, settlement payment, or otherwise, during the life of the hybrid
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instrument or at maturity; (c) the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements; and (d) the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery (or option on such a contract) subject to applicable provisions of the Commodity Exchange Act. Hybrid instruments may be principal protected, partially protected, or offer no principal protection. A principal protected hybrid instrument means that the issuer will pay, at a minimum, the par value of the note at maturity. Therefore, if the commodity value to which the hybrid instrument is linked declines over the life of the note, the Fund will receive at maturity the face or stated value of the note. With a principal protected hybrid instrument, the Fund will receive at maturity the greater of the par value of the note or the increase in its value based on the underlying commodity or index. This protection is, in effect, an option whose value is subject to the volatility and price level of the underlying commodity. The Manager’s decision whether to use principal protection depends in part on the cost of the protection. In addition, the protection feature depends upon the ability of the issuer to meet its obligation to buy back the security, and, therefore, depends on the creditworthiness of the issuer. With full principal protection, the Fund will receive at maturity of the hybrid instrument either the stated par value of the hybrid instrument, or potentially, an amount greater than the stated par value if the underlying commodity, index, futures contract or economic variable to which the hybrid instrument is linked has increased in value. Partially protected hybrid instruments may suffer some loss of principal if the underlying commodity, index, futures contract or economic variable to which the hybrid instrument is linked declines in value during the term of the hybrid instrument. However, partially protected hybrid instruments have a specified limit as to the amount of principal that they may lose.
Hybrid Instruments Without Principal Protection. Certain Funds may invest in hybrid instruments that offer no principal protection. At maturity, there is a risk that the underlying commodity price, futures contract, index or other economic variable may have declined sufficiently in value such that some or all of the face value of the hybrid instrument might not be returned. The Manager, at its discretion, may invest in a partially protected principal structured note or a note without principal protection. In deciding to purchase a note without principal protection, the Manager may consider, among other things, the expected performance of the underlying commodity futures contract, index or other economic variable over the term of the note, the cost of the note, and any other economic factors that the Manager believes are relevant.
Limitations on Leverage. Some of the hybrid instruments in which a Fund may invest may involve leverage. To avoid being subject to undue leverage risk, a Fund will seek to limit the amount of economic leverage it has under any one hybrid instrument that it buys and the leverage of the Fund’s overall portfolio. A Fund will not invest in a hybrid instrument if, at the time of purchase: (i) that instrument’s “leverage ratio” exceeds 300% of the price increase in the underlying commodity, futures contract, index or other economic variable or (ii) the Fund’s “portfolio leverage ratio” exceeds 150%, measured at the time of purchase. “Leverage ratio” is the expected increase in the value of a hybrid instrument, assuming a one percent price increase in the underlying commodity, futures contract, index or other economic factor. In other words, for a hybrid instrument with a leverage factor of 150%, a 1% gain in the underlying economic variable would be expected to result in a 1.5% gain in value for the hybrid instrument. Conversely, a hybrid instrument with a leverage factor of 150% would suffer a 1.5% loss if the underlying economic variable lost 1% of its value. “Portfolio leverage ratio” is defined as the average (mean) leverage ratio of all instruments in a Fund’s portfolio, weighted by the market values of such instruments or, in the case of futures contracts, their notional values. To the extent that the policy on a Fund’s use of leverage stated above conflicts with the Investment Company Act or the rules and regulations thereunder, the Fund will comply with the applicable provisions of the Investment Company Act. A Fund may at times or from time to time decide not to use leverage in its investments or use less leverage than may otherwise be allowable.
Counterparty Risk. A significant risk of hybrid instruments is counterparty risk. Unlike exchange-traded futures and options, which are standard contracts, hybrid instruments are customized securities, tailor-made by a specific issuer. With a listed futures or options contract, an investor’s counterparty is the exchange clearinghouse. Exchange clearinghouses are capitalized by the exchange members and typically have high investment grade ratings (e.g., ratings of AAA or AA by S&P). Therefore, the risk is small that an exchange clearinghouse might be unable to meet its obligations at maturity. However, with a hybrid instrument, a Fund will take on the counterparty credit risk of the issuer. That is, at maturity of the hybrid instrument, there is a risk that the issuer may be unable to perform its obligations under the structured note.
Convertible Securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income
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with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument.
The characteristics of convertible securities make them potentially attractive investments for an investment company seeking a high total return from capital appreciation and investment income. These characteristics include the potential for capital appreciation as the value of the underlying common stock increases, the relatively high yield received from dividend or interest payments as compared to common stock dividends and decreased risks of decline in value relative to the underlying common stock due to their fixed-income nature. As a result of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in nonconvertible form.
In analyzing convertible securities, the Manager will consider both the yield on the convertible security relative to its credit quality and the potential capital appreciation that is offered by the underlying common stock, among other things.
Convertible securities are issued and traded in a number of securities markets. Even in cases where a substantial portion of the convertible securities held by a Fund are denominated in U.S. dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. As a result, fluctuations in the exchange rate between the currency in which the debt security is denominated and the currency in which the share price is quoted will affect the value of the convertible security. With respect to convertible securities denominated in a currency different from that of the underlying equity securities, the conversion price may be based on a fixed exchange rate established at the time the security is issued, which may increase the effects of currency risk. As described below, a Fund is authorized to enter into foreign currency hedging transactions in which it may seek to reduce the effect of exchange rate fluctuations.
Apart from currency considerations, the value of convertible securities is influenced by both the yield on nonconvertible securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its “investment value.” To the extent interest rates change, the investment value of the convertible security typically will fluctuate. At the same time, however, the value of the convertible security will be influenced by its “conversion value,” which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock. If the conversion value of a convertible security is substantially below its investment value, the price of the convertible security is governed principally by its investment value. To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed-income security. The yield and conversion premium of convertible securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their market value more than the securities’ investment value.
Holders of convertible securities generally have a claim on the assets of the issuer prior to the common stockholders but may be subordinated to other debt securities of the same issuer. A convertible security may be subject to redemption at the option of the issuer at a price established in a charter provision, indenture or other governing instrument pursuant to which the convertible security was issued. If a convertible security held by a Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock or sell it to a third party. Certain convertible debt securities may provide a put option to the holder, which entitles the holder to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain circumstances.
A Fund may also invest in synthetic convertible securities. Synthetic convertible securities may include either Cash-Settled Convertibles or Manufactured Convertibles. “Cash-Settled Convertibles” are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but may not actually permit conversion into the underlying equity securities in all circumstances. As an example, a private company may issue a Cash-Settled Convertible that is convertible into common stock only if the company successfully completes a public offering of its common stock prior to maturity and otherwise pays a cash amount to reflect any equity
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appreciation. “Manufactured Convertibles” are created by the Manager or another party by combining separate securities that possess one of the two principal characteristics of a convertible security, i.e., fixed-income (“fixed-income component”) or a right to acquire equity securities (“convertibility component”). The fixed-income component is achieved by investing in nonconvertible fixed-income securities, such as nonconvertible bonds, preferred stocks and money market instruments. The convertibility component is achieved by investing in call options, warrants, or other securities with equity conversion features (“equity features”) granting the holder the right to purchase a specified quantity of the underlying stocks within a specified period of time at a specified price or, in the case of a stock index option, the right to receive a cash payment based on the value of the underlying stock index.
A Manufactured Convertible differs from traditional convertible securities in several respects. Unlike a traditional convertible security, which is a single security that has a unitary market value, a Manufactured Convertible is comprised of two or more separate securities, each with its own market value. Therefore, the total “market value” of such a Manufactured Convertible is the sum of the values of its fixed-income component and its convertibility component.
More flexibility is possible in the creation of a Manufactured Convertible than in the purchase of a traditional convertible security. Because many corporations have not issued convertible securities, the Manager may combine a fixed-income instrument and an equity feature with respect to the stock of the issuer of the fixed-income instrument to create a synthetic convertible security otherwise unavailable in the market. The Manager may also combine a fixed-income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the Manager believes such a Manufactured Convertible would better promote a Fund’s objective than alternative investments. For example, the Manager may combine an equity feature with respect to an issuer’s stock with a fixed-income security of a different issuer in the same industry to diversify the Fund’s credit exposure, or with a U.S. Treasury instrument to create a Manufactured Convertible with a higher credit profile than a traditional convertible security issued by that issuer. A Manufactured Convertible also is a more flexible investment in that its two components may be purchased separately and, upon purchasing the separate securities, “combined” to create a Manufactured Convertible. For example, the Fund may purchase a warrant for eventual inclusion in a Manufactured Convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of more favorable market conditions.
The value of a Manufactured Convertible may respond to certain market fluctuations differently from a traditional convertible security with similar characteristics. For example, in the event a Fund created a Manufactured Convertible by combining a short-term U.S. Treasury instrument and a call option on a stock, the Manufactured Convertible would be expected to outperform a traditional convertible of similar maturity that is convertible into that stock during periods when Treasury instruments outperform corporate fixed-income securities and underperform during periods when corporate fixed-income securities outperform Treasury instruments.
Credit Linked Securities. Among the income producing securities in which a Fund may invest are credit linked securities, which are issued by a limited purpose trust or other vehicle that, in turn, invests in a derivative instrument or basket of derivative instruments, such as credit default swaps, interest rate swaps and other securities, in order to provide exposure to certain fixed-income markets. For instance, a Fund may invest in credit linked securities as a cash management tool in order to gain exposure to a certain market and/or to remain fully invested when more traditional income producing securities are not available.
Like an investment in a bond, investments in these credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security.
However, these payments are conditioned on the issuer’s receipt of payments from, and the issuer’s potential obligations to, the counterparties to the derivative instruments and other securities in which the issuer invests. For instance, the issuer may sell one or more credit default swaps, under which the issuer would receive a stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated to pay the counterparty the par (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the amount of income and principal that a Fund would receive. A Fund’s investments in these instruments are indirectly subject to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty risk, interest rate risk, leverage risk and management risk. It is also expected that the securities will be exempt from registration under the Securities Act. Accordingly, there may be no established trading market for the securities and they may constitute illiquid investments.
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Cyber Security Issues. With the increased use of technologies such as the Internet to conduct business, each Fund is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional e