As filed with the Securities and Exchange Commission on March 15, 2022
Securities Act File No. 333-259605
Investment Company Act File No. 811-10339
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
Registration Statement
under
the Securities Act of 1933 | ☒ | |||
Pre-Effective Amendment No. 1 | ☒ | |||
Post-Effective Amendment No. | ☐ | |||
and/or | ||||
Registration Statement | ||||
Under the Investment Company Act of 1940 |
☒ | |||
Amendment No. 9 | ☒ |
BlackRock Municipal Income Trust
(Exact Name of Registrant as Specified In Charter)
100 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (800) 882-0052
John M. Perlowski, President
BlackRock Municipal Income Trust
55 East 52nd Street
New York, New York 10055
(Name and Address of Agent For Service)
Copies of information to:
Margery K. Neale, Esq.
Elliot J. Gluck, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Approximate Date of Commencement of Proposed Public Offering: From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box ☐
If any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (Securities Act), other than securities offered in connection with a dividend reinvestment plan, check the following box ☒
If this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following box ☒
If this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box ☐
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box ☐
It is proposed that this filing will become effective (check appropriate box):
☐ | when declared effective pursuant to Section 8(c) of the Securities Act |
If appropriate, check the following box:
☐ | This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
☐ | This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: . |
Check each box that appropriately characterizes the Registrant:
☒ | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (the Investment Company Act)). |
☐ | Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
☐ | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
☒ | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
☐ | Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
☐ | Emerging Growth Company (as defined by Rule 12b-2 under the Securities and Exchange Act of 1934). |
☐ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. |
☐ | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this Preliminary Prospectus is not complete and may be changed. BlackRock Municipal Income Trust may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Preliminary Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 15, 2022
BASE PROSPECTUS
10,000,000 Shares
BlackRock Municipal Income Trust
Shares of Beneficial Interest
Rights to Purchase Shares of Beneficial Interest
BlackRock Municipal Income Trust (the Trust, we, us or our) is a diversified, closed-end management investment company. The Trusts investment objective is to provide current income exempt from regular U.S. federal income tax.
We may offer, from time to time, in one or more offerings, our common shares of beneficial interest, par value $.001 per share (common shares), or subscription rights to purchase our common shares. Common shares may be offered at prices and on terms to be set forth in one or more supplements to this Prospectus (each, a Prospectus Supplement). You should read this Prospectus and the applicable Prospectus Supplement carefully before you invest in our common shares.
Our common shares may be offered directly to one or more purchasers, including existing shareholders in a rights offering, through agents designated from time to time by us, or to or through underwriters or dealers. The Prospectus Supplement relating to the offering will identify any agents or underwriters involved in the sale of our common shares, and will set forth any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters, or among our underwriters, or the basis upon which such amount may be calculated. The Prospectus Supplement relating to any offering of rights will set forth the number of common shares issuable upon the exercise of each right (or number of rights) and the other terms of such rights offering. We may not sell any of our common shares through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and terms of the particular offering of our common shares.
Our common shares are listed on the New York Stock Exchange (NYSE) under the symbol BFK. The last reported sale price of our common shares, as reported by the NYSE on March 11, 2022 was $13.00 per common share. The net asset value of our common shares at the close of business on March 11, 2022 was $13.40 per common share. Rights issued by the Trust may also be listed on a securities exchange.
Investing in the Trusts common shares involves certain risks, including risks of leverage, which are described in the Risks section beginning on page 27 of this Prospectus and the Leverage section beginning on page 22 of this Prospectus. Certain of these risks are summarized in Prospectus SummarySpecial Risk Considerations beginning on page 4.
Shares of closed-end management investment companies frequently trade at a discount to their net asset value. The Trusts common shares have traded at a discount to net asset value, including during recent periods. If the Trusts common shares trade at a discount to their net asset value, the risk of loss may increase for purchasers in a public offering.
Neither the Securities and Exchange Commission (SEC) nor any state securities commission has approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
This Prospectus, together with any Prospectus Supplement, sets forth concisely the information about the Trust that a prospective investor should know before investing. You should read this Prospectus and applicable Prospectus Supplement, which contain important information, before deciding whether to invest in the common shares. You should retain the Prospectus and Prospectus Supplement for future reference. A Statement of Additional Information (SAI), dated March 15, 2022, containing additional information about the Trust, has been filed with the SEC and, as amended from time to time, is incorporated by reference in its entirety into this Prospectus. You may call (800) 882-0052, visit the Trusts website (http://www.blackrock.com) or write to the Trust to obtain, free of charge, copies of the SAI and the Trusts semi-annual and annual reports, as well as to obtain other information about the Trust or to make shareholder inquiries. The SAI, as well as the Trusts semi-annual and annual reports, are also available for free on the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov. Information contained in, or that can be accessed through, the Trusts website is not part of this Prospectus.
You should not construe the contents of this Prospectus as legal, tax or financial advice. You should consult with your own professional advisors as to the legal, tax, financial or other matters relevant to the suitability of an investment in the Trust.
The Trusts common shares do not represent a deposit or an obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
Prospectus dated March 15, 2022
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48 | ||||
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS |
49 | |||
51 | ||||
51 | ||||
52 | ||||
53 | ||||
54 |
You should rely only on the information contained in, or incorporated by reference into, this Prospectus and any related Prospectus Supplement in making your investment decisions. The Trust has not authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Trust is not making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this Prospectus and any Prospectus Supplement is accurate only as of the dates on their covers. The Trusts business, financial condition and prospects may have changed since the date of its description in this Prospectus or the date of its description in any Prospectus Supplement.
This is only a summary of certain information relating to BlackRock Municipal Income Trust. This summary may not contain all of the information that you should consider before investing in our common shares. You should consider the more detailed information contained in the Prospectus and in any related Prospectus Supplement and in the Statement of Additional Information (SAI) before purchasing common shares.
The Trust |
BlackRock Municipal Income Trust is a diversified, closed-end management investment company. Throughout this Prospectus, we refer to BlackRock Municipal Income Trust simply as the Trust or as we, us or our. See The Trust. | |
The Trusts common shares are listed for trading on the New York Stock Exchange (NYSE) under the symbol BFK. As of March 11, 2022, the net assets of the Trust were $605,503,300, the total assets of the Trust were $1,013,505,372.49 and the Trust had outstanding 45,026,493 common shares. The last reported sale price of the Trusts common shares, as reported by the NYSE on March 11, 2022 was $13.00 per common share. The net asset value (NAV) of the Trusts common shares at the close of business on March 11, 2022 was $13.40 per common share. See Description of Capital Stock. Rights issued by the Trust may also be listed on a securities exchange. | ||
The Offering |
We may offer, from time to time, in one or more offerings, up to 10,000,000 of our common shares on terms to be determined at the time of the offering. We may also offer subscription rights to purchase our common shares. The common shares may be offered at prices and on terms to be set forth in one or more Prospectus Supplements. You should read this Prospectus and the applicable Prospectus Supplement carefully before you invest in our common shares. Our common shares may be offered directly to one or more purchasers, through agents designated from time to time by us, or to or through underwriters or dealers. The offering price per common share will not be less than the NAV per common share at the time we make the offering, exclusive of any underwriting commissions or discounts, provided that rights offerings that meet certain conditions may be offered at a price below the then current NAV. See Rights Offerings. The Prospectus Supplement relating to the offering will identify any agents, underwriters or dealers involved in the sale of our common shares, and will set forth any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters, or among our underwriters, or the basis upon which such amount may be calculated. See Plan of Distribution. The Prospectus Supplement relating to any offering of rights will set forth the number of common shares issuable upon the exercise of each right (or number of rights) and the other terms of such rights offering. We may not sell any of our common shares through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and terms of the particular offering of our common shares. | |
Use of Proceeds |
The net proceeds from the issuance of common shares hereunder will be invested in accordance with our investment objective and policies as appropriate investment opportunities are identified, which is expected to be substantially completed in approximately three months from the date on which the proceeds from an offering are received by the Trust; however, the identification of appropriate investment opportunities pursuant to the Trusts investment style or changes in market conditions could result in the Trusts anticipated investment period extending to as long as six months. See Use of Proceeds. |
- 1 -
Investment Objective and Policies |
Please refer to the section of the Trusts most recent annual report on Form N-CSR entitled Trust SummaryInvestment Objective, which is incorporated by reference herein, for a discussion of the Trusts investment objective and policies. | |
Leverage |
The Trust uses leverage to seek to achieve its investment objective. The Trusts use of leverage may increase or decrease from time to time in its discretion and the Trust may, in the future, determine not to use leverage. The Trust currently leverages its assets through the use of shares of preferred stock (preferred shares) and tender option bonds (TOBs). The Trust currently does not intend to borrow money or issue debt securities. Although it has no present intention to do so, the Trust reserves the right to borrow money from banks or other financial institutions, or issue debt securities, in the future if it believes that market conditions would be conducive to the successful implementation of a leveraging strategy through borrowing money or issuing debt securities. See Leverage.
The Trust has leveraged its portfolio by issuing Variable Rate Muni Term Preferred Shares, par value $0.001 per share and with a liquidation preference of $100,000 per share (VMTP Shares). Under the Investment Company Act, the Trust is not permitted to issue preferred shares if, immediately after such issuance, the liquidation value of Trusts outstanding preferred shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings (i.e., the value of the Trusts assets must be at least 200% of the liquidation value of its outstanding preferred shares). In addition, the Trust would not be permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the value of the Trusts assets less liabilities other than borrowings is at least 200% of such liquidation value. See LeveragePreferred Shares. | |
The Trust currently leverages its assets through the use of residual interest municipal TOBs (TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals in which Trust will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax. No independent investigation will be made to confirm the tax-exempt status of the interest or income paid by TOB Residuals held by the Trust. Although volatile, TOB Residuals typically offer the potential for yields exceeding the yields available on fixed rate municipal bonds with comparable credit quality. See LeverageTender Option Bond Transactions. | ||
For the fiscal year ended April 30, 2021 the average liquidation value of the VMTP Shares outstanding was 270,800,000 and the average annual dividend rate on the VMTP Shares was 1.03%.
The use of leverage is subject to numerous risks. When leverage is employed, the Trusts NAV, the market price of the common shares and the yield to holders of common shares will be more volatile than if leverage were not used. For example, a rise in short-term interest rates, which currently are near historically low levels, generally will cause the Trusts NAV to decline more than if the Trust had not used leverage. A reduction in the Trusts NAV may cause a reduction in the market price of the Trusts common shares. |
- 2 -
The Trust cannot assure you that the use of leverage will result in a higher yield on the Trusts common shares. Any
leveraging strategy the Trust employs may not be successful. Investment Advisor BlackRock Advisors, LLC is the Trusts investment adviser. The Advisor receives an annual fee, payable monthly, in an
amount equal to 0.60% of the average weekly value of the Trusts Managed Assets. Managed Assets means the total assets of the Trust (including any assets attributable to money borrowed for investment purposes) minus the sum of the
Trusts accrued liabilities (other than money borrowed for investment purposes). See Management of the TrustInvestment Advisor. Distributions The Trust intends to make regular monthly cash distributions of all or a portion of its net investment income, after
payment of dividends on the Trusts VMTP Shares outstanding, to holders of the Trusts common shares. Net capital gains, if any, will be distributed at least annually to holders of the Trusts common shares. The Trusts net
investment income consists of all interest income accrued on portfolio assets less all expenses of the Trust. The Trust is required to allocate net capital gains and other taxable income, if any, received by the Trust among its shareholders on a pro
rata basis in the year for which such capital gains and other income is realized. Various factors will affect the level of the Trusts net investment income, such as its asset mix, portfolio turnover,
performance of its investments, level of retained earnings, the amount of leverage utilized by the Trust and the effects thereof, the costs of such leverage, the movement of interest rates for municipal bonds and general market conditions. To permit
the Trust to maintain more stable monthly distributions and to the extent consistent with the distribution requirements imposed on regulated investment companies by the Internal Revenue Code of 1986, as amended (the Code), the Trust may
from time to time distribute less than the entire amount earned in a particular period. The income would be available to supplement future distributions. As a result, the distributions paid by the Trust for any particular month may be more or less
than the amount actually earned by the Trust during that month. Undistributed earnings will increase the Trusts NAV and, correspondingly, distributions from undistributed earnings and from capital, if any, will reduce the NAV. Shareholders will automatically have all dividends and distributions reinvested in common shares of the Trust in accordance
with the Trusts dividend reinvestment plan, unless an election is made to receive cash by contacting the Reinvestment Plan Agent (as defined herein), at (800) 699-1236. See Dividend Reinvestment
Plan. Listing The Trusts common shares are listed on the NYSE under the symbol BFK. See Description of
SharesCommon Shares. Custodian and Transfer Agent State Street Bank and Trust Company serves as the Trusts custodian, and Computershare Trust Company, N.A. serves as
the Trusts transfer agent.
- 3 -
Administrator State Street Bank and Trust Company serves as the Trusts administrator and fund accountant. Market Price of Shares Common shares of closed-end investment companies frequently trade at prices lower
than their NAV. The Trust cannot assure you that its common shares will trade at a price higher than or equal to NAV. See Use of Proceeds. The Trusts common shares trade in the open market at market prices that are a function of
several factors, including dividend levels (which are in turn affected by expenses), NAV, call protection for portfolio securities, portfolio credit quality, liquidity, dividend stability, relative demand for and supply of the common shares in the
market, general market and economic conditions and other factors. See Leverage, Risks, Description of Shares and Repurchase of Common Shares. The common shares are designed primarily for long-term
investors and you should not purchase common shares of the Trust if you intend to sell them shortly after purchase. Special Risk Considerations An investment in common shares of the Trust involves risk. Please refer to the section
of the Trusts most recent annual report on Form N-CSR entitled Trust Investment Objectives, Policies and RisksRisk Factors, which is incorporated by reference herein, for a
discussion of the risks of investing in the Trust. You should carefully consider those risks, which are described in more detail under Risks beginning on page 27 of this Prospectus, along with additional risks relating to investments in
the Trust. - 4 -
Shareholder Transaction Expenses Sales load paid by you (as a percentage of offering price)(1) Offering expenses borne by the Trust (as a percentage of offering price)(1) Dividend reinvestment plan fees Dividend reinvestment plan sale transaction fee Estimated Annual Expenses (as a percentage of net assets attributable to common
shares) Management fees(3)(4) Other Expenses Miscellaneous Other Expenses Interest Expense(5) Total Annual Trust Operating Expenses Fee Waivers and/or Expense
Reimbursements(4) Total Annual Trust Operating Expenses after Fee Waivers and/or Expense Reimbursements(4) If the common shares are sold to or through underwriters, the Prospectus Supplement will set forth any
applicable sales load and the estimated offering expenses. Trust shareholders will pay all offering expenses involved with an offering. The Reinvestment Plan Agents (as defined below under Dividend Reinvestment Plan) fees for
the handling of the reinvestment of dividends will be paid by the Trust. However, you will pay a $0.02 per share fee incurred in connection with open-market purchases, which will be deducted from the value of the dividend. You will also be charged a
$2.50 sales fee and pay a $0.15 per share fee if you direct the Reinvestment Plan Agent to sell your common shares held in a dividend reinvestment account. Per share fees include any applicable brokerage commissions the Reinvestment Plan Agent is
required to pay. The Trust currently pays the Advisor a monthly fee at an annual contractual investment management fee rate of
0.60% of its average weekly managed assets. For purposes of calculating these fees, managed assets means the total assets of the Trust (including any assets attributable to money borrowed for investment purposes) minus the sum of the
Trusts accrued liabilities (other than money borrowed for investment purposes). The Trust and the Advisor have entered into a fee waiver agreement (the Fee Waiver Agreement),
pursuant to which the Advisor has contractually agreed to waive the management fee with respect to any portion of the Trusts assets attributable to investments in any equity and fixed-income mutual funds and ETFs managed by the Advisor or its
affiliates that have a contractual management fee, through June 30, 2023. In addition, pursuant to the Fee Waiver Agreement, the Advisor has contractually agreed to waive its management fees by the amount of investment advisory fees the Trust
pays to the Advisor indirectly through its investment in money market funds managed by the Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be terminated at any time, without the payment of any penalty, only by the
Trust (upon the vote of a majority of the Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as amended (the Investment Company Act), of the Trust (the Independent
Trustees)) or a majority of the outstanding voting securities of the Trust), upon 90 days written notice by the Trust to the Advisor. The total expense table includes interest expense associated with the Trusts investments in TOBs (also
known as inverse floaters). Although such interest expense is actually paid by special purpose vehicles in which the Trust invests, it is recorded on the Trusts financial statements for accounting purposes. The total expense table
also includes, in interest expense, dividends associated with the VMTP Shares, because the VMTP Shares are considered debt of the Trust for financial reporting purposes. The Trust uses leverage to seek to enhance its returns to common shareholders. This leverage generally takes two forms: the
issuance of VMTP Shares and investment in TOBs. Both forms of leverage benefit common shareholders if the cost of the leverage is lower than the returns earned by the Trust when it invests the proceeds from the leverage. In order to help you better
understand the costs associated with the Trusts leverage strategy, the Total annual Trust operating expenses after fee waivers (excluding interest expense) for are 1.05%. - 5 -
The following example illustrates the expenses (including the sales load of
$10.00 and offering costs of $0.18) that you would pay on a $1,000 investment in common shares, assuming (i) total net annual expenses of 1.63% of net assets attributable to common shares, and (ii) a 5% annual return: Total expenses incurred The example should not be considered a representation of future expenses. The example
assumes that the estimated Other expenses set forth in the Estimated Annual Expenses table are accurate and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover,
the Trusts actual rate of return may be greater or less than the hypothetical 5% return shown in the example. - 6 -
The financial highlights table is intended to help you understand the Trusts financial performance for the periods
presented. Certain information reflects financial results for a single common share of the Trust. The information for the fiscal years ended April 30, 2021, 2020, 2019, 2018 and 2017 has been audited by Deloitte & Touche LLP,
independent registered public accounting firm for the Trust. The report of Deloitte & Touche LLP is included in the Trusts April 30, 2021 annual report, is incorporated by reference into the Prospectus and SAI and can be obtained
by shareholders. The information for the period ended October 31, 2021 is unaudited. The Trusts financial statements are included in the Trusts annual report and semi-annual report and are incorporated by reference into the
Prospectus and the SAI. (For a share outstanding throughout each period) - 7 -
Net assets applicable to Common Shareholders, end of period (000) VMTP Shares outstanding at $100,000 liquidation value, end of period (000) Asset coverage per VMTP Shares at $100,000 liquidation value, end of period Borrowings outstanding, end of period (000) Portfolio turnover rate
1.00%
0.02%
$0.02(2) per share for open-market
purchases of common shares(2)
$2.50(2)
0.98%
0.65%
0.07%
0.58%
1.63%
1.63%
(1)
(2)
(3)
(4)
(5)
One Year
Three Years
Five Years
Ten Years
$
27
$
61
$
98
$
201
$
649,579
$
662,092
$
578,807
$
635,076
$
626,604
$
638,047
$
270,800
$
270,800
$
270,800
$
270,800
$
270,800
$
270,800
$
339,874
$
344,495
$
313,740
$
334,518
$
331,390
$
335,616
$
136,251
$
139,150
$
135,464
$
119,624
$
128,156
$
146,562
6
%
13
%
17
%
19
%
9
%
13
%
(a) | Based on average shares outstanding. |
(b) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(c) | Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices. |
(d) | Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VMTP Shares. See Note 4 and Note 10 of the Notes to Financial Statements on the Trusts Form N-CSR, filed with the SEC on July 2, 2020 for details. |
Year Ended April 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance |
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Net asset value, beginning of year |
$ | 14.91 | $ | 14.27 | $ | 15.40 | $ | 14.53 | $ | 12.16 | ||||||||||
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|
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Net investment income1 |
0.87 | 0.88 | 0.93 | 0.93 | 0.95 | |||||||||||||||
Net realized and unrealized gain (loss) |
0.32 | 0.67 | (1.15 | ) | 0.90 | 2.39 | ||||||||||||||
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Distributions to Auction Market Preferred Shares (AMPS) Shareholders from net investment income |
| | | | (0.01 | ) | ||||||||||||||
Net increase (decrease) from investment operations |
1.19 | 1.55 | (0.22 | ) | 1.83 | 3.33 | ||||||||||||||
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Distributions to Common Shareholders from net investment income2 |
(0.90 | ) | (0.91 | ) | (0.91 | ) | (0.96 | ) | (0.96 | ) | ||||||||||
Net asset value, end of year |
$ | 15.20 | $ | 14.91 | $ | 14.27 | $ | 15.40 | $ | 14.53 | ||||||||||
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Market price, end of year |
$ | 15.44 | $ | 14.32 | $ | 13.57 | $ | 15.40 | $ | 14.83 | ||||||||||
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Total Return3 |
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Based on net asset value |
8.57 | % | 11.43 | % | (0.72 | )% | 12.84 | % | 28.24 | % | ||||||||||
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Based on market price |
14.76 | % | 12.54 | % | (5.59 | )% | 10.55 | % | 28.87 | % | ||||||||||
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- 8 -
Ratios to Average Net Assets Total expenses Total expenses after fees waived and/or reimbursed Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and
amortization of offering costs5 Net investment income Distributions to AMPS Shareholders Net investment income to Common Shareholders Supplemental Data Net assets applicable to Common Shareholders, end of year (000) VMTP Shares outstanding at $100,000 liquidation value, end of year (000) Asset coverage per VMTP Shares at $100,000 liquidation value, end of year Borrowings outstanding, end of year (000) Portfolio turnover rate
1.61
%
1.60
%
1.71
%
1.71
%
1.45
%4
1.61
%
1.60
%
1.71
%
1.71
%
1.45
%4
1.03
%
1.04
%
1.07
%
1.05
%
1.14
%4,6
5.85
%
5.91
%
6.81
%
6.13
%
7.06
%4
0.07
%
5.85
%
5.91
%
6.81
%
6.13
%
6.99
%
$
680,502
$
667,063
$
638,577
$
688,707
$
648,497
$
270,800
$
270,800
$
270,800
$
270,800
$
270,800
$
351,293
$
346,330
$
335,811
$
354,323
$
339,474
$
128,554
$
122,688
$
126,073
$
170,263
$
139,718
7
%
10
%
20
%
13
%
17
%
1 | Based on average shares outstanding. |
2 | Distributions for annual periods determined in accordance with federal income tax regulations. |
3 | Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions. |
4 | Does not reflect the effect of distributions to AMPS Shareholders. |
5 | Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VMTP Shares. See Note 3 and Note 9 of the Notes to Financial Statements on the Trusts Form N-CSR, filed with the SEC on July 1, 2015 for details of municipal bonds transferred to TOB Trusts and VMTP Shares, respectively. |
6 | For the year ended April 30, 2012, the total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs and remarketing fees was 1.10%. |
The net proceeds from the issuance of common shares hereunder will be invested in accordance with the Trusts investment objective and policies as stated below. We currently anticipate that we will be able to invest all of the net proceeds in accordance with our investment objective and policies within approximately three months from the date on which the proceeds from an offering are received by the Trust. Pending such investment, it is anticipated that the proceeds will be invested in short-term, tax-exempt or taxable investment grade securities or in high quality, short-term money market instruments.
- 9 -
The Trust is a diversified, closed-end management investment company registered under the Investment Company Act. The Trust was formed as a Delaware statutory trust on March 30, 2001 pursuant to an Agreement and Declaration of Trust, as later amended and restated, governed by the laws of the State of Delaware and the Certificate of Trust filed with the Secretary of State of the State of Delaware. The Trusts principal office is located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and its telephone number is (800) 882-0052.
The Trust commenced operations on July 31, 2001, upon the initiation of an initial public offering of 37,750,000 of its common shares. The proceeds of such offering were approximately $370.765 million after the payment of organizational and offering expenses. The Trusts common shares are traded on the NYSE under the symbol BFK.
Common Shares
The Trust is a statutory trust formed under the laws of Delaware and governed by an Amended and Restated Agreement and Declaration of Trust dated as of May 31, 2001 (the Agreement and Declaration of Trust). The Trust is authorized to issue an unlimited number of common shares of beneficial interest, par value $0.001 per share. Each common share has one vote and, when issued and paid for in accordance with the terms of this offering, will be fully paid and, under the Delaware Statutory Trust Act, the purchasers of the common shares will have no obligation to make further payments for the purchase of the common shares or contributions to the Trust solely by reason of their ownership of the common shares, except that the Trustees shall have the power to cause shareholders to pay certain expenses of the Trust by setting off charges due from shareholders from declared but unpaid dividends or distributions owed the shareholders and/or by reducing the number of common shares owned by each respective shareholder. When preferred shares are outstanding, the holders of common shares will not be entitled to receive any distributions from the Trust unless all accrued dividends on preferred shares have been paid, unless asset coverage (as defined in the Investment Company Act) with respect to preferred shares would be at least 200% after giving effect to the distributions and unless certain other requirements imposed by any rating agencies rating the preferred shares have been met. See Description of SharesPreferred Shares in the SAI. All common shares are equal as to dividends, assets and voting privileges and have no conversion, preemptive or other subscription rights. The Trust will send annual and semi-annual reports, including financial statements, to all holders of its shares.
Unlike open-end funds, closed-end funds like the Trust do not continuously offer shares and do not provide daily redemptions. Rather, if a shareholder determines to buy additional common shares or sell shares already held, the shareholder may do so by trading through a broker on the NYSE or otherwise. Shares of closed-end investment companies frequently trade on an exchange at prices lower than NAV. Shares of closed-end investment companies like the Trust have during some periods traded at prices higher than NAV and during other periods have traded at prices lower than NAV. Because the market value of the common shares may be influenced by such factors as dividend levels (which are in turn affected by expenses), call protection on its portfolio securities, dividend stability, portfolio credit quality, the Trusts NAV, relative demand for and supply of such shares in the market, general market and economic conditions and other factors beyond the control of the Trust, the Trust cannot assure you that its common shares will trade at a price equal to or higher than NAV in the future. The common shares are designed primarily for long-term investors and you should not purchase the common shares if you intend to sell them soon after purchase. See Repurchase of Common Shares below and Repurchase of Common Shares in the SAI.
The Trusts outstanding common shares are, and when issued, the common shares offered by this Prospectus will be, publicly held and listed and traded on the NYSE under the symbol BFK. The Trust determines its NAV on a daily basis. The following table sets forth, for the quarters indicated, the highest and lowest daily closing prices on the NYSE per common share, and the NAV per common share and the premium to or discount from NAV, on the date of each of the high and low market prices. The table also sets forth the number of common shares traded on the NYSE during the respective quarters.
- 10 -
During Quarter Ended January 31, 2022 October 31, 2021 July 31, 2021 April 30, 2021 January 29, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019
NYSE Market Price
Per Common Share
NAV per
Common
Share on Date of
Market Price
Premium/
(Discount) on
Date of Market
Price
Trading
High
Low
High
Low
High
Low
Volume
$
15.54
$
13.82
$
14.67
$
13.94
5.93
%
(0.86
)
4,396,715
$
15.82
$
14.46
$
14.94
$
14.77
5.89
%
(2.08
)
3,844,602
$
15.71
$
14.86
$
15.12
$
14.72
3.90
%
0.95
3,957,036
$
15.40
$
14.39
$
15.07
$
14.43
5.12
%
(0.96
)
4,550,065
$
15.47
$
13.72
$
14.95
$
14.10
4.88
%
(2.70
)
3,829,337
$
14.95
$
13.57
$
14.64
$
14.07
2.20
%
(4.35
)
3,865,889
$
14.69
$
12.08
$
14.51
$
13.01
1.24
%
(8.32
)
4,759,351
$
15.11
$
10.15
$
15.17
$
11.87
1.01
%
(23.28
)
10,570,698
$
14.60
$
13.85
$
14.86
$
14.36
(1.30
)%
(4.15
)
4,577,282
$
14.30
$
13.57
$
14.72
$
14.40
(1.94
)%
(6.65
)
5,337,134
$
14.14
$
13.72
$
14.42
$
14.19
(1.40
)%
(4.39
)
5,222,504
As of March 11, 2022, the NAV per common share of the Trust was $13.40 and the market price per common share was $13.00, representing a discount to NAV of -2.99%. Common shares of the Trust have historically traded at both a premium and discount to NAV.
As of March 11, 2022, the Trust has outstanding 45,026,493 common shares.
Preferred Shares
The Agreement and Declaration of Trust provides that the Board of Trustees of the Trust (the Board) may authorize and issue preferred shares, with rights as determined by the Board, by action of the Board without the approval of the holders of the common shares. Holders of common shares have no preemptive right to purchase any preferred shares that might be issued. The Trust is authorized to issue an unlimited number of preferred shares of beneficial interest, par value $0.001 per share. The Trust has issued 2,708 Series W-7 Variable Rate Muni Term Preferred Shares (previously defined as VMTP Shares).
Distribution Preference and Liquidation Preference. The VMTP Shares rank prior to the Trusts common shares as to the payment of dividends by the Trust, and distribution of assets upon dissolution, liquidation or winding up of the Trust. The Investment Company Act prohibits the declaration of any dividend on the Trusts common shares or the repurchase of the Trusts common shares if the Trust fails to maintain asset coverage of at least 200% of the liquidation preference of the Trusts outstanding VMTP Shares. In addition, pursuant to the Trusts Statement of Preferences governing the VMTP Shares (the Statement of Preferences), the Trust is restricted from declaring and paying dividends on classes of shares ranking junior to or on parity with the VMTP Shares or repurchasing such shares if the Trust fails to declare and pay dividends on the VMTP Shares, redeem any VMTP Shares required to be redeemed under the Statement of Preferences or comply with the basic maintenance amount requirement of the ratings agencies rating the VMTP Shares.
Voting Rights. The holders of the VMTP Shares have voting rights equal to the voting rights of the holders of the common shares (one vote per share) and will vote together with holders of the common shares (one vote per share) as a single class on certain matters. However, the holders of outstanding preferred shares, including the VMTP Shares, voting as a separate class, are also entitled to elect two trustees to the Board of the Trust. Holders of VMTP Shares are also entitled to elect a majority of the Trusts Board as provided in the Statement of Preferences if dividends on the VMTP Shares are not paid for a period of two years. Holders of VMTP Shares are also generally entitled to a separate class vote to amend the Statement of Preferences. In addition, the Investment Company Act requires the approval of the holders of a majority of any outstanding VMTP Shares, voting as a separate class, to (a) adopt any plan of reorganization that would adversely affect the VMTP Shares, (b) change the Trusts sub-classification as a closed-end investment company or change its fundamental investment restrictions or (c) change its business so as to cease to be an investment company.
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Redemption, Purchase and Sale of VMTP Shares. The VMTP Shares may be redeemed, in whole or in part, at any time at the option of the Trust, subject to certain exceptions as set forth in the Statement of Preferences. The redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends and, applicable redemption premiums. If the Trust redeems the VMTP Shares prior to the term redemption date of the VMTP Shares and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then rating the VMTP Shares, then such redemption may be subject to a prescribed redemption premium (up to 2% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining until the term redemption date of the VMTP Shares, subject to certain exceptions for redemptions that are required to comply with minimum asset coverage requirements. The Trust is required to redeem its VMTP Shares on the term redemption date of the VMTP Shares, unless earlier redeemed or repurchased or unless extended. Such term redemption date is July 2, 2023, unless extended. Six months prior to the term redemption date of the VMTP Shares, the Trust is required to begin to segregate liquid assets with its custodian to fund the redemption. In addition, the Trust is required to redeem certain of its outstanding VMTP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.
Please see Description of Shares in the SAI for more information.
Authorized Shares
The following table provides the Trusts authorized shares and common and preferred shares outstanding as of March 11, 2022.
Title of Class |
Amount Authorized |
Amount Held by Trust or for its Account |
Amount Outstanding Exclusive of Amount held by Trust |
|||||||||
Common Shares |
Unlimited | 0 | 45,026,493 | |||||||||
Series W-7 VMTP Shares |
Unlimited | 0 | 2,708 |
Investment Objective and Policies
Please refer to the section of the Trusts most recent annual report on Form N-CSR entitled Trust Investment Objectives, Policies and RisksInvestment Objectives and Policies, which is incorporated by reference herein, for a discussion of the Trusts investment objective and policies.
Description of Municipal Securities
Set forth below is a detailed description of the municipal securities in which the Trust invests. Information with respect to ratings assigned to tax-exempt obligations that the Trust may purchase is set forth in Appendix ARatings of Investments in the SAI. Obligations are included within the term municipal securities if the interest paid thereon is excluded from gross income for federal income tax purposes in the opinion of bond counsel to the issuer.
Municipal securities include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public institutions and facilities. In addition, certain types of PABs are issued by or on behalf of public authorities to finance various privately owned or operated facilities, including among other things, airports, public ports, mass commuting facilities, multi-family housing projects, as well as facilities for water supply, gas, electricity, sewage or solid waste disposal and other specialized facilities. Other types of PABs, the proceeds of which are used for the construction, equipment or improvement of privately operated industrial or commercial facilities, may constitute municipal securities. The interest on municipal securities may bear a fixed rate or be payable at a variable or floating rate. The two principal classifications of municipal securities are general
- 12 -
obligation bonds and revenue bonds, which latter category includes PABs and, for bonds issued on or before August 15, 1986, industrial development bonds. Municipal securities typically are issued to finance public projects, such as roads or public buildings, to pay general operating expenses or to refinance outstanding debt. Municipal securities may also be issued for private activities, such as housing, medical and educational facility construction, or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source. Revenue bonds may be repaid only from the revenues of a specific facility or source. Municipal securities may be issued on a long-term basis to provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or special tax, or any other revenue source, including project revenues, which may include tolls, fees and other user charges, lease payments and mortgage payments. Municipal securities may also be issued to finance projects on a short-term interim basis, anticipating repayment with the proceeds of the later issuance of long-term debt.
The municipal securities in which the Trust invests pay interest or income that, in the opinion of bond counsel to the issuer, is exempt from regular Federal income tax. The Advisor does not conduct its own analysis of the tax status of the interest paid by municipal securities held by the Trust, but will rely on the opinion of counsel to the issuer of each such instrument. The Trust may also invest in municipal securities issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular Federal income tax. In addition to the types of municipal securities described in this Prospectus, the Trust may invest in other securities that pay interest or income that is, or make other distributions that are, exempt from regular Federal income tax and/or state and local personal taxes, regardless of the technical structure of the issuer of the instrument. The Trust treats all of such tax-exempt securities as municipal securities.
The yields on municipal securities are dependent on a variety of factors, including prevailing interest rates and the condition of the general money market and the municipal security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The market value of municipal securities will vary with changes in interest rate levels and as a result of changing evaluations of the ability of bond issuers to meet interest and principal payments.
The Trust has not established any limit on the percentage of its portfolio that may be invested in PABs. The Trust may not be a suitable investment for investors who are already subject to the federal alternative minimum tax or who would become subject to the federal alternative minimum tax as a result of an investment in the Trusts common shares.
General Obligation Bonds. General obligation bonds are typically secured by the issuers pledge of its faith, credit and taxing power for the repayment of principal and the payment of interest. The taxing power of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entitys creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the states industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on federal or state aid, access to capital markets or other factors beyond the states or entitys control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuers maintenance of its tax base.
Revenue Bonds. Revenue or special obligation bonds are typically payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed. Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source. Revenue bonds issued by state or local agencies to finance the development of low-income, multi-family housing involve special risks in addition to those associated with municipal securities generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. Such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.
- 13 -
Municipal Notes. Municipal notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, repayment on the note may be delayed or the note may not be fully repaid, and the Trust may lose money.
Municipal Commercial Paper. Municipal commercial paper is generally unsecured and issued to meet short-term financing needs. The lack of security presents some risk of loss to the Trust since, in the event of an issuers bankruptcy, unsecured creditors are repaid only after the secured creditors out of the assets, if any, that remain.
PABs. The Trust may purchase municipal securities classified as PABs. Interest received on certain PABs is treated as an item of tax preference for purposes of the federal alternative minimum tax and may impact the overall tax liability of certain investors in the Trust. PABs, formerly referred to as industrial development bonds, are issued by, or on behalf of, states, municipalities or public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of PABs, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the federal tax laws may place substantial limitations on the size of such issues. Such bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity which may or may not be guaranteed by a parent company or otherwise secured. PABs generally are not secured by a pledge of the taxing power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of a private entity and be aware of the risks that such an investment may entail. The continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entitys dependence on revenues for the operation of the particular facility being financed.
Moral Obligation Bonds. Municipal securities may also include moral obligation bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.
Municipal Lease Obligations. Also included within the general category of municipal securities are certificates of participation (COPs) issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. COPs represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively called lease obligations) relating to such equipment, land or facilities. Municipal leases, like other municipal debt obligations, are subject to the risk of non-payment. Although lease obligations do not constitute general obligations of the issuer for which the issuers unlimited taxing power is pledged, a lease obligation is frequently backed by the issuers covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain non-appropriation clauses which provide that the issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although non-appropriation lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult and the value of the property may be insufficient to issue lease obligations. Certain investments in lease obligations may be illiquid.
The ability of issuers of municipal leases to make timely lease payments may be adversely impacted in general economic downturns and as relative governmental cost burdens are allocated and reallocated among federal, state and local governmental units. Such non-payment would result in a reduction of income to the Trust, and could result in a reduction in the value of the municipal lease experiencing non-payment and a potential decrease in the NAV of the Trust. Issuers of municipal lease obligations might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Trust could experience delays and limitations with respect to the collection of principal and interest on such municipal leases and the Trust may not, in all circumstances, be able to collect all
- 14 -
principal and interest to which it is entitled. To enforce its rights in the event of a default in lease payments, the Trust might take possession of and manage the assets securing the issuers obligations on such securities, which may increase the Trusts operating expenses and adversely affect the NAV of the Trust. When the lease contains a non-appropriation clause, however, the failure to pay would not be a default and the Trust would not have the right to take possession of the assets. Any income derived from the Trusts ownership or operation of such assets may not be tax-exempt or may fail to generate qualifying income for purposes of the income tests applicable to regulated investment companies. In addition, the Trusts intention to qualify as a regulated investment company under the Code may limit the extent to which the Trust may exercise its rights by taking possession of such assets, because as a regulated investment company the Trust is subject to certain limitations on its investments and on the nature of its income.
Zero-Coupon Bonds. Municipal securities may include zero-coupon bonds. Zero-coupon bonds are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero-coupon bond is entitled to receive the par value of the security.
While interest payments are not made on such securities, holders of such securities are deemed to have received income (phantom income) annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the zero-coupon bond, but at the same time eliminates the holders ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero-coupon bonds are more exposed to interest rate risk than shorter term zero-coupon bonds. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash.
The Trust accrues income with respect to these securities for U.S. federal income tax and accounting purposes prior to the receipt of cash payments. Zero-coupon bonds may be subject to greater fluctuation in value and less liquidity in the event of adverse market conditions than comparably rated securities that pay cash interest at regular intervals.
Further, to maintain its qualification for pass-through treatment under the federal tax laws, the Trust is required to distribute income to its shareholders and, consequently, may have to dispose of other, more liquid portfolio securities under disadvantageous circumstances or may have to leverage itself by borrowing in order to generate the cash to satisfy these distributions. The required distributions may result in an increase in the Trusts exposure to zero-coupon bonds.
In addition to the above-described risks, there are certain other risks related to investing in zero-coupon bonds. During a period of severe market conditions, the market for such securities may become even less liquid. In addition, as these securities do not pay cash interest, the Trusts investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Trusts portfolio.
Pre-Refunded Municipal Securities. The principal of, and interest on, pre-refunded municipal securities are no longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. Government securities. The assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities.
However, except for a change in the revenue source from which principal and interest payments are made, the pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by the issuer.
- 15 -
Special Taxing Districts. Special taxing districts are organized to plan and finance infrastructure developments to induce residential, commercial and industrial growth and redevelopment. The bond financing methods such as tax increment finance, tax assessment, special services district and Mello-Roos bonds (a type of municipal security established by the Mello-Roos Community Facilities Act of 1982), are generally payable solely from taxes or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. They often are exposed to real estate development-related risks and can have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other revenues that are established to secure such financings are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could default if development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the districts.
Indexed and Inverse Floating Rate Securities. The Trust may invest in municipal securities (and Non-Municipal Tax-Exempt Securities) that yield a return based on a particular index of value or interest rates. For example, the Trust may invest in municipal securities that pay interest based on an index of municipal security interest rates. The principal amount payable upon maturity of certain municipal securities also may be based on the value of the index. To the extent the Trust invests in these types of municipal securities, the Trusts return on such municipal securities will be subject to risk with respect to the value of the particular index. Interest and principal payable on the municipal securities may also be based on relative changes among particular indices. Also, the Trust may invest in so-called inverse floating rate bonds or residual interest bonds on which the interest rates vary inversely with a short-term floating rate (which may be reset periodically by a Dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). The Trust may purchase synthetically created inverse floating rate bonds evidenced by custodial or trust receipts. Generally, income on inverse floating rate bonds will decrease when short-term interest rates increase, and will increase when short-term interest rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate which is a multiple (typically two) of the rate at which fixed rate long-term tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities will generally be more volatile than the market values of fixed rate tax-exempt securities. To seek to limit the volatility of these securities, the Trust may purchase inverse floating rate bonds with shorter-term maturities or limitations on the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. See The Trusts InvestmentsLeverageTender Option Bond Transactions.
When-Issued Securities, Delayed Delivery Securities and Forward Commitments. The Trust may purchase or sell securities that it is entitled to receive on a when-issued basis. The Trust may also purchase or sell securities on a delayed delivery basis. The Trust may also purchase or sell securities through a forward commitment. These transactions involve the purchase or sale of securities by the Trust at an established price with payment and delivery taking place in the future. The purchase will be recorded on the date the Trust enters into the commitment and the value of the securities will thereafter be reflected in the Trusts NAV. The Trust has not established any limit on the percentage of its assets that may be committed in connection with these transactions. At the time the Trust enters into a transaction on a when-issued basis, it will segregate or designate on its books and records cash or liquid assets with a value not less than the value of the when-issued securities.
There can be no assurance that a security purchased on a when-issued basis will be issued or that a security purchased or sold through a forward commitment will be delivered. A default by a counterparty may result in the Trust missing the opportunity of obtaining a price considered to be advantageous. The value of securities in these transactions on the delivery date may be more or less than the Trusts purchase price. The Trust may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period.
If deemed advisable as a matter of investment strategy, the Trust may dispose of or renegotiate a commitment after it has been entered into, and may sell securities it has committed to purchase before those securities are delivered to the Trust on the settlement date. In these cases the Trust may realize a taxable capital gain or loss.
- 16 -
When the Trust engages in when-issued, delayed delivery or forward commitment transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in the Trusts incurring a loss or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a commitment to purchase securities, and any subsequent fluctuations in their market value, is taken into account when determining the market value of the Trust starting on the day the Trust agrees to purchase the securities. The Trust does not earn interest on the securities it has committed to purchase until they are paid for and delivered on the settlement date.
Yields. Yields on municipal securities are dependent on a variety of factors, including the general condition of the money market and of the municipal security market, the size of a particular offering, the financial condition of the issuer, the maturity of the obligation and the rating of the issue. The ability of the Trust to achieve its investment objective is also dependent on the continuing ability of the issuers of the securities in which the Trust invests to meet their obligations for the payment of interest and principal when due. There are variations in the risks involved in holding municipal securities, both within a particular classification and between classifications, depending on numerous factors. Furthermore, the rights of owners of municipal securities and the obligations of the issuer of such municipal securities may be subject to applicable bankruptcy, insolvency and similar laws and court decisions affecting the rights of creditors generally and to general equitable principles, which may limit the enforcement of certain remedies.
High Yield or Junk Bonds. The Trust may invest up to 20% of its Managed Assets in securities rated below investment grade such as those rated Ba or below by Moodys Investors Service Inc. (Moodys) and BB or below by S&P Global Ratings (S&P), Fitch Ratings, Inc. (Fitch) or in unrated securities determined by the Advisor to be of comparable quality. Information with respect to ratings assigned to tax-exempt obligations that the Trust may purchase is set forth in Appendix ARatings of Investments in the SAI. Municipal securities of below investment grade quality (Ba/BB or below) are commonly known as junk bonds. Securities rated below investment grade are judged to have speculative characteristics with respect to their interest and principal payments. Such securities may face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments.
Other Investment Companies
The Trust may invest up to 10% of its total assets in securities of other open- or closed-end investment companies that invest primarily in municipal securities of the types in which the Trust may invest directly, subject to the requirements of the Statement of Preferences which limit the Trusts investment in such securities to 5% of its Managed Assets at the time of investment. The Trust generally expects to invest in other investment companies either during periods when it has large amounts of uninvested cash or during periods when there is a shortage of attractive, high-yielding municipal securities available in the market. As a shareholder in an investment company, the Trust will bear its ratable share of that investment companys expenses, and would remain subject to payment of the Trusts advisory and other fees and expenses with respect to assets so invested. The Advisor will take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal bond investments. In addition, the securities of other investment companies may be leveraged and will therefore be subject to leverage risks. The net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares. Investment companies may have investment policies that differ from those of the Trust. In addition, to the extent that the Trust invests in other investment companies, the Trust will be dependent upon the investment and research abilities of persons other than the Advisor. The Trust treats its investments in such open- or closed-end investment companies as investments in municipal securities.
Tax-Exempt Preferred Shares
The Trust may invest up to 15% of its total assets in preferred interests of other investment funds that pay dividends that are exempt from regular federal income tax, subject to the requirements of the Statement of Preferences which limit the Trusts investment in such securities to 5% of its Managed Assets at the time of investment. A portion of such dividends may be capital gain distributions subject to federal capital gains tax. Such funds in turn invest in municipal securities and other assets that pay interest or make distributions that are exempt from regular federal
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income tax, such as revenue bonds issued by state or local agencies to fund the development of low-income, multi-family housing. Investment in such tax-exempt preferred shares involves many of the same issues as investing in other open- or closed-end investment companies as discussed above. These investments also have additional risks, including liquidity risk, the absence of regulation governing investment practices, capital structure and leverage, affiliated transactions and other matters, and concentration of investments in particular issuers or industries. Revenue bonds issued by state or local agencies to finance the development of low-income, multi-family housing involve special risks in addition to those associated with municipal securities generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. Such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds. The Trust will treat investments in tax-exempt preferred shares as investments in municipal securities.
Strategic Transactions
The Trust may engage in various strategic transactions for hedging and risk management purposes or to enhance total return (Strategic Transactions). Strategic Transactions involve the use of derivative instruments. Such instruments may include, but are not limited to, financial futures contracts, swap contracts (including, but not limited to, credit default swaps), options on financial futures, options on swap contracts and other derivative instruments. If the Trust engages in Strategic Transactions for hedging and risk management purposes, it primarily intends to use strategies that include swaps (including interest rate swaps), financial futures contracts, options on financial futures or options based either on an index of long-term securities or on taxable debt securities whose prices, in the opinion of the Advisor, correlate with the prices of the Trusts investments. If the Trust engages in Strategic Transactions to enhance total return, it primarily intends to use the same strategies as discussed above for hedging and risk management purposes and, in addition, to engage in credit derivative transactions, including credit default swaps. There is no assurance that these derivative strategies will be available at any time or that the Advisor will determine to use them for hedging or risk management purposes or to enhance total return or, if used, that the strategies will be successful.
There is no particular strategy that requires use of one technique rather than another as the decision to use any particular strategy or instrument is a function of market conditions and the composition of the portfolio. The ability of the Trust to use Strategic Transactions successfully will depend on the Advisors ability to predict pertinent market movements as well as sufficient correlation among the instruments, which cannot be assured. Strategic Transactions subject the Trust to the risk that, if the Advisor incorrectly forecasts market values, interest rates or other applicable factors, the Trusts performance could suffer. Certain of these Strategic Transactions, such as investments in inverse floating rate securities and credit default swaps, may provide investment leverage to the Trusts portfolio. The Trust is not required to use derivatives or other portfolio strategies to seek to hedge its portfolio and may choose not to do so.
The use of Strategic Transactions may result in losses greater than if they had not been used, may require the Trust to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Trust can realize on an investment or may cause the Trust to hold a security that it might otherwise sell. Furthermore, the Trust may only engage in Strategic Transactions from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur.
Inasmuch as any obligations of the Trust that arise from the use of Strategic Transactions will be covered by segregated or earmarked liquid assets or offsetting transactions, the Trust and the Advisor believe such obligations do not constitute senior securities and, accordingly, will not treat such transactions as being subject to its borrowing restrictions. Additionally, segregated or earmarked liquid assets, amounts paid by the Trust as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Trust for investment purposes.
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Certain federal income tax requirements may restrict or affect the ability of the Trust to engage in Strategic Transactions. In addition, the use of certain Strategic Transactions may give rise to taxable income and have certain other consequences.
Put and Call Options on Securities and Indices. The Trust may purchase and sell put and call options on securities and indices. A put option gives the purchaser of the option the right to sell and the writer the obligation to buy the underlying security at the exercise price during the option period. The Trust may also purchase and sell options on bond indices (index options). Index options are similar to options on securities except that, rather than taking or making delivery of securities underlying the option at a specified price upon exercise, an index option gives the holder the right to receive cash upon exercise of the option if the level of the bond index upon which the option is based is greater, in the case of a call, or less, in the case of a put, than the exercise price of the option. The purchase of a put option on a debt security could protect the Trusts holdings in a security or a number of securities against a substantial decline in the market value. A call option gives the purchaser of the option the right to buy and the seller the obligation to sell the underlying security or index at the exercise price during the option period or for a specified period prior to a fixed date. The purchase of a call option on a security could protect the Trust against an increase in the price of a security that it intended to purchase in the future.
Writing Covered Call Options. The Trust is authorized to write (i.e., sell) covered call options with respect to municipal securities it owns, thereby giving the holder of the option the right to buy the underlying security covered by the option from the Trust at the stated exercise price until the option expires. The Trust writes only covered call options, which means that so long as the Trust is obligated as the writer of a call option, it will own the underlying securities subject to the option.
The Trust receives a premium from writing a call option, which increases the Trusts return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, the Trust limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Trusts obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. The Trust may engage in closing transactions in order to terminate outstanding options that it has written.
Additional Information About Options. The Trusts ability to close out its position as a purchaser or seller of an exchange-listed put or call option is dependent upon the existence of a liquid secondary market on option exchanges. Among the possible reasons for the absence of a liquid secondary market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (iv) interruption of the normal operations on an exchange; (v) inadequacy of the facilities of an exchange or the Office of the Comptroller of the Currency (the OCC) to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been listed by the OCC as a result of trades on that exchange would generally continue to be exercisable in accordance with their terms. Over-the-counter (OTC) options are purchased from or sold to dealers, financial institutions or other counterparties which have entered into direct agreements with the Trust. With OTC options, such variables as expiration date, exercise price and premium will be agreed upon between the Trust and the counterparty, without the intermediation of a third party such as the OCC. If the counterparty fails to make or take delivery of the securities underlying an option it has written, or otherwise settle the transaction in accordance with the terms of that option as written, the Trust would lose the premium paid for the option as well as any anticipated benefit of the transaction. OTC options and assets used to cover OTC options written by the Trust are considered by the staff of the SEC to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds that might otherwise be realized.
The Trust may engage in options and futures transactions on exchanges and options in the over-the-counter markets. The Trust will only enter into OTC options with counterparties the Advisor believes to be creditworthy at the time they enter into such transactions.
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The hours of trading for options on debt securities may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.
Financial Futures Transactions and Options. The Trust is authorized to purchase and sell certain exchange traded financial futures contracts (financial futures contracts) in order to hedge its investments against declines in value, and to hedge against increases in the cost of securities it intends to purchase or to seek to enhance the Trusts return. However, any transactions involving financial futures or options (including puts and calls associated therewith) will be in accordance with the Trusts investment policies and limitations. A financial futures contract obligates the seller of a contract to deliver and the purchaser of a contract to take delivery of the type of financial instrument covered by the contract, or in the case of index-based futures contracts to make and accept a cash settlement, at a specific future time for a specified price. To hedge its portfolio, the Trust may take an investment position in a futures contract which will move in the opposite direction from the portfolio position being hedged. A sale of financial futures contracts may provide a hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts.
Distributions, if any, of net long-term capital gains from certain transactions in futures or options are taxable at long-term capital gains rates for U.S. federal income tax purposes.
Futures Contracts. A futures contract is an agreement between two parties to buy and sell a security or, in the case of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled through liquidation, i.e., by entering into an offsetting transaction. Futures contracts have been designed by boards of trade which have been designated contracts markets by the CFTC.
The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies, but is generally about 5% of the contract amount, must be deposited with the broker. This amount is known as initial margin and represents a good faith deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable, a process known as marking to the market. At any time prior to the settlement date of the futures contract, the position may be closed out by taking an opposite position that will operate to terminate the position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker and the purchaser realizes a loss or gain. In addition, a nominal commission is paid on each completed sale transaction.
The Trust may also purchase and sell financial futures contracts on U.S. Government securities as a hedge against adverse changes in interest rates as described below. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association Certificates and three-month U.S. Treasury bills. The Trust may purchase and write call and put options on futures contracts on U.S. Government securities and purchase and sell municipal security index futures contracts in connection with its hedging strategies.
The Trust also may engage in other futures contracts transactions such as futures contracts on other municipal bond indices that may become available if the Advisor should determine that there is normally a sufficient correlation between the prices of such futures contracts and the municipal securities in which the Trust invests to make such hedging appropriate.
Futures Strategies. The Trust may sell a financial futures contract (i.e., assume a short position) in anticipation of a decline in the value of its investments resulting from an increase in interest rates or otherwise. The risk of decline could be reduced without employing futures as a hedge by selling investments and either reinvesting the proceeds in
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securities with shorter maturities or by holding assets in cash. This strategy, however, entails increased transaction costs in the form of dealer spreads and typically would reduce the average yield of the Trusts portfolio securities as a result of the shortening of maturities. The sale of futures contracts provides an alternative means of hedging against declines in the value of its investments. As such values decline, the value of the Trusts positions in the futures contracts will tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Trusts investments that are being hedged. While the Trust will incur commission expenses in selling and closing out futures positions, commissions on futures transactions are typically lower than transaction costs incurred in the purchase and sale of the Trusts investments being hedged. In addition, the ability of the Trust to trade in the standardized contracts available in the futures markets may offer a more effective defensive position than a program to reduce the average maturity of the portfolio securities due to the unique and varied credit and technical characteristics of the instruments available to the Trust. Employing futures as a hedge also may permit the Trust to assume a defensive posture without reducing the yield on its investments beyond any amounts required to engage in futures trading.
When the Trust intends to purchase a security, the Trust may purchase futures contracts as a hedge against any increase in the cost of such security resulting from a decrease in interest rates or otherwise, that may occur before such purchase can be effected. Subject to the degree of correlation between such securities and the futures contracts, subsequent increases in the cost of such securities should be reflected in the value of the futures held by the Trust. As such purchases are made, an equivalent amount of futures contracts will be closed out. Due to changing market conditions and interest rate forecasts, however, a futures position may be terminated without a corresponding purchase of portfolio securities.
Call Options on Futures Contracts. The Trust may also purchase and sell exchange traded call and put options on financial futures contracts. The purchase of a call option on a futures contract is analogous to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the futures contract upon which it is based or the price of the underlying securities, it may or may not be less risky than ownership of the futures contract or underlying securities. Like the purchase of a futures contract, the Trust may purchase a call option on a futures contract to hedge against a market advance when the Trust is not fully invested.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is below the exercise price, the Trust will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Trusts portfolio holdings.
Put Options on Futures Contracts. The purchase of a put option on a futures contract is analogous to the purchase of a protective put option on portfolio securities. The Trust may purchase a put option on a futures contract to hedge the Trusts portfolio against the risk of rising interest rates.
The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is higher than the exercise price, the Trust will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities which the Trust intends to purchase.
The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a futures contract involves risks similar to those relating to futures contracts.
The 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. To the extent the Trust uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, the Advisor has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. The Advisor is not, therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Trust.
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Counterparty Credit Standards. To the extent that the Trust engages in principal transactions, including, but not limited to, OTC options, forward currency transactions, swap transactions, repurchase and reverse repurchase agreements and the purchase and sale of bonds and other fixed-income securities, it must rely on the creditworthiness of its counterparties under such transactions. In certain instances, the credit risk of a counterparty is increased by the lack of a central clearing house for certain transactions, including certain swap contracts. In the event of the insolvency of a counterparty, the Trust may not be able to recover its assets, in full or at all, during the insolvency process. Counterparties to investments may have no obligation to make markets in such investments and may have the ability to apply essentially discretionary margin and credit requirements. Similarly, the Trust will be subject to the risk of bankruptcy of, or the inability or refusal to perform with respect to such investments by, the counterparties with which it deals. The Advisor will seek to minimize the Trusts exposure to counterparty risk by entering into such transactions with counterparties the Advisor believes to be creditworthy at the time it enters into the transaction. Certain option transactions and Strategic Transactions may require the Trust to provide collateral to secure its performance obligations under a contract, which would also entail counterparty credit risk.
The Trust currently leverages its assets through the use of VMTP Shares and TOB Residuals. For the fiscal year ended April 30, 2021, the average liquidation value of the VMTP Shares outstanding was 270,800,000 and the average annual dividend rate on the VMTP Shares was 1.03%. The Trust currently does not intend to borrow money or issue debt securities. Although it has no present intention to do so, the Trust reserves the right to borrow money from banks or other financial institutions, or issue debt securities, in the future if it believes that market conditions would be conducive to the successful implementation of a leveraging strategy through borrowing money or issuing debt securities. Any such leveraging will not be fully achieved until the proceeds resulting from the use of leverage have been invested in accordance with the Trusts investment objective and policies.
The use of leverage can create risks. When leverage is employed, the NAV and market price of the common shares and the yield to holders of common shares will be more volatile than if leverage were not used. Changes in the value of the Trusts portfolio, including securities bought with the proceeds of leverage, will be borne entirely by the holders of common shares. If there is a net decrease or increase in the value of the Trusts investment portfolio, leverage will decrease or increase, as the case may be, the NAV per common share to a greater extent than if the Trust did not utilize leverage. A reduction in the Trusts NAV may cause a reduction in the market price of its shares. During periods in which the Trust is using leverage, the fee paid to the Advisor for advisory services will be higher than if the Trust did not use leverage, because the fees paid will be calculated on the basis of the Trusts Managed Assets, which includes the proceeds from leverage. The Trusts leveraging strategy may not be successful.
Certain types of leverage the Trust may use may result in the Trust being subject to covenants relating to asset coverage and portfolio composition requirements. The Trust may be subject to certain restrictions on investments imposed by one or more lenders or by guidelines of one or more rating agencies, which may issue ratings for any short-term debt securities or preferred shares issued by the Trust. The terms of any borrowings or rating agency guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Investment Company Act. The Advisor does not believe that these covenants or guidelines will impede it from managing the Trusts portfolio in accordance with its investment objective and policies if the Trust were to utilize leverage.
Under the Investment Company Act, the Trust is not permitted to issue senior securities if, immediately after the issuance of such senior securities, the Trust would have an asset coverage ratio (as defined in the Investment Company Act) of less than 300% with respect to senior securities representing indebtedness (i.e., for every dollar of indebtedness outstanding, the Trust is required to have at least three dollars of assets) or less than 200% with respect to senior securities representing preferred shares (i.e., for every dollar of preferred shares outstanding, the Trust is required to have at least two dollars of assets). The Investment Company Act also provides that the Trust may not declare distributions, or purchase its stock (including through tender offers) if, immediately after doing so, it will have an asset coverage ratio of less than 300% or 200%, as applicable. Under the Investment Company Act, certain short-term borrowings (such as for cash management purposes) are not subject to these limitations if (i) repaid within 60 days, (ii) not extended or renewed, and (iii) not in excess of 5% of the total assets of the Trust.
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Effects of Leverage
Assuming that leverage will represent approximately 38.2% of the Trusts Managed Assets and that the Trust will bear expenses relating to that leverage at an average annual rate of 0.91%, the income generated by the Trusts portfolio (net of estimated expenses) must exceed 0.35% in order to cover the expenses specifically related to the Trusts use of leverage. Of course, these numbers are merely estimates used for illustration. Actual leverage expenses will vary frequently and may be significantly higher or lower than the rate estimated above.
The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on common share total return, assuming investment portfolio total returns (comprised of income and changes in the value of investments held in the Trusts portfolio) of (10)%, (5)%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Trust. The table further reflects the use of leverage representing 40.39% of the Trusts Managed Assets and an assumed annual cost of leverage of 0.91%.
Assumed Portfolio Total Return (Net of Expenses) |
(10.00 | )% | (5.00 | )% | 0 | % | 5.00 | % | 10.00 | % | ||||||||||
Common Share Total Return |
(17.39 | )% | (9.01 | )% | (0.62 | )% | 7.77 | % | 16.16 | % |
Common share total return is composed of two elements: the common share dividends paid by the Trust (the amount of which is largely determined by the net investment income of the Trust after paying for any leverage used by the Trust) and gains or losses on the value of the securities the Trust owns. As required by SEC rules, the table assumes that the Trust is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Trust must assume that the interest it receives on its investments is entirely offset by losses in the value of those securities.
Preferred Shares
The Trust has leveraged its portfolio by issuing VMTP Shares. Under the Investment Company Act, the Trust is not permitted to issue preferred shares if, immediately after such issuance, the liquidation value of the Trusts outstanding preferred shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings (i.e., the value of the Trusts assets must be at least 200% of the liquidation value of its outstanding preferred shares). In addition, the Trust would not be permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the value of the Trusts assets less liabilities other than borrowings is at least 200% of such liquidation value. Please see Description of Shares Preferred Shares for a description of the Trusts VMTP Shares.
For tax purposes, the Trust is currently required to allocate tax-exempt interest income, net capital gain and other taxable income, if any, between its common shares and preferred shares outstanding in proportion to total dividends paid to each class for the year in which or with respect to which tax-exempt income, the net capital gain or other taxable income is paid. If net capital gain or other taxable income is allocated to preferred shares, instead of solely tax-exempt income, the Trust will likely have to pay higher total dividends to preferred shareholders or make special payments to preferred shareholders to compensate them for the increased tax liability. This would reduce the total amount of dividends paid to the common shareholders, but would increase the portion of the dividend that is tax-exempt. If the increase in dividend payments or the special payments to preferred shareholders are not entirely offset by a reduction in the tax liability of, and an increase in the tax-exempt dividends received by, the common shareholders, the advantage of the Trusts leveraged structure to common shareholders will be reduced.
Tender Option Bonds
The Trust currently leverages its assets through the use of TOB Residuals, which are derivative interests in municipal bonds. The TOB Residuals in which the Trust will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax. No independent investigation will be made to confirm the tax-exempt status of the interest or income paid by TOB Residuals held by the Trust. Although volatile, TOB Residuals typically offer the potential for yields exceeding the yields available on fixed rate municipal bonds with comparable credit quality.
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TOB Residuals represent beneficial interests in a TOB Trust formed for the purpose of holding municipal bonds contributed by one or more funds. A TOB Trust typically issues two classes of beneficial interests: short-term floating rate interests (TOB Floaters), which are sold to third party investors, and TOB Residuals, which are generally issued to the fund(s) that transferred municipal bonds to the TOB Trust. The Trust may invest in both TOB Floaters and TOB Residuals. TOB Floaters may have first priority on the cash flow from the municipal bonds held by the TOB Trust and are enhanced with a liquidity support arrangement from a third party TOBs Liquidity Provider (defined below) which allows holders to tender their position at par (plus accrued interest). The Trust, as a holder of TOB Residuals, is paid the residual cash flow from the TOB Trust. The Trust contributes municipal bonds to the TOB Trust and is paid the cash received by the TOB Trust from the sale of the TOB Floaters, less certain transaction costs, and typically will invest the cash to purchase additional municipal bonds or other investments permitted by its investment policies. If the Trust ever purchases all or a portion of the TOB Floaters sold by the TOB Trust, it may surrender those TOB Floaters together with a proportionate amount of TOB Residuals to the TOB Trust in exchange for a proportionate amount of the municipal bonds owned by the TOB Trust.
Other BlackRock-advised Funds (as defined below) may contribute municipal bonds to a TOB Trust into which the Trust has contributed municipal bonds. If multiple BlackRock-advised Funds participate in the same TOB Trust, the economic rights and obligations under the TOB Residual will generally be shared among the funds ratably in proportion to their participation in the TOB Trust.
The municipal bonds transferred to a TOB Trust typically are high grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOB Trust transaction includes a credit enhancement feature that provides for the timely payment of principal and interest on the bonds to the TOB Trust by a credit enhancement provider. The TOB Trust would be responsible for the payment of the credit enhancement fee and the Trust, as a TOB Residual holder, would be responsible for reimbursement of any payments of principal and interest made by the credit enhancement provider.
The TOB Residuals held by the Trust generally provide the Trust with the right to cause the holders of a proportional share of the TOB Floaters to tender their notes to the TOB Trust at par plus accrued interest. Thereafter, the Trust may withdraw a corresponding share of the municipal bonds from the TOB Trust. As a result, a tender option bond transaction, in effect, creates exposure for the Trust to the entire return of the municipal bonds in the TOB Trust, with a net cash investment by the Trust that is less than the value of the municipal bonds in the TOB Trust. This multiplies the positive or negative impact of the municipal bonds return within the Trust (thereby creating leverage). The leverage within a TOB Trust depends on the value of the municipal bonds deposited in the TOB Trust relative to the value of the TOB Floaters it issues.
The Trust may invest in highly leveraged TOB Residuals. A TOB Residual generally is considered highly leveraged if the principal amount of the TOB Floaters issued by the related TOB Trust exceeds 75% of the principal amount of the municipal bonds owned by the TOB Trust.
The leverage attributable to the Trusts use of TOB Residuals may be called away on relatively short notice and therefore may be less permanent than more traditional forms of leverage. The TOB Trust may be collapsed without the consent of the Trust upon the occurrence of termination events, as defined in the TOB Trust agreements. Upon the occurrence of a termination event, a TOB Trust would be liquidated with the proceeds applied first to any accrued fees owed to the trustee of the TOB Trust, the remarketing agent of the TOB Floaters and the TOBs Liquidity Provider. Upon certain termination events, the holders of the TOB Floaters would be paid before the TOB Residual holders (i.e., the Trust) whereas in other termination events, the holders of TOB Floaters and the TOB Residual holders would be paid pro rata.
TOB Trusts are typically supported by a liquidity facility provided by a liquidity provider (the TOBs Liquidity Provider) that allows the holders of the TOB Floaters to tender their TOB Floaters in exchange for payment of par plus accrued interest on any business day (subject to the non-occurrence of a termination event). The tendered TOB Floaters are remarketed by a remarketing agent. In the event of a failed remarketing, the TOB Trust may draw upon a loan from the TOBs Liquidity Provider to purchase the tendered TOB Floaters. Any loans made by the TOBs Liquidity Provider will be secured by the purchased TOB Floaters held by the TOB Trust and will be subject to an increased interest rate based on number of days the loan is outstanding.
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The Trust may invest in a TOB Trust on either a non-recourse or recourse basis. When the Trust invests in TOB Trusts on a non-recourse basis, and the TOBs Liquidity Provider is required to make a payment under the liquidity facility, the TOBs Liquidity Provider will typically liquidate all or a portion of the municipal bonds held in the TOB Trust and then fund the balance, if any, of the Liquidation Shortfall. If the Trust invests in a TOB Trust on a recourse basis, it will typically enter into a reimbursement agreement with the TOBs Liquidity Provider pursuant to which the Trust is required to reimburse the TOBs Liquidity Provider the amount of any Liquidation Shortfall. As a result, if the Trust invests in a recourse TOB Trust, the Trust will bear the risk of loss with respect to any Liquidation Shortfall. If multiple BlackRock-advised Funds participate in any such TOB Trust, these losses will be shared ratably, in proportion to their participation in the TOB Trust.
Under accounting rules, Municipal Bonds of the Trust that are deposited into a TOB Trust are investments of the Trust and are presented on the Trusts Schedule of Investments and outstanding TOB Floaters issued by a TOB Trust are presented as liabilities in the Trusts Statement of Assets and Liabilities. Interest income from the underlying Municipal Bonds is recorded by the Trust on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration, trustee and other services to a TOB Trust are reported as expenses of the Trust. In addition, under accounting rules, loans made to a TOB Trust sponsored by the Trust may be presented as loans of the Trust in the Trusts financial statements even if there is no recourse to the Trusts assets.
For TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal bonds with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option. Since the tender option feature has a shorter term than the final maturity or first call date of the underlying municipal bonds deposited in the TOB Trust, the holder of the TOB Floaters relies upon the terms of the agreement with the financial institution furnishing the liquidity facility as well as the credit strength of that institution. The perceived reliability and creditworthiness, of many major financial institutions, some of which sponsor and/or provide liquidity support to TOB Trusts increases the risk associated with TOB Floaters. This in turn may reduce the desirability of TOB Floaters as investments, which could impair the viability or availability of TOB Trusts.
The use of TOB Residuals will require the Trust to earmark or segregate liquid assets in an amount equal to any TOB Floaters, plus any accrued but unpaid interest due on the TOB Floaters, issued by TOB Trusts sponsored by, or on behalf of, the Trust that are not owned by the Trust. The use of TOB Residuals may also require the Trust to earmark or segregate liquid assets in an amount equal to loans provided by the TOBs Liquidity Provider to the TOB Trust to purchase tendered TOB Floaters. The Trust reserves the right to modify its asset segregation policies in the future to the extent that such changes are in accordance with applicable regulations or interpretations. Future regulatory requirements or SEC guidance may necessitate more onerous contractual or regulatory requirements, which may increase the costs or reduce the degree of potential economic benefits of TOB Trust transactions or limit the Trusts ability to enter into or manage TOB Trust transactions.
Credit Facility
The Trust is permitted to leverage its portfolio by entering into one or more credit facilities. If the Trust enters into a credit facility, the Trust may be required to prepay outstanding amounts or incur a penalty rate of interest upon the occurrence of certain events of default. The Trust would also likely have to indemnify the lenders under the credit facility against liabilities they may incur in connection therewith. In addition, the Trust expects that any credit facility would contain covenants that, among other things, likely would limit the Trusts ability to pay distributions in certain circumstances, incur additional debt, change certain of its investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the Investment Company Act. The Trust may be required to pledge its assets and to maintain a portion of its assets in cash or high-grade securities as a reserve against interest or principal payments and expenses. The Trust expects that any credit facility would have customary covenant, negative covenant and default provisions. There can be no assurance that the Trust will enter into an agreement for a credit facility or one on terms and conditions representative of the foregoing, or that additional material terms will not apply. In addition, if entered into, a credit facility may in the future be replaced or refinanced by one or more credit facilities having substantially different terms or by the issuance of preferred shares.
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Reverse Repurchase Agreements
Borrowings may be made by the Trust through reverse repurchase agreements under which the Trust sells portfolio securities to financial institutions, such as banks and broker-dealers, and agrees to repurchase them at an agreed upon date and price. Such agreements are considered to be borrowings under the Investment Company Act. The Trust may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction.
Derivatives
The Trust may enter into derivative transactions that have economic leverage embedded in them. Derivative transactions that the Trust may enter into and the risks associated with them are described elsewhere in this Prospectus and are also referred to as Strategic Transactions. The Trust cannot assure you that investments in derivative transactions that have economic leverage embedded in them will result in a higher return on its common shares.
To the extent the terms of such transactions obligate the Trust to make payments, the Trust may earmark or segregate cash or liquid assets in an amount at least equal to the current value of the amount then payable by the Trust under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the current value of the amount then payable by the Trust under the terms of such transactions is represented by the notional amounts of such investments, the Trust would segregate or earmark cash or liquid assets having a market value at least equal to such notional amounts, and if the current value of the amount then payable by the Trust under the terms of such transactions is represented by the market value of the Trusts current obligations, the Trust would segregate or earmark cash or liquid assets having a market value at least equal to such current obligations. To the extent the terms of such transactions obligate the Trust to deliver particular securities to extinguish the Trusts obligations under such transactions the Trust may cover its obligations under such transactions by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is required, having earmarked or segregated an appropriate amount of cash or liquid assets). Such earmarking, segregation or cover is intended to provide the Trust with available assets to satisfy its obligations under such transactions. As a result of such earmarking, segregation or cover, the Trusts obligations under such transactions will not be considered senior securities representing indebtedness for purposes of the Investment Company Act, or considered borrowings subject to the Trusts limitations on borrowings discussed above, but may create leverage for the Trust. To the extent that the Trusts obligations under such transactions are not so earmarked, segregated or covered, such obligations may be considered senior securities representing indebtedness under the Investment Company Act and therefore subject to the 300% asset coverage requirement.
These earmarking, segregation or cover requirements can result in the Trust maintaining securities positions it would otherwise liquidate, segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (Rule 18f-4). The Trust will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the Investment Company Act, treat derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
Temporary Borrowings
The Trust may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Trust securities.
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The NAV and market price of, and dividends paid on, the common shares will fluctuate with and be affected by, among other things, the risks of investing in the Trust.
General Risks
Please refer to the section of the Trusts most recent annual report on Form N-CSR entitled Trust Investment Objectives, Policies and RisksRisk Factors, which is incorporated by reference herein, for a discussion of the general risks of investing in the Trust.
Other Risks
Risk Associated with Recent Market Events
In response to the financial crisis and recent market events , the United States and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. Policy and legislative changes by the U.S. government and the Federal Reserve to assist in the ongoing support of financial markets, both domestically and in other countries, are changing many aspects of financial regulation. The impact of these changes on the markets, and the practical implications for market participants, may not be fully known for some time. In some countries where economic conditions are recovering, such countries are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain investments. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws and the imposition of trade barriers. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Changes to the Federal Reserve policy, including with respect to certain interest rates, may affect the value, volatility and liquidity of dividend and interest paying securities. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants.
In addition, the current contentious domestic political environment, as well as political and diplomatic events in the United States and abroad, such as presidential elections in the United States or the U.S. governments inability at times to agree on a long-term budget and deficit reduction plan, has in the past resulted, and may in the future result, in adverse consequences (including a government shutdown) to the U.S. regulatory landscape, the general market environment and/or investment sentiment, which could negatively impact the Trusts investments and operations. Such adverse consequences may affect investor and/or consumer confidence and may adversely impact financial markets and the broader economy, potentially to a significant degree. In recent years, some countries, including the United States, have adopted and/or are considering the adoption of more protectionist trade policies and/or a move away from tight financial industry regulations, including but not limited to, direct capital infusions into companies, new monetary programs and dramatically lower interest rates, that were previously adopted in response to serious economic disruptions. The exact shape of these policies is still being considered, but the equity and debt markets may react strongly to expectations of change, which could increase volatility, especially if the markets expectations are not borne out and an unexpected or sudden reversal of these policies, could increase volatility in securities markets, which could adversely affect the Trusts investments or prevent the Trust from executing on advantageous investment opportunities in a timely manner. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time. In addition, geopolitical and other risks, including environmental and public health, may add to instability in world economies and markets generally. Economies and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not the Trust invests in securities of issuers located in or with significant exposure to countries experiencing economic, political and/or financial difficulties, the value and liquidity of the Trusts investments may be negatively affected by such events.
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and developed into a global pandemic. This pandemic has resulted in closing borders, enhanced health screenings,
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healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty. Disruptions in markets can adversely impact the Trust and its investments. Further, certain local markets have been or may be subject to closures, and there can be no certainty regarding whether trading will continue in any local markets in which the Trust may invest, when any resumption of trading will occur or , once such markets resume trading, whether they will face further closures. Any suspension of trading in markets in which the Trust invests will have an impact on the Trust and its investments and will impact the Trusts ability to purchase or sell securities in such market. The impact of this pandemic has adversely affected the economies of many nations and the entire global economy and may impact individual issuers and capital markets in ways that cannot be foreseen. Public health crises caused by the pandemic may exacerbate other preexisting political, social and economic risks in certain countries or globally. Other infectious illness outbreaks that may arise in the future could have similar or other unforeseen effects. The duration of this pandemic or others and their effects cannot be determined with certainty.
LIBOR Risk
The Trust may be exposed to financial instruments that are tied to the London Interbank Offered Rate (LIBOR) to determine payment obligations, financing terms, hedging strategies or investment value. The Trusts investments may pay interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Trust may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Trust may also reference LIBOR.
The head of the United Kingdoms Financial Conduct Authority announced a phase out of LIBOR such that after June 30, 2023, the overnight, 1- month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings will cease to be published or will no longer be representative. All other LIBOR settings and certain other interbank offered rates, such as the Euro Overnight Index Average (EONIA), ceased to be published or representative after December 31, 2021. The Trust may have investments linked to other interbank offered rates that may also cease to be published in the future. Various financial industry groups have been planning for the transition away from LIBOR, but there remain challenges to converting certain securities and transactions to a new reference rate (e.g., the Secured Overnight Financing Rate (SOFR), which is intended to replace the U.S. dollar LIBOR).
Neither the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain existing instruments. Global regulators have advised market participants to cease entering into new contracts using LIBOR as a reference rate, and it is possible that investments in LIBOR-based instruments could invite regulatory scrutiny. In addition, a liquid market for newly issued instruments that use a reference rate other than LIBOR still may be developing. There may also be challenges for the Trust to enter into hedging transactions against such newly issued instruments until a market for such hedging transactions develops. All of the aforementioned may adversely affect the Trusts performance or NAV.
Market Disruption and Geopolitical Risk
The occurrence of events similar to those in recent years, such as the aftermath of the war in Iraq, instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, new and ongoing epidemics and pandemics of infectious diseases and other global health events, natural/environmental disasters, terrorist attacks in the United States and around the world, social and political discord, debt crises (such as the Greek crisis), sovereign debt downgrades, increasingly strained relations between the United States and a number of foreign countries, including traditional allies, such as certain European countries, and historical adversaries, such as North Korea, Iran, China and Russia, and the international community generally, new and continued political unrest in various countries, such as Venezuela and Spain, the exit or potential exit of one or more countries from the EU or the EMU, and continued changes in the balance of political power among and within the branches of the U.S. government, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial
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markets, and may cause further economic uncertainties in the United States and worldwide. The coronavirus pandemic has led to illiquidity and volatility in the municipal bond markets and may lead to downgrades in the credit quality of certain municipal issuers.
Russia launched a large-scale invasion of Ukraine on February 24, 2022. The extent and duration of the military action, resulting sanctions and resulting future market disruptions, including declines in its stock markets and the value of the ruble against the U.S. dollar, in the region are impossible to predict, but could be significant. Any such disruptions caused by Russian military action or other actions (including cyberattacks and espionage) or resulting actual and threatened responses to such activity, including purchasing and financing restrictions, boycotts or changes in consumer or purchaser preferences, sanctions, tariffs or cyberattacks on the Russian government, Russian companies or Russian individuals, including politicians, could have a severe adverse effect on Russia and the European region, including significant negative impacts on the Russian economy, the European economy and the markets for certain securities and commodities, such as oil and natural gas, and may likely have collateral impacts on such sectors globally as well as other sectors. How long such military action and related events will last cannot be predicted.
China and the United States have each recently imposed tariffs on the other countrys products. These actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of Chinas export industry, which could have a negative impact on the Trusts performance. U.S. companies that source material and goods from China and those that make large amounts of sales in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the Euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future.
On January 31, 2020, the United Kingdom (UK) officially withdrew from the EU (commonly known as Brexit). The UK and EU reached a preliminary trade agreement, which became effective on January 1, 2021, regarding the terms of their future trading relationship relating principally to the trading of goods; however, negotiations are ongoing for matters not covered by the agreement, such as the trade of financial services. Due to uncertainty of the current political environment, it is not possible to foresee the form or nature of the future trading relationship between the UK and the EU. The longer term economic, legal, political and social framework to be put in place between the UK and the EU remains unclear and the ongoing political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets may continue for some time. In particular, Brexit may lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility in the European and global markets and may destabilize some or all of the other EU member countries. This uncertainty may have an adverse effect on the economy generally and on the ability of the Trust and its investments to execute their respective strategies, to receive attractive returns and/or to exit certain investments at an advantageous time or price. In particular, currency volatility may mean that the returns of the Trust and its investments are adversely affected by market movements and may make it more difficult, or more expensive, if the Trust elects to execute currency hedges. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential downgrading of the UKs sovereign credit rating, may also have an impact on the performance of portfolio companies or investments located in the UK or Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the Trust, its investments or its organization more generally.
The occurrence of any of these above events could have a significant adverse impact on the value and risk profile of the Trusts portfolio. The Trust does not know how long the securities markets may be affected by similar events and cannot predict the effects of similar events in the future on the U.S. economy and securities markets. There can be no assurance that similar events and other market disruptions will not have other material and adverse implications.
Cybersecurity incidents affecting particular companies or industries may adversely affect the economies of particular countries of the world in which the Trust invests.
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Regulation and Government Intervention Risk
In recent years, the U.S. Government and the Federal Reserve, as well as foreign governments throughout
the world, have taken unprecedented actions designed to support certain financial institutions and segments of the financial markets that experienced extreme volatility, such as implementing stimulus packages, providing liquidity in fixed income,
commercial paper and other markets, providing tax breaks, direct capital infusions into companies and dramatically lowering interest rates, among other actions. Such actions may have unintended and adverse consequences, such as causing or
contributing to an increased risk of inflation and an unexpected or sudden reversal of these policies, or the ineffectiveness of such policies, may increase volatility in securities markets or prevent the Trust from executing on advantageous
investment opportunities in a timely manner and negatively impact the Trusts investments. See Inflation Risk. The reduction or withdrawal of Federal Reserve or other U.S. or
non-U.S. governmental support could negatively affect financial markets generally and reduce the value and liquidity of certain securities. Additionally, with the cessation of certain other market support
activities, such as those mentioned above, the Trust may face a heightened level of interest rate risk as a result of a rise or increased volatility in interest rates.
Federal, state, and other governments, their regulatory agencies or self-regulatory organizations may take actions that affect the regulation of the issuers in which the Trust invests. Legislation or regulation may also change the way in which the Trust is regulated. Such legislation or regulation could limit or preclude the Trusts ability to achieve its investment objective.
In the aftermath of the global financial crisis, there appears to be a renewed popular, political and judicial focus on finance related consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction. In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as the Trust and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of retail investors.
The Trust may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse effect on the Trust and its ability to achieve its investment objective.
Investment Company Act Regulations
The Trust is a registered closed-end management investment company and as such is subject to regulations under the Investment Company Act. Generally speaking, any contract or provision thereof that is made, or where performance involves a violation of the Investment Company Act or any rule or regulation thereunder is unenforceable by either party unless a court finds otherwise.
Regulation as a Commodity Pool
The 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. To the extent the Trust uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, the Advisor has claimed an exclusion from the definition of the term commodity pool operator under the CEA pursuant to Rule 4.5 under the CEA. The Advisor is not, therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Trust.
Failures of Futures Commission Merchants and Clearing Organizations Risk
The Trust is required to deposit funds to margin open positions in cleared derivative instruments (both futures and swaps) with a clearing broker registered as a futures commission merchant (FCM). The CEA requires an FCM
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to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCMs proprietary assets. Similarly, the CEA requires each FCM to hold in a separate secure account all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received by an FCM from its customers are held by an FCM on a commingled basis in an omnibus account and amounts in excess of assets posted to the clearing organization may be invested by an FCM in certain instruments permitted under the applicable regulation. There is a risk that assets deposited by the Trust with any FCM as margin for futures contracts or commodity options may, in certain circumstances, be used to satisfy losses of other clients of the Trusts FCM. In addition, the assets of the Trust posted as margin against both swaps and futures contracts may not be fully protected in the event of the FCMs bankruptcy.
Legal, Tax and Regulatory Risks
Legal, tax and regulatory changes could occur that may have material adverse effects on the Trust. For example, the regulatory and tax environment for derivative instruments in which the Trust may participate is evolving, and such changes in the regulation or taxation of derivative instruments may have material adverse effects on the value of derivative instruments held by the Trust and the ability of the Trust to pursue its investment strategies.
To qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Trust must, among other things, derive in each taxable year at least 90% of its gross income from certain prescribed sources and distribute for each taxable year at least 90% of its investment company taxable income (generally, ordinary income plus the excess, if any, of net short-term capital gain over net long-term capital loss). If for any taxable year the Trust does not qualify as a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of the Trusts current and accumulated earnings and profits.
The Biden presidential administration has called for significant changes to U.S. fiscal, tax, trade, healthcare, immigration, foreign, and government regulatory policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels. Recent events have created a climate of heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications. There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or the current presidential administration implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other areas. Although the Trust cannot predict the impact, if any, of these changes to the Trusts business, they could adversely affect the Trusts business, financial condition, operating results and cash flows. Until the Trust knows what policy changes are made and how those changes impact the Trusts business and the business of the Trusts competitors over the long term, the Trust will not know if, overall, the Trust will benefit from them or be negatively affected by them.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Revisions in U.S. federal tax laws and interpretations of these laws could adversely affect the tax consequences of your investment.
Potential Conflicts of Interest of the Advisor and Others
The investment activities of BlackRock, Inc. (previously defined as BlackRock), the ultimate parent company of the Advisor, and its Affiliates, and their respective directors, officers or employees, in the management of, or their interest in, their own accounts and other accounts they manage, may present conflicts of interest that could disadvantage the Trust and its shareholders. BlackRock and its Affiliates provide investment management services to other funds and discretionary managed accounts that may follow investment programs similar to that of the Trust. Subject to the requirements of the Investment Company Act, BlackRock and its Affiliates intend to engage in such activities and may receive compensation from third parties for their services. Neither BlackRock nor any Affiliate is
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under any obligation to share any investment opportunity, idea or strategy with the Trust. As a result, an Affiliate may compete with the Trust for appropriate investment opportunities. The results of the Trusts investment activities, therefore, may differ from those of an Affiliate and of other accounts managed by BlackRock or an Affiliate, and it is possible that the Trust could sustain losses during periods in which one or more Affiliates and other accounts achieve profits on their trading for proprietary or other accounts. BlackRock has adopted policies and procedures designed to address potential conflicts of interests. For additional information about potential conflicts of interest and the way in which BlackRock addresses such conflicts, please see Conflicts of Interest and Management of the TrustPortfolio ManagementPotential Material Conflicts of Interest in the SAI.
Defensive Investing Risk
For defensive purposes, the Trust may allocate assets into cash or short-term fixed-income securities without limitation. In doing so, the Trust may succeed in avoiding losses but may otherwise fail to achieve its investment objective. Further, the value of short-term fixed-income securities may be affected by changing interest rates and by changes in credit ratings of the investments. If the Trust holds cash uninvested it will be subject to the credit risk of the depository institution holding the cash.
Decision-Making Authority Risk
Investors have no authority to make decisions or to exercise business discretion on behalf of the Trust, except as set forth in the Trusts governing documents. The authority for all such decisions is generally delegated to the Board, which in turn, has delegated the day-to-day management of the Trusts investment activities to the Advisor, subject to oversight by the Board.
Management Risk
The Trust is subject to management risk because it is an actively managed investment portfolio. The Advisor and the individual portfolio managers will apply investment techniques and risk analyses in making investment decisions for the Trust, but there can be no guarantee that these will produce the desired results. The Trust may be subject to a relatively high level of management risk because the Trust may invest in derivative instruments, which may be highly specialized instruments that require investment techniques and risk analyses different from those associated with equities and bonds.
Valuation Risk
The Trust is subject to valuation risk, which is the risk that one or more of the securities in which the Trust invests are valued at prices that the Trust is unable to obtain upon sale due to factors such as incomplete data, market instability or human error. The Advisor may use an independent pricing service or prices provided by dealers to value securities at their market value. Because the secondary markets for certain investments may be limited, such investments may be difficult to value. See Net Asset Value. When market quotations are not available, the Advisor may price such investments pursuant to a number of methodologies, such as computer-based analytical modeling or individual security evaluations. These methodologies generate approximations of market values, and there may be significant professional disagreement about the best methodology for a particular type of financial instrument or different methodologies that might be used under different circumstances. In the absence of an actual market transaction, reliance on such methodologies is essential, but may introduce significant variances in the ultimate valuation of the Trusts investments. Technological issues and/or errors by pricing services or other third-party service providers may also impact the Trusts ability to value it investments and the calculation of the Trusts NAV.
When market quotations are not readily available or are deemed to be inaccurate or unreliable, the Trust values its investments at fair value as determined in good faith pursuant to policies and procedures approved by the Board. Fair value is defined as the amount for which assets could be sold in an orderly disposition over a reasonable period of time, taking into account the nature of the asset. Fair value pricing may require determinations that are inherently subjective and inexact about the value of a security or other asset. As a result, there can be no assurance that fair value priced assets will not result in future adjustments to the prices of securities or other assets, or that fair value
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pricing will reflect a price that the Trust is able to obtain upon sale, and it is possible that the fair value determined for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset. For example, the Trusts NAV could be adversely affected if the Trusts determinations regarding the fair value of the Trusts investments were materially higher than the values that the Trust ultimately realizes upon the disposal of such investments. Where market quotations are not readily available, valuation may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation in such cases than for investments with a more active secondary market because there is less reliable objective data available.
Because of overall size, duration and maturities of positions held by the Trust, the value at which its investments can be liquidated may differ, sometimes significantly, from the interim valuations obtained by the Trust. In addition, the timing of liquidations may also affect the values obtained on liquidation. Securities held by the Trust may routinely trade with bid-offer spreads that may be significant. There can be no guarantee that the Trusts investments could ultimately be realized at the Trusts valuation of such investments. In addition, the Trusts compliance with the asset diversification tests applicable to regulated investment companies depends on the fair market values of the Trusts assets, and, accordingly, a challenge to the valuations ascribed by the Trust could affect its ability to comply with those tests or require it to pay penalty taxes in order to cure a violation thereof.
The Trusts NAV per share is a critical component in several operational matters including computation of advisory and services fees and determination of the price at which a tender offer will be made. Consequently, variance in the valuation of the Trusts investments will impact, positively or negatively, the fees and expenses shareholders will pay.
Reliance on the Advisor Risk
The Trust is dependent upon services and resources provided by the Advisor, and therefore the Advisors parent, BlackRock. The Advisor is not required to devote its full time to the business of the Trust and there is no guarantee or requirement that any investment professional or other employee of the Advisor will allocate a substantial portion of his or her time to the Trust. The loss of one or more individuals involved with the Advisor could have a material adverse effect on the performance or the continued operation of the Trust. For additional information on the Advisor and BlackRock, see Management of the TrustInvestment Advisor.
Reliance on Service Providers Risk
The Trust must rely upon the performance of service providers to perform certain functions, which may include functions that are integral to the Trusts operations and financial performance. Failure by any service provider to carry out its obligations to the Trust in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Trust at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Trusts performance and returns to shareholders. The termination of the Trusts relationship with any service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Trust and could have a material adverse effect on the Trusts performance and returns to shareholders.
Information Technology Systems Risk
The Trust is dependent on the Advisor for certain management services as well as back-office functions. The Advisor depends on information technology systems in order to assess investment opportunities, strategies and markets and to monitor and control risks for the Trust. It is possible that a failure of some kind which causes disruptions to these information technology systems could materially limit the Advisors ability to adequately assess and adjust investments, formulate strategies and provide adequate risk control. Any such information technology-related difficulty could harm the performance of the Trust. Further, failure of the back-office functions of the Advisor to process trades in a timely fashion could prejudice the investment performance of the Trust.
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Cyber Security Risk
With the increased use of technologies such as the Internet to conduct business, the Trust is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through hacking or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security failures by or breaches of the Advisor and other service providers (including, but not limited to, fund accountants, custodians, transfer agents and administrators), and the issuers of securities in which the Trust invests, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Trusts ability to calculate its NAV, impediments to trading, the inability of shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Trust has established business continuity plans in the event of, and risk management systems to prevent, such cyber-attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Trust cannot control the cyber security plans and systems put in place by service providers to the Trust and issuers in which the Trust invests. As a result, the Trust or its shareholders could be negatively impacted.
Misconduct of Employees and of Service Providers Risk
Misconduct or misrepresentations by employees of the Advisor or the Trusts service providers could cause significant losses to the Trust. Employee misconduct may include binding the Trust to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by the Trusts service providers, including, without limitation, failing to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting the Trusts business prospects or future marketing activities. Despite the Advisors due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially undermining the Advisors due diligence efforts. As a result, no assurances can be given that the due diligence performed by the Advisor will identify or prevent any such misconduct.
Special Risks for Holders of Rights
There is a risk that performance of the Trust may result in the common shares purchasable upon exercise of the rights being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of the rights. Investors who receive rights may find that there is no market to sell rights they do not wish to exercise. If investors exercise only a portion of the rights, common shares may trade at less favorable prices than larger offerings for similar securities.
Portfolio Turnover Risk
The Trusts annual portfolio turnover rate may vary greatly from year to year, as well as within a given year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Trust. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Trust. High portfolio turnover may result in an increased realization of net short-term capital gains by the Trust which, when distributed to common shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create realized capital losses.
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Anti-Takeover Provisions Risk
The Trusts Agreement and Declaration of Trust and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Trust or convert the Trust to open-end status or to change the composition of the Board. Such provisions could limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Trust. See Certain Provisions in the Agreement and Declaration of Trust and Bylaws.
Investment Limitations
The Trust has adopted certain investment limitations designed to limit investment risk. Some of these limitations are fundamental and thus may not be changed without the approval of the holders of a majority of the outstanding common shares. See Investment Objective and PoliciesInvestment Restrictions in the SAI.
The restrictions and other limitations set forth throughout this Prospectus and in the SAI apply only at the time of purchase of securities and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of the acquisition of securities.
Management of Investment Portfolio and Capital Structure to Limit Leverage Risk
The Trust may take certain actions if short-term interest rates increase or market conditions otherwise change (or the Trust anticipates such an increase or change) and any leverage the Trust may have outstanding begins (or is expected) to adversely affect common shareholders. In order to attempt to offset such a negative impact of any outstanding leverage on common shareholders, the Trust may shorten the average maturity of its investment portfolio (by investing in short-term securities) or may reduce any indebtedness that it may have incurred. The success of any such attempt to limit leverage risk depends on the Advisors ability to accurately predict interest rate or other market changes. Because of the difficulty of making such predictions, the Trust may never attempt to manage its capital structure in the manner described in this paragraph.
If market conditions suggest that employing additional leverage would be beneficial, the Trust may enter into one or more credit facilities, sell additional preferred shares or engage in additional leverage transactions, subject to the restrictions of the Investment Company Act.
Strategic Transactions
The Trust may use certain Strategic Transactions designed to limit the risk of price fluctuations of securities and to preserve capital. These Strategic Transactions include using swaps, financial futures contracts, options on financial futures or options based on either an index of long-term securities, or on securities whose prices, in the opinion of the Advisor, correlate with the prices of the Trusts investments. There can be no assurance that Strategic Transactions will be used or used effectively to limit risk, and Strategic Transactions may be subject to their own risks.
Trustees and Officers
The Board is responsible for the overall management of the Trust, including supervision of the duties performed by the Advisor. There are eleven Trustees. A majority of the Trustees are Independent Trustees of the Trust. The name and business address of the Trustees and officers of the Trust and their principal occupations and other affiliations during the past five years are set forth under Management of the Trust in the SAI.
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Investment Advisor
The Advisor is responsible for the management of the Trusts portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operation of the Trust. The Advisor, located at 100 Bellevue Parkway, Wilmington, Delaware 19809, is a wholly-owned subsidiary of BlackRock.
BlackRock is one of the worlds largest publicly-traded investment management firms. As of December 31, 2021, BlackRocks assets under management were approximately $10.010 trillion. BlackRock has over 30 years of experience managing closed-end products and, as of December 31, 2021, advised a registered closed-end family of 54 exchange-listed active funds with approximately $61.9 billion in assets.
BlackRock is independent in ownership and governance, with no single majority shareholder and a majority of independent directors.
Investment Philosophy
BlackRocks investment decision-making process for the municipal security sector is subject to the same discipline, oversight and investment philosophy that the firm applies to other sectors of the fixed-income market.
BlackRock uses a relative value strategy that evaluates the trade-off between risk and return to seek to achieve the Trusts investment objective. This strategy is combined with disciplined risk control techniques and applied in sector, sub-sector and individual security selection decisions. BlackRocks extensive personnel and technology resources are the key drivers of the investment philosophy.
Portfolio Managers
The members of the portfolio management team who are primarily responsible for the day-to-day management of the Trusts portfolio are as follows:
Theodore R. Jaeckel, Jr., CFA, Managing Director of BlackRock, Inc., is Co-Head of the Municipal Funds team within the Municipal Fixed Income business within PMG. He is also a member of BlackRocks Municipal Bond Operating Committee, which oversees all municipal bond portfolio management, research and trading activities. Mr. Jaeckels service with the BlackRock, Inc. dates back to 1991, including his years with MLIM. At MLIM, he was a portfolio manager for municipal bond alternative and high yield strategies. Prior to joining MLIM, Mr. Jaeckel was a municipal bond trader with Chemical Bank. Mr. Jaeckel earned a BA degree in history from Hamilton College in 1981.
Walter OConnor, Managing Director of BlackRock, Inc., is a member of Americas Fixed-income within Alpha Strategies. He is head Portfolio Manager on the Municipal Mutual Fund Desk. He is also a member of the Municipal Bond Operating Committee, which oversees all municipal bond portfolio management, research and trading activities Mr. OConnors service with BlackRock, Inc. dates back to 1991, including his years with MLIM. At MLIM, he was a portfolio manager for municipal bond retail mutual funds. Prior to joining MLIM, Mr. OConnor was with Prudential Securities, where he was involved in trading, underwriting, and arbitrage for municipal securities and financial futures. Mr. OConnor earned a BA degree in finance and philosophy from the University of Notre Dame in 1984.
The SAI provides additional information about each portfolio managers compensation, other accounts managed by the portfolio management team and the ownership of the Trusts securities by each portfolio manager.
Investment Management Agreement
Pursuant to an investment management agreement between the Advisor and the Trust (the Investment Management Agreement), the Trust has agreed to pay the Advisor a monthly management fee at an annual rate equal to 0.60% of the average weekly value of the Trusts Managed Assets. Managed Assets means the total assets of the Trust (including any assets attributable to money borrowed for investment purposes) minus the sum of the Trusts accrued liabilities (other than money borrowed for investment purposes).
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A discussion regarding the basis for the approval of the Investment Management Agreement by the Board is available in the Trusts semi-annual report to shareholders for the period ended October 31, 2020.
Except as otherwise described in this Prospectus, the Trust pays, in addition to the fees paid to the Advisor, all other costs and expenses of its operations, including compensation of its Trustees (other than those affiliated with the Advisor), custodian, leveraging expenses, transfer and dividend disbursing agent expenses, legal fees, rating agency fees, listing fees and expenses, expenses of independent auditors, expenses of repurchasing shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if any.
The Trust and the Advisor have entered into the Fee Waiver Agreement, pursuant to which the Advisor has contractually agreed to waive the management fee with respect to any portion of the Trusts assets attributable to investments in any equity and fixed-income mutual funds and ETFs managed by the Advisor or its affiliates that have a contractual management fee, through June 30, 2023. In addition, effective December 1, 2019, pursuant to the Fee Waiver Agreement, the Advisor has contractually agreed to waive its management fees by the amount of investment advisory fees the Trust pays to the Advisor indirectly through its investment in money market funds advised by the Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be continued from year to year thereafter, provided that such continuance is specifically approved by the Advisor and the Trust (including by a majority of the Trusts Independent Trustees). Neither the Advisor nor the Trust is obligated to extend the Fee Waiver Agreement. The Fee Waiver Agreement may be terminated at any time, without the payment of any penalty, only by the Trust (upon the vote of a majority of the Independent Trustees or a majority of the outstanding voting securities of the Trust), upon 90 days written notice by the Trust to the Advisor.
Administration and Accounting Services
State Street Bank and Trust Company provides certain administration and accounting services to the Trust pursuant to an Administration and Trust Accounting Services Agreement (the Administration Agreement). Pursuant to the Administration Agreement, State Street Bank and Trust Company provides the Trust with, among other things, customary fund accounting services, including computing the Trusts NAV and maintaining books, records and other documents relating to the Trusts financial and portfolio transactions, and customary fund administration services, including assisting the Trust with regulatory filings, tax compliance and other oversight activities. For these and other services it provides to the Trust, State Street Bank and Trust Company is paid a monthly fee from the Trust at an annual rate ranging from 0.0075% to 0.015% of the Trusts Managed Assets, along with an annual fixed fee ranging from $3,000 to $10,000 for the services it provides to the Trust.
Custodian and Transfer Agent
The custodian of the assets of the Trust is State Street Bank and Trust Company, whose principal business address is One Lincoln Street, Boston, Massachusetts 02111. The custodian is responsible for, among other things, receipt of and disbursement of funds from the Trusts accounts, establishment of segregated accounts as necessary, and transfer, exchange and delivery of Trust portfolio securities.
Computershare Trust Company, N.A., whose principal business address is 150 Royall Street, Canton, Massachusetts 02021, serves as the Trusts transfer agent with respect to the common shares.
Independent Registered Public Accounting Firm
Deloitte & Touche LLP, whose principal business address is 200 Berkeley Street, Boston, MA 02116, is the independent registered public accounting firm of the Trust and is expected to render an opinion annually on the financial statements of the Trust.
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The NAV of the Trusts common shares will be computed based upon the value of the Trusts portfolio securities and other assets. NAV per common share will be determined as of the close of the regular trading session on the NYSE on each business day on which the NYSE is open for trading. The Trust calculates NAV per common share by subtracting the Trusts liabilities (including accrued expenses, dividends payable and any borrowings of the Trust), and the liquidation value of any outstanding preferred shares of the Trust from the Trusts total assets (the value of the securities the Trust holds plus cash or other assets, including interest accrued but not yet received) and dividing the result by the total number of common shares of the Trust outstanding.
Valuation of securities held by the Trust is as follows:
Equity Investments. Equity securities traded on a recognized securities exchange (e.g., NYSE), on separate trading boards of a securities exchange or through a market system that provides contemporaneous transaction pricing information (each, an Exchange) are valued using information obtained via independent pricing services generally at the Exchange closing price or if an Exchange closing price is not available, the last traded price on that Exchange prior to the time as of which the assets or liabilities are valued. However, under certain circumstances, other means of determining current market value may be used. If an equity security is traded on more than one Exchange, the current market value of the security where it is primarily traded generally will be used. In the event that there are no sales involving an equity security held by the Trust on a day on which the Trust values such security, the last bid (long positions) or ask (short positions) price, if available, will be used as the value of such security. If the Trust holds both long and short positions in the same security, the last bid price will be applied to securities held long and the last ask price will be applied to securities sold short. If no bid or ask price is available on a day on which the Trust values such security, the prior days price will be used, unless the Advisor determines that such prior days price no longer reflects the fair value of the security, in which case such asset would be treated as a Fair Value Asset (as defined below).
Fixed-Income Investments. Fixed-income securities for which market quotations are readily available are generally valued using such securities current market value. The Trust values fixed-income portfolio securities using the last available bid prices or current market quotations provided by dealers or prices (including evaluated prices) supplied by the Trusts approved independent third-party pricing services, each in accordance with the policies and procedures approved by the Trusts Board (the Valuation Procedures). The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers), credit quality information, perceived market movements, news, and other relevant information and by other methods, which may include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; general market conditions; and/or other factors and assumptions. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but the Trust may hold or transact in such securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots. The amortized cost method of valuation may be used with respect to debt obligations with 60 days or less remaining to maturity unless such method does not represent fair value. Certain fixed-income investments including asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the issuer, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche.
Options, Futures, Swaps and Other Derivatives. Exchange-traded equity options for which market quotations are readily available are valued at the mean of the last bid and ask prices as quoted on the Exchange or the board of trade on which such options are traded. In the event that there is no mean price available for an exchange traded equity option held by the Trust on a day on which the Trust values such option, the last bid (long positions) or ask (short positions) price, if available, will be used as the value of such option. If no bid or ask price is available on a day on which the Trust values such option, the prior days price will be used, unless the Advisor determines that such prior days price no longer reflects the fair value of the option in which case such option will be treated as a fair value asset. OTC derivatives may be valued using a mathematical model which may incorporate a number of market data factors. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their last sale price or settle price as of the close of such exchanges. Swap agreements and other derivatives are generally valued daily based upon quotations from market makers or by a pricing service in accordance with the Valuation Procedures.
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Underlying Funds. Shares of underlying open-end funds are valued at NAV. Shares of underlying exchange-traded closed-end funds or other ETFs will be valued at their most recent closing price.
General Valuation Information. In determining the market value of portfolio investments, the Trust may employ independent third party pricing services, which may use, without limitation, a matrix or formula method that takes into consideration market indexes, matrices, yield curves and other specific adjustments. This may result in the assets being valued at a price different from the price that would have been determined had the matrix or formula method not been used. All cash, receivables and current payables are carried on the Trusts books at their face value. The price the Trust could receive upon the sale of any particular portfolio investment may differ from the Trusts valuation of the investment, particularly for assets that trade in thin or volatile markets or that are valued using a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the sale of an investment may be less than the value ascribed by the Trust, and the Trust could realize a greater than expected loss or lesser than expected gain upon the sale of the investment. The Trusts ability to value its investment may also be impacted by technological issues and/or errors by pricing services or other third party service providers.
All cash, receivables and current payables are carried on the Trusts books at their fair value.
Prices obtained from independent third party pricing services, broker-dealers or market makers to value the Trusts securities and other assets and liabilities are based on information available at the time the Trust values its assets and liabilities. In the event that a pricing service quotation is revised or updated subsequent to the day on which the Trust valued such security, the revised pricing service quotation generally will be applied prospectively. Such determination will be made considering pertinent facts and circumstances surrounding the revision.
In the event that application of the methods of valuation discussed above result in a price for a security which is deemed not to be representative of the fair market value of such security, the security will be valued by, under the direction of or in accordance with a method specified by the Board as reflecting fair value. All other assets and liabilities (including securities for which market quotations are not readily available) held by the Trust (including restricted securities) are valued at fair value as determined in good faith by the Board or BlackRocks Valuation Committee (the Valuation Committee) (its delegate) pursuant to the Valuation Procedures. Any assets and liabilities which are denominated in a foreign currency are translated into U.S. dollars at the prevailing market rates.
Certain of the securities acquired by the Trust may be traded on foreign exchanges or OTC markets on days on which the Trusts NAV is not calculated and common shares are not traded. In such cases, the NAV of the Trusts common shares may be significantly affected on days when investors can neither purchase nor sell shares of the Trust.
Fair Value. When market quotations are not readily available or are believed by the Advisor to be unreliable, the Trusts investments are valued at fair value (Fair Value Assets). Fair Value Assets are valued by the Advisor in accordance with the Valuation Procedures. The Advisor may reasonably conclude that a market quotation is not readily available or is unreliable if, among other things, a security or other asset or liability does not have a price source due to its complete lack of trading, if the Advisor believes a market quotation from a broker-dealer or other source is unreliable (e.g., where it varies significantly from a recent trade, or no longer reflects the fair value of the security or other asset or liability subsequent to the most recent market quotation), where the security or other asset or liability is only thinly traded or due to the occurrence of a significant event subsequent to the most recent market quotation. For this purpose, a significant event is deemed to occur if the Advisor determines, in its business judgment, that an event has occurred after the close of trading for an asset or liability but prior to or at the time of pricing the Trusts assets or liabilities, that is likely to cause a material change to the last exchange closing price or closing market price of one or more assets or liabilities held by the Trust. On any day the NYSE is open and a foreign market or the primary exchange on which a foreign asset or liability is traded is closed, such asset or liability will be valued using the prior days price, provided that the Advisor is not aware of any significant event or other information that would cause such price to no longer reflect the fair value of the asset or liability, in which case such asset or liability would be treated as a Fair Value Asset. For certain foreign assets, a third-party vendor supplies evaluated, systematic fair value pricing based upon the movement of a proprietary multi-factor model after the
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relevant foreign markets have closed. This systematic fair value pricing methodology is designed to correlate the prices of foreign assets following the close of the local markets to the price that might have prevailed as of the Trusts pricing time.
The Advisor, with input from portfolio management, will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to the Valuation Committee. The Valuation Committee may accept, modify or reject any recommendations. In addition, the Trusts accounting agent periodically endeavors to confirm the prices it receives from all third party pricing services, index providers and broker-dealers, and, with the assistance of the Advisor, to regularly evaluate the values assigned to the securities and other assets and liabilities of the Trust. The pricing of all Fair Value Assets is subsequently reported to the Board or a Committee thereof.
When determining the price for a Fair Value Asset, the Valuation Committee shall seek to determine the price that the Trust might reasonably expect to receive from the current sale of that asset or liability in an arms-length transaction on the date on which the asset or liability is being valued, and does not seek to determine the price the Trust might reasonably expect to receive for selling an asset or liability at a later time or if it holds the asset or liability to maturity. Fair value determinations will be based upon all available factors that the BlackRock Valuation Committee deems relevant at the time of the determination, and may be based on analytical values determined by the Advisor using proprietary or third party valuation models.
Fair value represents a good faith approximation of the value of an asset or liability. When determining the fair value of an investment, one or more fair value methodologies may be used (depending on certain factors, including the asset type). For example, the investment may be initially priced based on the original cost of the investment or, alternatively, using proprietary or third-party models that may rely upon one or more unobservable inputs. Prices of actual, executed or historical transactions in the relevant investment (or comparable instruments) or, where appropriate, an appraisal by a third-party experienced in the valuation of similar instruments, may also be used as a basis for establishing the fair value of an investment.
The fair value of one or more assets or liabilities may not, in retrospect, be the price at which those assets or liabilities could have been sold during the period in which the particular fair values were used in determining the Trusts NAV. As a result, the Trusts sale or repurchase of its shares at NAV, at a time when a holding or holdings are valued at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
The Trusts annual audited financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), follow the requirements for valuation set forth in Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (ASC 820), which defines and establishes a framework for measuring fair value under US GAAP and expands financial statement disclosure requirements relating to fair value measurements.
Generally, ASC 820 and other accounting rules applicable to investment companies and various assets in which they invest are evolving. Such changes may adversely affect the Trust. For example, the evolution of rules governing the determination of the fair market value of assets or liabilities to the extent such rules become more stringent would tend to increase the cost and/or reduce the availability of third-party determinations of fair market value. This may in turn increase the costs associated with selling assets or affect their liquidity due to the Trusts inability to obtain a third-party determination of fair market value. The SEC recently adopted new Rule 2a-5 under the Investment Company Act, which will establish an updated regulatory framework for registered investment company valuation practices and may impact the Trusts valuation policies. The Trust will not be required to comply with the new rule until September 8, 2022.
The Trust intends to make regular monthly cash distributions of all or a portion of its net investment income, after payment of dividends on the Trusts VMTP Shares outstanding, to holders of the Trusts common shares. Net capital gains, if any, will be distributed at least annually to holders of the Trusts common shares. The Trusts net investment income consists of all interest income accrued on portfolio assets less all expenses of the Trust. The Trust is required to allocate net capital gains and other taxable income, if any, received by the Trust among its shareholders on a pro rata basis in the year for which such capital gains and other income is realized.
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The tax treatment and characterization of the Trusts distributions may vary significantly from time to time because of the varied nature of the Trusts investments. The ultimate tax characterization of the Trusts distributions made in a fiscal year cannot finally be determined until after the end of that fiscal year. As a result, there is a possibility that the Trust may make total distributions during a fiscal year in an amount that exceeds the Trusts earnings and profits for U.S. federal income tax purposes. In such situations, the amount by which the Trusts total distributions exceed earnings and profits would generally be treated as a return of capital reducing the amount of a shareholders tax basis in such shareholders shares, with any amounts exceeding such basis treated as gain from the sale of shares.
Various factors will affect the level of the Trusts net investment income, such as its asset mix, portfolio turnover, performance of its investments, level of retained earnings, the amount of leverage utilized by the Trust and the effects thereof, the costs of such leverage, the movement of interest rates for municipal bonds and general market conditions. To permit the Trust to maintain more stable monthly distributions and to the extent consistent with the distribution requirements imposed on regulated investment companies by the Code, the Trust may from time to time distribute less than the entire amount earned in a particular period. The income would be available to supplement future distributions. As a result, the distributions paid by the Trust for any particular month may be more or less than the amount actually earned by the Trust during that month. Undistributed earnings will increase the Trusts NAV and, correspondingly, distributions from undistributed earnings and from capital, if any, will reduce the Trusts NAV.
Shareholders will automatically have all dividends and distributions reinvested in shares of the common shares of the Trust in accordance with the Trusts dividend reinvestment plan, unless an election is made to receive cash by contacting the Reinvestment Plan Agent (as defined herein), at (800) 699-1236. See Dividend Reinvestment Plan.
Please refer to the section of the Trusts most recent annual report on Form N-CSR entitled Automatic Dividend Reinvestment Plan, which is incorporated by reference herein, for a discussion of the Trusts dividend reinvestment plan.
The Trust may in the future, and at its discretion, choose to make offerings of rights to its shareholders to purchase common shares. Rights may be issued independently or together with any other offered security and may or may not be transferable by the person purchasing or receiving the rights. In connection with a rights offering to shareholders, we would distribute certificates or other documentation (i.e., rights cards distributed in lieu of certificates) evidencing the rights and a Prospectus Supplement to our shareholders as of the record date that we set for determining the shareholders eligible to receive rights in such rights offering. Any such future rights offering will be made in accordance with the Investment Company Act. Under the laws of Delaware, the Board is authorized to approve rights offerings without obtaining shareholder approval.
The staff of the SEC has interpreted the Investment Company Act as not requiring shareholder approval of a transferable rights offering to purchase common shares at a price below the then current NAV so long as certain conditions are met, including: (i) a good faith determination by a funds board that such offering would result in a net benefit to existing shareholders; (ii) the offering fully protects shareholders preemptive rights and does not discriminate among shareholders (except for the possible effect of not offering fractional rights); (iii) management uses its best efforts to ensure an adequate trading market in the rights for use by shareholders who do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held.
The applicable Prospectus Supplement would describe the following terms of the rights in respect of which this Prospectus is being delivered:
| the period of time the offering would remain open; |
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| the underwriter or distributor, if any, of the rights and any associated underwriting fees or discounts applicable to purchases of the rights; |
| the title of such rights; |
| the exercise price for such rights (or method of calculation thereof); |
| the number of such rights issued in respect of each share; |
| the number of rights required to purchase a single share; |
| the extent to which such rights are transferable and the market on which they may be traded if they are transferable; |
| if applicable, a discussion of the material U.S. federal income tax considerations applicable to the issuance or exercise of such rights; |
| the date on which the right to exercise such rights will commence, and the date on which such right will expire (subject to any extension); |
| the extent to which such rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege; and |
| termination rights we may have in connection with such rights offering. |
A certain number of rights would entitle the holder of the right(s) to purchase for cash such number of common shares at such exercise price as in each case is set forth in, or be determinable as set forth in, the Prospectus Supplement relating to the rights offered thereby. Rights would be exercisable at any time up to the close of business on the expiration date for such rights set forth in the Prospectus Supplement. After the close of business on the expiration date, all unexercised rights would become void. Upon expiration of the rights offering and the receipt of payment and the rights certificate or other appropriate documentation properly executed and completed and duly executed at the corporate trust office of the rights agent, or any other office indicated in the Prospectus Supplement, the common shares purchased as a result of such exercise will be issued as soon as practicable. To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than shareholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable Prospectus Supplement.
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Trust and the purchase, ownership and disposition of the Trusts common shares. A more detailed discussion of the tax rules applicable to the Trust and its common shareholders can be found in the SAI that is incorporated by reference into this Prospectus. Except as otherwise noted, this discussion assumes you are a taxable U.S. holder (as defined below) and that you hold your common shares as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion is based upon current provisions of the Code, the regulations promulgated thereunder and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or the Internal Revenue Service, possibly with retroactive effect. No attempt is made to present a detailed explanation of all U.S. federal tax concerns affecting the Trust and its common shareholders. The Trust has not sought and will not seek any ruling from the Internal Revenue Service regarding any matters discussed herein. No assurance can be given that the Internal Revenue Service would not assert, or that a court would not sustain, a position contrary to those set forth below. This summary does not discuss any aspects of non-U.S., state or local tax. The discussion set forth herein does not constitute tax advice and potential investors are urged to consult their own tax advisers to determine the specific U.S. federal, state, local and foreign tax consequences to them of investing in the Trust.
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In addition, no attempt is made to address tax considerations applicable to an investor with a special tax status, such as without limitation, a financial institution, REIT, insurance company, regulated investment company, individual retirement account, other tax-exempt organization, dealer in securities or currencies, person holding shares of the Trust as part of a hedging, integrated, conversion or straddle transaction, trader in securities that has elected the mark-to-market method of accounting for its securities, U.S. holder (as defined below) whose functional currency is not the U.S. dollar, investor with applicable financial statements within the meaning of Section 451(b) of the Code, or non-U.S. investor. Furthermore, this discussion does not reflect possible application of the alternative minimum tax.
A U.S. holder is a beneficial owner that is for U.S. federal income tax purposes:
| a citizen or individual resident of the United States (including certain former citizens and former long-term residents); |
| a corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
| an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or the trust has made a valid election in effect under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes, whose status as a U.S. person is not overridden by an applicable tax treaty. |
Taxation of the Trust
The Trust has elected to be treated as a RIC under Subchapter M of the Code. In order to qualify as a RIC, the Trust must, among other things, satisfy certain requirements relating to the sources of its income, diversification of its assets, and distribution of its income to its shareholders. First, the Trust must derive at least 90% of its annual gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including but not limited to gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies, or net income derived from interests in qualified publicly traded partnerships (as defined in the Code) (the 90% gross income test). Second, the Trust must diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets consists of cash, cash items, U.S. Government securities, securities of other RICs and other securities, with such other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of the Trusts total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the market value of the total assets is invested in the securities (other than U.S. Government securities and securities of other RICs) of any one issuer, any two or more issuers controlled by the Trust and engaged in the same, similar or related trades or businesses, or any one or more qualified publicly traded partnerships.
As long as the Trust qualifies as a RIC, the Trust will generally not be subject to corporate-level U.S. federal income tax on income and gains that it distributes each taxable year to its shareholders, provided that in such taxable year it distributes at least 90% of the sum of (i) its net tax-exempt interest income, if any, and (ii) its investment company taxable income (which includes, among other items, dividends, taxable interest, taxable original issue discount and market discount income, income from securities lending, net short-term capital gain in excess of net long-term capital loss, and any other taxable income other than net capital gain (as defined below) and is reduced by deductible expenses) determined without regard to the deduction for dividends paid. The Trust may retain for investment its net capital gain (which consists of the excess of its net long-term capital gain over its net short-term capital loss). However, if the Trust retains any net capital gain or any investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained.
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The Code imposes a 4% nondeductible excise tax on the Trust to the extent the Trust does not distribute by the end of any calendar year at least the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii) 98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Trusts fiscal year). In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, from the previous year. For purposes of the excise tax, the Trust will be deemed to have distributed any income on which it paid U.S. federal income tax. While the Trust intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% nondeductible excise tax, there can be no assurance that sufficient amounts of the Trusts taxable income and capital gain will be distributed to entirely avoid the imposition of the excise tax. In that event, the Trust will be liable for the excise tax only on the amount by which it does not meet the foregoing distribution requirement.
If in any taxable year the Trust should fail to qualify under Subchapter M of the Code for tax treatment as a RIC, the Trust would incur a regular corporate U.S. federal income tax upon all of its taxable income for that year, and all distributions to its shareholders (including distributions of net capital gain) would be taxable to shareholders as ordinary dividend income for U.S. federal income tax purposes to the extent of the Trusts earnings and profits. Provided that certain holding period and other requirements were met, such dividends would be eligible (i) to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders. In addition, to qualify again to be taxed as a RIC in a subsequent year, the Trust would be required to distribute to shareholders its earnings and profits attributable to non-RIC years. In addition, if the Trust failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, the Trust would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Trust had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.
The remainder of this discussion assumes that the Trust qualifies for taxation as a RIC.
The Trusts Investments. Certain of the Trusts investment practices are subject to special and complex U.S. federal income tax provisions (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules) that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gains or qualified dividend income into higher taxed short-term capital gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (iv) cause the Trust to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and (vii) produce income that will not be qualified income for purposes of the 90% annual gross income requirement described above. These U.S. federal income tax provisions could therefore affect the amount, timing and character of distributions to common shareholders. The Trust intends to monitor its transactions and may make certain tax elections and may be required to dispose of securities to mitigate the effect of these provisions and prevent disqualification of the Trust as a RIC. Additionally, the Trust may be required to limit its activities in derivative instruments in order to enable it to maintain its RIC status.
The Trust may invest a portion of its net assets in below investment grade securities. Investments in these types of securities may present special tax issues for the Trust. U.S. federal income tax rules are not entirely clear about issues such as when the Trust may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income and whether modifications or exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues could affect the Trusts ability to distribute sufficient income to preserve its status as a RIC or to avoid the imposition of U.S. federal income or excise tax.
Certain debt securities acquired by the Trust may be treated as debt securities that were originally issued at a discount. Generally, the amount of the original issue discount is treated as interest income and is included in taxable income (and required to be distributed by the Trust in order to qualify as a RIC and avoid U.S. federal income tax or the 4% excise tax on undistributed income) over the term of the security, even though payment of that amount is not received until a later time, usually when the debt security matures.
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If the Trust purchases a debt security on a secondary market at a price lower than its adjusted issue price, the excess of the adjusted issue price over the purchase price is market discount. Unless the Trust makes an election to accrue market discount on a current basis, generally, any gain realized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the accrued market discount on the debt security. Market discount generally accrues in equal daily installments. If the Trust ultimately collects less on the debt instrument than its purchase price plus the market discount previously included in income, the Trust may not be able to benefit from any offsetting loss deductions.
The Trust may invest in preferred securities or other securities the U.S. federal income tax treatment of which may not be clear or may be subject to recharacterization by the Internal Revenue Service. To the extent the tax treatment of such securities or the income from such securities differs from the tax treatment expected by the Trust, it could affect the timing or character of income recognized by the Trust, potentially requiring the Trust to purchase or sell securities, or otherwise change its portfolio, in order to comply with the tax rules applicable to RICs under the Code.
Gain or loss on the sale of securities by the Trust will generally be long-term capital gain or loss if the securities have been held by the Trust for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
Because the Trust may invest in foreign securities, its income from such securities may be subject to non-U.S. taxes.
Foreign currency gain or loss on foreign currency exchange contracts, non-U.S. dollar-denominated securities contracts, and non-U.S. dollar-denominated futures contracts, options and forward contracts that are not section 1256 contracts (as defined below) generally will be treated as ordinary income and loss.
Income from options on individual securities written by the Trust will generally not be recognized by the Trust for tax purposes until an option is exercised, lapses or is subject to a closing transaction (as defined by applicable regulations) pursuant to which the Trusts obligations with respect to the option are otherwise terminated. If the option lapses without exercise, the premiums received by the Trust from the writing of such options will generally be characterized as short-term capital gain. If the Trust enters into a closing transaction, the difference between the premiums received and the amount paid by the Trust to close out its position will generally be treated as short-term capital gain or loss. If an option written by the Trust is exercised, thereby requiring the Trust to sell the underlying security, the premium will increase the amount realized upon the sale of the security, and the character of any gain on such sale of the underlying security as short-term or long-term capital gain will depend on the holding period of the Trust in the underlying security. Because the Trust will not have control over the exercise of the options it writes, such exercises or other required sales of the underlying securities may cause the Trust to realize gains or losses at inopportune times.
Index options that qualify as section 1256 contracts will generally be marked-to-market for U.S. federal income tax purposes. As a result, the Trust will generally recognize gain or loss on the last day of each taxable year equal to the difference between the value of the option on that date and the adjusted basis of the option. The adjusted basis of the option will consequently be increased by such gain or decreased by such loss. Any gain or loss with respect to options on indices and sectors that qualify as section 1256 contracts will be treated as short-term capital gain or loss to the extent of 40% of such gain or loss and long-term capital gain or loss to the extent of 60% of such gain or loss. Because the mark-to-market rules may cause the Trust to recognize gain in advance of the receipt of cash, the
Trust may be required to dispose of investments in order to meet its distribution requirements. Mark-to-market losses may be suspended or otherwise limited if such losses are part of a straddle or similar transaction.
Taxation of Common Shareholders
Trust distributions of its tax-exempt interest on municipal securities, if properly reported by the Trust to its shareholders (exempt-interest dividends), will generally be exempt from regular federal income tax. In order for
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the Trust to pay exempt-interest dividends, at least 50% of the value of the Trusts total assets must consist of tax-exempt obligations on a quarterly basis. If the Trust does not meet this requirement, it would not be able to pay tax-exempt dividends, and your distributions attributable to interest received by the Trust from any source (including distributions of tax-exempt interest income) would be taxable as ordinary income to the extent of the Trusts earnings and profits.
The Trust will either distribute or retain for reinvestment all or part of its net capital gain. If any such gain is retained, the Trust will be subject to a corporate income tax on such retained amount. In that event, the Trust expects to report the retained amount as undistributed capital gain in a notice to its common shareholders, each of whom, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes as long-term capital gain its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Trust against its U.S. federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its common shares by the amount of undistributed capital gains included in the shareholders income less the tax deemed paid by the shareholder under clause (ii).
Distributions paid to you by the Trust from its net capital gain, if any, that the Trust properly reports as capital gain dividends (capital gain dividends) are taxable as long-term capital gains, regardless of how long you have held your common shares. All other dividends paid to you by the Trust (including dividends from net short-term capital gains) from its current or accumulated earnings and profits, other than exempt-interest dividends (ordinary income dividends) are generally subject to tax as ordinary income. Provided that certain holding period and other requirements are met, ordinary income dividends (if properly reported by the Trust) may qualify (i) for the dividends received deduction in the case of corporate shareholders to the extent that the Trusts income consists of dividend income from U.S. corporations, and (ii) in the case of individual shareholders, as qualified dividend income eligible to be taxed at long-term capital gains rates to the extent that the Trust receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain qualified foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a qualifying comprehensive tax treaty with the United States, or whose stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States). There can be no assurance as to what portion, if any, of the Trusts distributions will constitute qualified dividend income or be eligible for the dividends received deduction.
Any distributions you receive that are in excess of the Trusts current and accumulated earnings and profits will be treated as a return of capital to the extent of your adjusted tax basis in your common shares, and thereafter as capital gain from the sale of common shares. The amount of any Trust distribution that is treated as a return of capital will reduce your adjusted tax basis in your common shares, thereby increasing your potential gain or reducing your potential loss on any subsequent sale or other disposition of your common shares.
Common shareholders may be entitled to offset their capital gain dividends with capital losses. The Code contains a number of statutory provisions affecting when capital losses may be offset against capital gain, and limiting the use of losses from certain investments and activities. Accordingly, common shareholders that have capital losses are urged to consult their tax advisers.
Dividends and other taxable distributions are taxable to you even though they are reinvested in additional common shares of the Trust. Dividends and other distributions paid by the Trust are generally treated under the Code as received by you at the time the dividend or distribution is made. If, however, the Trust pays you a dividend in January that was declared in the previous October, November or December to common shareholders of record on a specified date in one of such months, then such dividend will be treated for U.S. federal income tax purposes as being paid by the Trust and received by you on December 31 of the year in which the dividend was declared. In addition, certain other distributions made after the close of the Trusts taxable year may be spilled back and treated as paid by the Trust (except for purposes of the 4% nondeductible excise tax) during such taxable year. In such case, you will be treated as having received such dividends in the taxable year in which the distributions were actually made.
Interest on certain private activity bonds is an item of tax preference subject to the alternative minimum tax on individuals. The Trust may invest a portion of its assets in municipal bonds subject to this provision so that a portion
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of its exempt-interest dividends is an item of tax preference to the extent such dividends represent interest received from these private activity bonds. Accordingly, investment in the Trust could cause a holder of common shares to be subject to, or result in an increased liability under, the alternative minimum tax.
Exempt-interest dividends are included in determining what portion, if any, of a persons Social Security and railroad retirement benefits will be includable in gross income subject to federal income tax.
The price of common shares purchased at any time may reflect the amount of a forthcoming distribution. Those purchasing common shares just prior to the record date of a distribution will receive a distribution which will be taxable to them even though it represents, economically, a return of invested capital.
The Trust will send you information after the end of each year setting forth the amount and tax status of any distributions paid to you by the Trust.
The sale or other disposition of common shares will generally result in capital gain or loss to you and will be long-term capital gain or loss if you have held such common shares for more than one year at the time of sale. Any loss upon the sale or other disposition of common shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by you with respect to such common shares. Any loss you recognize on a sale or other disposition of common shares will be disallowed if you acquire other common shares (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after your sale or exchange of the common shares. In such case, your tax basis in the common shares acquired will be adjusted to reflect the disallowed loss.
If the Trust liquidates, shareholders generally will realize capital gain or loss upon such liquidation in an amount equal to the difference between the amount of cash or other property received by the shareholder (including any property deemed received by reason of its being placed in a liquidating trust) and the shareholders adjusted tax basis in its common shares. Any such gain or loss will be long-term if the shareholder is treated as having a holding period in the Trust shares of greater than one year, and otherwise will be short-term.
Current U.S. federal income tax law taxes both long-term and short-term capital gain of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, short-term capital gain is currently taxed at rates applicable to ordinary income while long-term capital gain generally is taxed at a reduced maximum rate. The deductibility of capital losses is subject to limitations under the Code.
Certain U.S. holders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on all or a portion of their net investment income, which includes dividends received from the Trust and capital gains from the sale or other disposition of the Trusts common shares.
A common shareholder that is a nonresident alien individual or a foreign corporation (a foreign investor) generally will be subject to U.S. federal withholding tax at the rate of 30% (or possibly a lower rate provided by an applicable tax treaty) on ordinary income dividends (except as discussed below). In general, U.S. federal withholding tax and U.S. federal income tax will not apply to any gain or income realized by a foreign investor in respect of any distribution of exempt-interest dividends or net capital gain (including amounts credited as an undistributed capital gain dividend) or upon the sale or other disposition of common shares of the Trust. Different tax consequences may result if the foreign investor is engaged in a trade or business in the United States or, in the case of an individual, is present in the United States for 183 days or more during a taxable year and certain other conditions are met. Foreign investors should consult their tax advisers regarding the tax consequences of investing in the Trusts common shares.
Ordinary income dividends properly reported by a RIC are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of the RICs qualified net interest income (generally, its U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which the RIC is at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of the RICs qualified short-term capital gains (generally, the excess of the RICs net short-term capital
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gain over its long-term capital loss for such taxable year). Depending on its circumstances, the Trust may report all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a foreign investor needs to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, W-8BEN-E or substitute Form). In the case of common shares held through an intermediary, the intermediary may have withheld tax even if the Trust reported the payment as qualified net interest income or qualified short-term capital gain. Foreign investors should contact their intermediaries with respect to the application of these rules to their accounts. There can be no assurance as to what portion of the Trusts distributions would qualify for favorable treatment as qualified net interest income or qualified short-term capital gains.
In addition, withholding at a rate of 30% will apply to dividends paid in respect of common shares of the Trust held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Treasury to report, on an annual basis, information with respect to shares in, and accounts maintained by, the institution to the extent such shares or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments. Accordingly, the entity through which common shares of the Trust are held will affect the determination of whether such withholding is required. Similarly, dividends paid in respect of common shares of the Trust held by an investor that is a non-financial foreign entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any substantial United States owners or (ii) provides certain information regarding the entitys substantial United States owners, which the Trust or applicable withholding agent will in turn provide to the Secretary of the Treasury. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. The Trust will not pay any additional amounts to common shareholders in respect of any amounts withheld. Foreign investors are encouraged to consult with their tax advisers regarding the possible implications of these rules on their investment in the Trusts common shares.
U.S. federal backup withholding tax may be required on dividends, distributions and sale proceeds payable to certain non-exempt common shareholders who fail to supply their correct taxpayer identification number (in the case of individuals, generally, their social security number) or to make required certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax and any amount withheld may be refunded or credited against your U.S. federal income tax liability, if any, provided that you timely furnish the required information to the Internal Revenue Service.
Ordinary income dividends, capital gain dividends, and gain from the sale or other disposition of common shares of the Trust also may be subject to state, local, and/or foreign taxes. Common shareholders are urged to consult their own tax advisers regarding specific questions about U.S. federal, state, local or foreign tax consequences to them of investing in the Trust.
The foregoing is a general and abbreviated summary of certain provisions of the Code and the Treasury regulations currently in effect as they directly govern the taxation of the Trust and its common shareholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. A more detailed discussion of the tax rules applicable to the Trust and its common shareholders can be found in the SAI that is incorporated by reference into this Prospectus. Common shareholders are urged to consult their tax advisers regarding specific questions as to U.S. federal, state, local and foreign income or other taxes.
Please refer to the SAI for more detailed information. You are urged to consult your tax adviser.
The value of a right will not be includible in the income of a common shareholder at the time the right is issued.
The basis of a right issued to a common shareholder will be zero, and the basis of the share with respect to which the subscription right was issued (the old share) will remain unchanged, unless either (a) the fair market value of the right on the date of distribution is at least 15% of the fair market value of the old share, or (b) such shareholder
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affirmatively elects (in the manner set out in Treasury regulations under the Code) to allocate to the subscription right a portion of the basis of the old share. If either (a) or (b) applies, then except as described below such shareholder must allocate basis between the old share and the right in proportion to their fair market values on the date of distribution.
The basis of a right purchased in the market will generally be its purchase price.
The holding period of a right issued to a common shareholder will include the holding period of the old share. No gain or loss will be recognized by a common shareholder upon the exercise of a right.
No loss will be recognized by a common shareholder if a right distributed to such common shareholder expires unexercised because the basis of the old share may be allocated to a right only if the right is exercised. If a right that has been purchased in the market expires unexercised, there will be a recognized loss equal to the basis of the right.
Any gain or loss on the sale of a right will be a capital gain or loss if the right is held as a capital asset (which in the case of rights issued to common shareholders will depend on whether the old share of beneficial interest is held as a capital asset), and will be a long-term capital gain or loss if the holding period is deemed to exceed one year.
CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS
The Agreement and Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Trust or to change the composition of the Board. This could have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control over the Trust. Such attempts could have the effect of increasing the expenses of the Trust and disrupting the normal operation of the Trust. The Board is divided into three classes. At each annual meeting of shareholders or special meeting in lieu thereof the term of only one class of Trustees expires and only the Trustees in that one class stand for re-election. Trustees standing for election at an annual meeting of shareholders or special meeting in lieu thereof are elected to a three-year term. This provision could delay for up to two years the replacement of a majority of the Board. A Trustee may be removed from office for cause only, and not without cause, and only by the action of a majority of the remaining Trustees followed by a vote of the holders of at least 75% of the shares then entitled to vote for the election of the respective Trustee. A trustee elected by all of the holders of shares may be removed only by action of such holders, and a trustee elected by the holders of preferred shares, including VMTP Shares, may be removed only by action of such holders of preferred shares.
The Trusts outstanding preferred shares, including VMTP Shares, voting together as a class, to the exclusion of the holders of all other securities and classes of shares of the Trust, are entitled to elect two Trustees at any annual meeting in which Trustees are elected.
In addition, the Trusts Agreement and Declaration of Trust requires the favorable vote or consent of a majority of the Board followed by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series outstanding of the Trust, voting separately as a class or series, to approve, adopt or authorize certain transactions with 5% or greater holders of a class or series of shares and their associates, unless 80% of the Trustees by resolution have approved a memorandum of understanding with such holders with respect to and substantially consistent with such transaction, in which case approval by a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Trust will be the only vote of the shareholders required. These voting requirements are in addition to any regulatory relief required from the SEC with respect to such transaction. For purposes of these provisions, a 5% or greater holder of a class or series of shares (a Principal Shareholder) refers to any corporation, person or other entity, who, whether directly or indirectly and whether alone or together with its affiliates and associates, beneficially owns 5% or more of the outstanding shares of all outstanding classes or series of shares of beneficial interest of the Trust.
The 5% holder transactions subject to these special approval requirements are:
| the merger or consolidation of the Trust or any subsidiary of the Trust with or into any Principal Shareholder; |
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| the issuance of any securities of the Trust to any Principal Shareholder for cash (other than pursuant to any automatic dividend reinvestment plan); |
| the sale, lease or exchange of all or any substantial part of the assets of the Trust to any Principal Shareholder, except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period; or |
| the sale, lease or exchange to the Trust or any subsidiary of the Trust, in exchange for securities of the Trust, of any assets of any Principal Shareholder, except assets having an aggregate fair market value of less than $1,000,000, aggregating for purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period. |
The Trust may merge or consolidate with any other corporation, association, trust or other organization or may sell, lease or exchange all or substantially all of the Trusts property, including its good will, upon such terms and conditions and for such consideration when and as authorized by two-thirds of the Trusts Trustees and approved by a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Trusts shareholders.
If any plan of reorganization (as such term is used under the Investment Company Act) adversely affects the Trusts preferred shares, including the VMTP Shares, then such plan of reorganization will require the approval of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the holders of such preferred shares.
To convert the Trust to an open-end investment company, the Trusts Agreement and Declaration of Trust requires the favorable vote of a majority of the Board followed by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series of shares of the Trust, voting separately as a class or series, unless such conversion has been approved by at least 80% of the Trustees, in which case a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Trust shall be required. The foregoing vote would satisfy a separate requirement in the Investment Company Act that any conversion of the Trust to an open-end investment company be approved by the shareholders. If approved in the foregoing manner, we anticipate conversion of the Trust to an open-end investment company might not occur until 90 days after the shareholders meeting at which such conversion was approved and would also require at least 30 days prior notice to all shareholders. Conversion of the Trust to an open-end investment company would require the redemption of any outstanding preferred shares, which could eliminate or alter the leveraged capital structure of the Trust with respect to the common shares. Following any such conversion, it is also possible that certain of the Trusts investment policies and strategies would have to be modified to assure sufficient portfolio liquidity, including in order to comply with Rule 22e-4 under the Investment Company Act. In the event of conversion, the common shares would cease to be listed on the NYSE or other national securities exchanges or market systems and the Trusts preferred shares would be redeemed. Shareholders of an open-end investment company may require the company to redeem their shares at any time, except in certain circumstances as authorized by or under the Investment Company Act, at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. The Trust expects to pay all such redemption requests in cash, but reserves the right to pay redemption requests in a combination of cash or securities. If such partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If the Trust were converted to an open-end fund, it is likely that new shares would be sold at NAV plus a sales load. The Board believes, however, that the closed-end structure is desirable in light of the Trusts investment objective and policies. Therefore, you should assume that it is not likely that the Board would vote to convert the Trust to an open-end fund.
To dissolve the Trust, the Trusts Agreement and Declaration of Trust requires the approval of a resolution by a majority of the Board followed by the favorable vote of the holders of at least 75% of the outstanding shares of each affected class or series of the Trust, voting separately as a class or series, unless such resolution has been approved by at least 80% of the Trustees, in which case a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Trust shall be required.
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For the purposes of calculating a majority of the outstanding voting securities under the Trusts Agreement and Declaration of Trust, each class or series of the Trust shall vote together as a single class, except to the extent required by the Investment Company Act or the Trusts Agreement and Declaration of Trust with respect to any class or series of shares. If a separate class vote is required, the applicable proportion of shares of the class or series, voting as a separate class or series, also will be required.
The Board has determined that provisions with respect to the Board and the shareholder voting requirements described above, which voting requirements are greater than the minimum requirements under Delaware law or the Investment Company Act, are in the best interests of shareholders generally. Reference should be made to the Agreement and Declaration of Trust on file with the SEC for the full text of these provisions.
The Trusts Bylaws generally require that advance notice be given to the Trust in the event a shareholder desires to nominate a person for election to the Board or to transact any other business at an annual meeting of shareholders. Notice of any such nomination or business must be delivered to or received at the principal executive offices of the Trust not less than 120 calendar days nor more than 150 calendar days prior to the anniversary date of the prior years annual meeting (subject to certain exceptions). Any notice by a shareholder must be accompanied by certain information as provided in the Bylaws. Reference should be made to the Bylaws on file with the SEC for the full text of these provisions.
The Trust is a diversified, closed-end management investment company (commonly referred to as a closed-end fund). Closed-end funds differ from open-end funds (which are generally referred to as mutual funds) in that closed-end funds generally list their shares for trading on a stock exchange and do not redeem their shares at the request of the shareholder. This means that if you wish to sell your shares of a closed-end fund you must trade them on the stock exchange like any other stock at the prevailing market price at that time. In a mutual fund, if the shareholder wishes to sell shares of the fund, the mutual fund will redeem or buy back the shares at NAV. Also, mutual funds generally offer new shares on a continuous basis to new investors and closed-end funds generally do not. The continuous inflows and outflows of assets in a mutual fund can make it difficult to manage the funds investments. By comparison, closed-end funds are generally able to stay more fully invested in securities that are consistent with their investment objective and also have greater flexibility to make certain types of investments and to use certain investment strategies, such as financial leverage and investments in illiquid securities.
Shares of closed-end funds frequently trade at a discount to their NAV. Because of this possibility and the recognition that any such discount may not be in the interest of shareholders, the Board might consider from time to time engaging in open-market repurchases, tender offers for shares or other programs intended to reduce the discount. We cannot guarantee or assure, however, that the Board will decide to engage in any of these actions. Nor is there any guarantee or assurance that such actions, if undertaken, would result in the shares trading at a price equal or close to the NAV. See Repurchase of Common Shares below and Repurchase of Common Shares in the SAI. The Board might also consider converting the Trust to an open-end mutual fund, which would also require a vote of the shareholders of the Trust.
Shares of closed-end investment companies often trade at a discount to their NAVs and the Trusts common shares may also trade at a discount to their NAV, although it is possible that they may trade at a premium above NAV. The market price of the Trusts common shares will be determined by such factors as relative demand for and supply of such common shares in the market, the Trusts NAV, general market and economic conditions and other factors beyond the control of the Trust. See Net Asset Value and Description of Capital StockCommon Shares. Although the Trusts common shareholders will not have the right to redeem their common shares, the Trust may take action to repurchase common shares in the open market or make tender offers for its common shares. This may have the effect of reducing any market discount from NAV.
There is no assurance that, if action is undertaken to repurchase or tender for common shares, such action will result in the common shares trading at a price which approximates their NAV. Although share repurchases and tender offers could have a favorable effect on the market price of the Trusts common shares, you should be aware that the
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acquisition of common shares by the Trust will decrease the capital of the Trust and, therefore, may have the effect of increasing the Trusts expense ratio and decreasing the asset coverage with respect to any borrowings or preferred shares outstanding. Any share repurchases or tender offers will be made in accordance with the requirements of the Exchange Act, the Investment Company Act and the principal stock exchange on which the common shares are traded. For additional information, see Repurchase of Common Shares in the SAI.
We may sell common shares, including to existing shareholders in a rights offering, through underwriters or dealers, directly to one or more purchasers (including existing shareholders in a rights offering), through agents, to or through underwriters or dealers, or through a combination of any such methods of sale. The applicable Prospectus Supplement will identify any underwriter or agent involved in the offer and sale of our common shares, any sales loads, discounts, commissions, fees or other compensation paid to any underwriter, dealer or agent, the offering price, net proceeds and use of proceeds and the terms of any sale. In the case of a rights offering, the applicable Prospectus Supplement will set forth the number of our common shares issuable upon the exercise of each right and the other terms of such rights offering.
The distribution of our common shares may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. Sales of our common shares may be made in transactions that are deemed to be at the market as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange.
We may sell our common shares directly to, and solicit offers from, institutional investors or others who may be deemed to be underwriters as defined in the Securities Act for any resales of the securities. In this case, no underwriters or agents would be involved. We may use electronic media, including the Internet, to sell offered securities directly.
In connection with the sale of our common shares, underwriters or agents may receive compensation from us in the form of discounts, concessions or commissions. Underwriters may sell our common shares to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of our common shares may be deemed to be underwriters under the Securities Act, and any discounts and commissions they receive from us and any profit realized by them on the resale of our common shares may be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified and any such compensation received from us will be described in the applicable Prospectus Supplement. The maximum amount of compensation to be received by any Financial Industry Regulatory Authority member or independent broker-dealer will not exceed eight percent for the sale of any securities being offered pursuant to Rule 415 under the Securities Act. We will not pay any compensation to any underwriter or agent in the form of warrants, options, consulting or structuring fees or similar arrangements. In connection with any rights offering to existing shareholders, we may enter into a standby underwriting arrangement with one or more underwriters pursuant to which the underwriter(s) will purchase common shares remaining unsubscribed after the rights offering.
If a Prospectus Supplement so indicates, we may grant the underwriters an option to purchase additional common shares at the public offering price, less the underwriting discounts and commissions, within 45 days from the date of the Prospectus Supplement, to cover any over-allotments.
Under agreements into which we may enter, underwriters, dealers and agents who participate in the distribution of our common shares may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act. Underwriters, dealers and agents may engage in transactions with us, or perform services for us, in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, we will ourselves, or will authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase our common shares from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contacts may be made
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include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligation of any purchaser under any such contract will be subject to the condition that the purchase of the common shares shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions set forth in the Prospectus Supplement, and the Prospectus Supplement will set forth the commission payable for solicitation of such contracts.
To the extent permitted under the Investment Company Act and the rules and regulations promulgated thereunder, the underwriters may from time to time act as brokers or dealers and receive fees in connection with the execution of our portfolio transactions after the underwriters have ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it is an underwriter.
A Prospectus and accompanying Prospectus Supplement in electronic form may be made available on the websites maintained by underwriters. The underwriters may agree to allocate a number of securities for sale to their online brokerage account holders. Such allocations of securities for Internet distributions will be made on the same basis as other allocations. In addition, securities may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders.
In order to comply with the securities laws of certain states, if applicable, our common shares offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.
This Prospectus is part of a registration statement that we have filed with the SEC. We are allowed to incorporate by reference the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. We incorporate by reference into this Prospectus the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including any filings on or after the date of this Prospectus from the date of filing (excluding any information furnished, rather than filed), until we have sold all of the offered securities to which this Prospectus and any accompanying prospectus supplement relates or the offering is otherwise terminated. The information incorporated by reference is an important part of this Prospectus. Any statement in a document incorporated by reference into this Prospectus will be deemed to be automatically modified or superseded to the extent a statement contained in (1) this Prospectus or (2) any other subsequently filed document that is incorporated by reference into this Prospectus modifies or supersedes such statement. The documents incorporated by reference herein include:
| The Trusts SAI, dated March 15, 2022, filed with this Prospectus; |
| our annual report on Form N-CSR for the fiscal year ended April 30, 2021 filed with the SEC on July 6, 2021; |
| our semi-annual report on Form N-CSRS for the fiscal period ended October 31, 2021 filed with the SEC on January 4, 2022; |
| the Trusts definitive proxy statement on Schedule 14A, filed with the SEC on June 8, 2021; and |
| the description of the Trusts common shares contained in our Registration Statement on Form 8-A (File No. 001-16593) filed with the SEC on July 13, 2001, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering registered hereby. |
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The Trust will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon written or oral request, a copy of any and all of the documents that have been or may be incorporated by reference in this Prospectus or the accompanying prospectus supplement. You should direct requests for documents by calling:
Client Services Desk
(800) 882-0052
The Trust makes available this Prospectus, SAI and the Trusts annual and semi-annual reports, free of charge, at http://www.blackrock.com. You may also obtain this Prospectus, the SAI, other documents incorporated by reference and other information the Trust files electronically, including reports and proxy statements, on the SEC website (http://www.sec.gov) or with the payment of a duplication fee, by electronic request at publicinfo@sec.gov. Information contained in, or that can be accessed through, the Trusts website is not incorporated by reference into this Prospectus and should not be considered to be part of this Prospectus or the accompanying prospectus supplement.
PRIVACY PRINCIPLES OF THE TRUST
The Trust is committed to maintaining the privacy of shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Trust collects, how we protect that information, and why in certain cases we may share such information with select other parties.
The Trust does not receive any non-public personal information relating to its shareholders who purchase shares through their broker-dealers. In the case of shareholders who are record holders of the Trust, the Trust receives personal non-public information on account applications or other forms. With respect to these shareholders, the Trust also has access to specific information regarding their transactions in the Trust.
The Trust does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service our shareholders accounts (for example, to a transfer agent).
The Trust restricts access to non-public personal information about its shareholders to BlackRock employees with a legitimate business need for the information. The Trust maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of our shareholders.
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10,000,000 Shares
BLACKROCK MUNICIPAL INCOME TRUST
Common Shares of Beneficial Interest
Rights to Purchase Common Shares of Beneficial Interest
PROSPECTUS
March 15, 2022
The information in this Prospectus Supplement is not complete and may be changed. BlackRock Municipal Income Trust may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus Supplement is not an offer to sell these securities and is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED [●], 2022
PROSPECTUS SUPPLEMENT
(To Prospectus dated [●], 2022)
Filed Pursuant to Rule 424(b)([●])
Registration Statement No. 333-259605
BLACKROCK MUNICIPAL INCOME TRUST
Up to [●] Common Shares of Beneficial Interest
BlackRock Municipal Income Trust (the Trust, we, us or our) is offering for sale [●] of our common shares of beneficial interest (common shares). Our common shares are listed on the New York Stock Exchange (NYSE) under the symbol BFK. As of the close of business on [●], 2022, the last reported net asset value per share of our common shares was $[●] and the last reported sales price per share of our common shares on the NYSE was $[●].
The Trust is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the Investment Company Act). The Trusts investment objective is to provide current income exempt from regular U.S. federal income taxes. The Trusts investment adviser is BlackRock Advisors, LLC (the Advisor).
Sales of our common shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or transactions that are deemed to be at the market as defined in Rule 415 under the Securities Act of 1933, as amended (the Securities Act), including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange.
Investing in the Trusts common shares involves certain risks, including risks of leverage, which are described in the Risks section beginning on page [26] of the accompanying Prospectus and the Leverage section beginning on page [21] of the accompanying Prospectus.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[●], 2022
S-1
This Prospectus Supplement, together with the accompanying Prospectus, sets forth concisely the information about the Trust that a prospective investor should know before investing. You should read this Prospectus Supplement and the accompanying Prospectus, which contain important information, before deciding whether to invest in the common shares. You should retain the accompanying Prospectus and this Prospectus Supplement for future reference. A Statement of Additional Information (SAI), dated [●], 2022, containing additional information about the Trust, has been filed with the Securities and Exchange Commission (SEC) and, as amended from time to time, is incorporated by reference in its entirety into this Prospectus Supplement and the accompanying Prospectus. This Prospectus Supplement, the accompanying Prospectus and the SAI are part of a shelf registration statement filed with the SEC. This Prospectus Supplement describes the specific details regarding this offering, including the method of distribution. If information in this Prospectus Supplement is inconsistent with the accompanying Prospectus or the SAI, you should rely on this Prospectus Supplement. You may call (800) 882-0052, visit the Trusts website (http://www.blackrock.com) or write to the Trust to obtain, free of charge, copies of the SAI and the Trusts semi-annual and annual reports, as well as to obtain other information about the Trust or to make shareholder inquiries. The SAI, as well as the Trusts semi-annual and annual reports, are also available for free on the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov. Information contained in, or that can be accessed through, the Trusts website is not part of this Prospectus Supplement or the accompanying Prospectus.
You should not construe the contents of this Prospectus Supplement and the accompanying Prospectus as legal, tax or financial advice. You should consult with your own professional advisors as to the legal, tax, financial or other matters relevant to the suitability of an investment in the Trust.
The common shares do not represent a deposit or an obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
S-2
You should rely only on the information contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. Neither the Trust nor the underwriters have authorized anyone to provide you with different information. The Trust is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Prospectus, respectively. Our business, financial condition, results of operations and prospects may have changed since those dates. In this Prospectus Supplement and in the accompanying Prospectus, unless otherwise indicated, Trust, us, our and we refer to BlackRock Municipal Income Trust, a Delaware statutory trust.
Prospectus Supplement
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CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS |
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S-3
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus and the SAI contain forward-looking statements. Forward-looking statements can be identified by the words may, will, intend, expect, estimate, continue, plan, anticipate, and similar terms and the negative of such terms. Such forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with the SEC.
Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the Risks section of the accompanying Prospectus. All forward-looking statements contained or incorporated by reference in this Prospectus Supplement or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying Prospectus, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by Section 27A of the Securities Act.
Currently known risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors described in the Risks section of the accompanying Prospectus. We urge you to review carefully those sections for a more detailed discussion of the risks of an investment in our common shares.
S-4
The following summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Prospectus Supplement and in the accompanying Prospectus and in the SAI.
The Trust
The Trust is a diversified, closed-end management investment company. The Trusts investment objective is to provide current income exempt from regular U.S. federal income taxes. There can be no assurance that the Trusts investment objective will be achieved or that the Trusts investment program will be successful. The Trusts common shares are listed for trading on the NYSE under the symbol BFK.
Investment Advisor
BlackRock Advisors, LLC (previously defined as the Advisor) is the Trusts investment adviser. The Advisor receives an annual fee, payable monthly, in an amount equal to 0.60% of the average weekly value of the Trusts Managed Assets. Managed Assets means the total assets of the Trust (including any assets attributable to money borrowed for investment purposes) minus the sum of the Trusts accrued liabilities (other than money borrowed for investment purposes).
The Offering
[The provisions of the Investment Company Act generally require that the public offering price of common shares (less any underwriting commissions and discounts) must equal or exceed the net asset value per share of a companys common shares (calculated within 48 hours of pricing).
Sales of our common shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or transactions that are deemed to be at the market as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange.]
Use of Proceeds
We currently anticipate that we will be able to invest all of the net proceeds of any sales of common shares pursuant to this Prospectus Supplement in accordance with our investment objective and policies as described in the accompanying Prospectus under The Trusts Investments within approximately three months of the receipt of such proceeds. Pending such investment, it is anticipated that the proceeds will be invested in short-term, tax-exempt or taxable investment grade securities or in high quality, short-term money market instruments. Depending on market conditions and operations, a portion of the cash held by the Trust, including any proceeds raised from the offering, may be used to pay distributions in accordance with the Trusts distribution policy and may be a return of capital.
The following table and example are intended to assist you in understanding the various costs and expenses directly or indirectly associated with investing in our common shares.
Shareholder Transaction Expenses |
||||
Sales load paid by you (as a percentage of offering price)(1) |
[●]% | |||
Offering expenses borne by the Trust (as a percentage of offering price)(1) |
[●]% | |||
Dividend reinvestment plan fees |
|
$[●] per share for open-market purchases of common shares(2) |
||
Dividend reinvestment plan sale transaction fee |
$[●](2) | |||
Estimated Annual Expenses (as a percentage of net assets attributable to common shares) |
||||
Management fees(4)(5) |
[●]% |
S-5
Other Expenses(3) Miscellaneous Other Expenses Interest Expense(6) Total Annual Trust Operating Expenses Fee Waivers and/or Expense
Reimbursements(5) Total Annual Trust Operating Expenses after Fee Waivers and/or Expense Reimbursements (5)
[●]%
[●]%
[●]%
[●]%
[●]%
(1) | Trust shareholders will pay all offering expenses involved with this offering. |
(2) | Computershare Trust Company, N.A.s (the Reinvestment Plan Agent) fees for the handling of the reinvestment of dividends will be paid by the Trust. However, you will pay a $0.02 per share fee incurred in connection with open-market purchases, which will be deducted from the value of the dividend. You will also be charged a $2.50 sales fee and pay a $0.15 per share fee if you direct the Reinvestment Plan Agent to sell your common shares held in a dividend reinvestment account. Per share fees include any applicable brokerage commissions the Reinvestment Plan Agent is required to pay. |
(3) | Other expenses have been restated to reflect current fees. |
(4) | The Trust currently pays the Advisor a monthly fee at an annual contractual investment management fee rate of 0.60% of its average weekly managed assets. For purposes of calculating these fees, managed assets means the total assets of the Trust (including any assets attributable to money borrowed) minus the sum of its accrued liabilities (other than money borrowed for investment purposes, including liabilities represented by TOB leverage and the liquidation preference of the Trusts VMTP Shares). |
(5) | The Trust and the Advisor have entered into a fee waiver agreement (the Fee Waiver Agreement), pursuant to which the Advisor has contractually agreed to waive the management fee with respect to any portion of the Trusts assets attributable to investments in any equity and fixed-income mutual funds and exchange-traded funds managed by the Advisor or its affiliates that have a contractual management fee, through June 30, 2023. In addition, pursuant to the Fee Waiver Agreement, the Advisor has contractually agreed to waive its management fees by the amount of investment advisory fees the Trust pays to the Advisor indirectly through its investment in money market funds managed by the Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be terminated at any time, without the payment of any penalty, only by the Trust (upon the vote of a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Trust or a majority of the outstanding voting securities of the Trust), upon 90 days written notice by the Trust to the Advisor. |
(6) | The total expense table includes interest expense associated with the Trusts investments in TOBs (also known as inverse floaters). Although such interest expense is actually paid by special purpose vehicles in which the Trust invests, it is recorded on the Trusts financial statements for accounting purposes. The total expense table also includes, in interest expense, dividends associated with the VMTP Shares, because the VMTP Shares are considered debt of the Trust for financial reporting purposes. |
The Trust uses leverage to seek to enhance its returns to common shareholders. This leverage generally takes two forms: the issuance of VMTP Shares and investment in TOBs. Both forms of leverage benefit common shareholders if the cost of the leverage is lower than the returns earned by the Trust when it invests the proceeds from the leverage. In order to help you better understand the costs associated with the Trusts leverage strategy, the Total annual Trust operating expenses after fee waivers (excluding interest expense) are [ ]%.
Example
The following example illustrates the expenses (including the sales load of $[●] and offering costs of $[●]) that you would pay on a $1,000 investment in common shares, assuming (i) total net annual expenses of [●]% of net assets attributable to common shares and (ii) a 5% annual return:
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
Total expenses incurred |
$ | [●] | $ | [●] | $ | [●] | $ | [●] |
The example should not be considered a representation of future expenses. The example assumes that the estimated Other expenses set forth in the Estimated Annual Expenses table are accurate and that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Trusts actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
S-6
We estimate the total net proceeds of the offering to be $[●], based on the public offering price of $[●] per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The net proceeds from the issuance of common shares hereunder will be invested in accordance with the Trusts investment objective and policies as set forth in this Prospectus Supplement and the accompanying Prospectus. We currently anticipate that we will be able to invest all of the net proceeds in accordance with our investment objective and policies within approximately three months of the receipt of such proceeds. Pending such investment, it is anticipated that the proceeds will be invested in short-term, tax-exempt or taxable investment grade securities or in high quality, short-term money market instruments. Depending on market conditions and operations, a portion of the cash held by the Trust, including any proceeds raised from the offering, may be used to pay distributions in accordance with the Trusts distribution policy and may be a return of capital. A return of capital is a return to investors of a portion of their original investment in the Trust. In general terms, a return of capital would involve a situation in which a Trust distribution (or a portion thereof) represents a return of a portion of a shareholders investment in the Trust, rather than making a distribution that is funded from the Trusts earned income or other profits. Although return of capital distributions may not be currently taxable, such distributions would decrease the basis of a shareholders shares, and therefore, may increase a shareholders tax liability for capital gains upon a sale of shares, even if sold at a loss to the shareholders original investments.
The following table sets forth the unaudited capitalization of the Trust as of [●], 2022 and its adjusted capitalization assuming the common shares available in the offering discussed in this Prospectus Supplement had been issued.
[To be provided.]
[To be provided.]
Certain legal matters in connection with the common shares will be passed upon for the Trust by Willkie Farr & Gallagher LLP, New York, New York, counsel to the Trust. Willkie Farr & Gallagher LLP may rely as to certain matters of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. [Certain legal matters will be passed on by [] as special counsel to the Underwriters in connection with the offering.]
This Prospectus Supplement and the accompanying Prospectus constitute part of a Registration Statement filed by the Trust with the SEC under the Securities Act and the Investment Company Act. This Prospectus Supplement and the accompanying Prospectus omit certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Trust and the common shares offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SECs website (http://www.sec.gov).
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BLACKROCK MUNICIPAL INCOME TRUST
[●] Common Shares of Beneficial Interest
PROSPECTUS SUPPLEMENT
[●], 2022
Until [ ], 2022 (25 days after the date of this Prospectus Supplement), all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters.
The information in this Prospectus Supplement is not complete and may be changed. BlackRock Municipal Income Trust may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus Supplement is not an offer to sell these securities and is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED [●], 2022
Filed Pursuant to Rule 424
Registration Statement No. 333-259605
PROSPECTUS SUPPLEMENT
(To Prospectus dated [●], 2022)
BLACKROCK MUNICIPAL INCOME TRUST
[●] Rights for [●] Shares of Beneficial Interest
Issuable Upon the Exercise of
Transferrable Subscription Rights to Acquire Shares of Beneficial Interest
BlackRock Municipal Income Trust (the Trust, we, us or our) is issuing transferrable subscription rights (the Rights) to our common shareholders (the Common Shareholders) to subscribe for an aggregate of [●] common shares of beneficial interest (each, a Common Share and collectively, the Common Shares).
The Trust is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended. The Trusts investment objective is to provide current income exempt from regular U.S. federal income taxes. The Trusts investment adviser is BlackRock Advisors, LLC (the Advisor).
The Common Shares are listed on the New York Stock Exchange (NYSE) under the symbol BFK. Common Shareholders of record on [●], 2022 (the Record Date) will receive [●] Right for each Common Share held. These Rights are transferable and will allow the holders thereof to purchase additional Common Shares. The Rights will be listed for trading on the [●] under the symbol [●] during the course of the Rights offering.
The Rights entitle their holders to purchase [●] new Common Share for every [●] Rights held. Any Common Shareholder who owns fewer than [●] Common Shares as of the close of business on the Record Date may subscribe for [●] full Common Share. Common Shareholders as of the close of business on the Record Date who fully exercise all Rights initially issued to them (other than those Rights that cannot be exercised because they represent the right to acquire less than one Common Share) will be entitled to subscribe for additional Common Shares that remain unsubscribed as a result of any unexercised Rights. This over-subscription privilege is subject to a number of limitations and subject to allotment.
The subscription price per Common Share (the Subscription Price) will be determined based upon a formula equal to [●]% of the average of the last reported sales price of a Common Share on the NYSE on the date on which the Rights offering expires, as such date may be extended from time to time, and each of the [● (●)] preceding trading days (the Formula Price). If, however, the Formula Price is less than [●]% of the net asset value (NAV) per Common Share at the close of trading on the NYSE on the Expiration Date (as defined below), then the Subscription Price will be [●]% of the Trusts NAV per Common Share at the close of trading on the NYSE on the Expiration Date. All offering expenses, including sales commissions, will be borne by the Advisor, and not the Trust or any Common Shareholders. The Rights offering will expire at 5:00 p.m., Eastern time, on [●], 2022, unless extended as described in this Prospectus Supplement (the Expiration Date).
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On [●], 2022 (the last trading date prior to the Common Shares trading ex-Rights), the last reported net asset value per share of the Common Shares was $[●] and the last reported sales price per share of Common Shares on the NYSE was $[●], representing a [premium] to net asset value of [●]%.
This Prospectus Supplement, together with the accompanying Prospectus, sets forth concisely the information about the Trust that a prospective investor should know before investing. You should read this Prospectus Supplement and the accompanying Prospectus, which contain important information, before deciding whether to invest in the Common Shares. You should retain the accompanying Prospectus and this Prospectus Supplement for future reference. A Statement of Additional Information (SAI), dated [ ], 2022, containing additional information about the Trust, has been filed with the Securities and Exchange Commission (SEC) and, as amended from time to time, is incorporated by reference in its entirety into this Prospectus Supplement and the accompanying Prospectus. This Prospectus Supplement, the accompanying Prospectus and the SAI are part of a shelf registration statement filed with the SEC. This Prospectus Supplement describes the specific details regarding this offering, including the method of distribution. If information in this Prospectus Supplement is inconsistent with the accompanying Prospectus or the SAI, you should rely on this Prospectus Supplement. You may call (800) 882-0052, visit the Trusts website (http://www.blackrock.com) or write to the Trust to obtain, free of charge, copies of the SAI and the Trusts semi-annual and annual reports, as well as to obtain other information about the Trust or to make shareholder inquiries. The SAI, as well as the Trusts semi-annual and annual reports, are also available for free on the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov. Information contained in, or that can be accessed through, the Trusts website is not part of this Prospectus Supplement or the accompanying Prospectus. Common Shareholders please call toll-free at [●] (banks and brokers please call [●]) or please send written requests to [●].
Investing in Common Shares through Rights involves certain risks that are described in the Special Characteristics and Risks of the Rights Offering section of this Prospectus Supplement.
SHAREHOLDERS WHO DO NOT FULLY EXERCISE THEIR RIGHTS MAY, AT THE COMPLETION OF THE RIGHTS OFFERING, OWN A SMALLER PROPORTIONAL INTEREST IN THE TRUST THAN IF THEY EXERCISED THEIR RIGHTS. AS A RESULT OF THE RIGHTS OFFERING YOU MAY EXPERIENCE SUBSTANTIAL DILUTION OF THE AGGREGATE NET ASSET VALUE OF YOUR COMMON SHARES DEPENDING UPON WHETHER THE TRUSTS NET ASSET VALUE PER COMMON SHARE IS ABOVE OR BELOW THE SUBSCRIPTION PRICE ON THE EXPIRATION DATE. RIGHTS EXERCISED BY A SHAREHOLDER ARE IRREVOCABLE.
THE TRUST HAS DECLARED MONTHLY DISTRIBUTIONS PAYABLE ON [●], 2022 WITH A RECORD DATE OF [●], 2022. ANY COMMON SHARES ISSUED AS A RESULT OF THE RIGHTS OFFERING WILL NOT BE RECORD DATE SHARES FOR THE TRUSTS MONTHLY DISTRIBUTION TO BE PAID ON [●], 2022 AND WILL NOT BE ENTITLED TO RECEIVE SUCH DISTRIBUTION.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per Common Share |
Total(1) | |||||||
Estimated subscription price of Common Shares to shareholders exercising Rights(2) |
$ | [ | ●] | $ | [ | ●] | ||
Underwriting discounts and commissions |
$ | [ | ●] | $ | [ | ●] | ||
Estimated proceeds, before expenses, to the Trust(3) (4) |
$ | [ | ●] | $ | [ | ●] |
(1) | Assumes that all Rights are exercised at the estimated Subscription Price (as described below). All of the Rights may not be exercised, and the estimated Subscription Price may be higher or lower than the actual Subscription Price. |
(2) | The estimated Subscription Price to the public is based upon [●]% of the last reported sales price of the Trusts Common Shares on the NYSE on [●], 2022 and each of the [● (●)] preceding trading days. See Terms of the Rights OfferingSubscription Price. |
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(3) | Before deduction of expenses related to the Rights offering, which are estimated approximately at $[●]. Any offering expenses are paid indirectly by shareholders. Such fees and expenses will immediately reduce the net asset value per share of each Common Share purchased by an investor in the Rights offering. The indirect expenses of the offering that shareholders will pay are estimated to be $[●] in the aggregate and $[●] per share. The amount of proceeds to the Trust net of any fees and expenses of the offering are estimated to be $[●] in the aggregate and $[●] per share. Shareholders will not directly bear any offering expenses. |
(4) | Funds received by check prior to the final due date of the Rights offering will be deposited into a segregated account pending proration and distribution of Common Shares. The Subscription Agent (as defined in this Prospectus Supplement) may receive investment earnings on the funds deposited into such account. |
The Common Shares are expected to be ready for delivery in book-entry form through the [insert depository name] on or about [●], 2022 [, unless extended. If the offering is extended, the Common Shares are expected to be ready for delivery in book-entry form through the [●] on or about [●], 2022.]
You should not construe the contents of this Prospectus Supplement and the accompanying Prospectus as legal, tax or financial advice. You should consult with your own professional advisors as to the legal, tax, financial or other matters relevant to the suitability of an investment in the Trust.
The Trusts Common Shares do not represent a deposit or an obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
The date of this Prospectus Supplement is [●], 2022.
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You should rely only on the information contained or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. The Trust has not authorized anyone to provide you with different information. The Trust is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Prospectus, respectively. This Prospectus Supplement will be amended to reflect material changes to the information contained herein and will be delivered to shareholders. Our business, financial condition, results of operations and prospects may have changed since those dates. In this Prospectus Supplement and in the accompanying Prospectus, unless otherwise indicated, Trust, us, our and we refer to BlackRock Municipal Income Trust, a Delaware statutory trust.
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CERTAIN PROVISIONS IN THE AGREEMENT AND DECLARATION OF TRUST AND BYLAWS |
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus and the SAI contain forward-looking statements. Forward-looking statements can be identified by the words may, will, intend, expect, estimate, continue, plan, anticipate, and similar terms and the negative of such terms. Such forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus and in the SAI. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with the SEC.
Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the Risks section of the accompanying Prospectus and Special Characteristics and Risks of the Rights Offering in this Prospectus Supplement. All forward-looking statements contained or incorporated by reference in this Prospectus Supplement or the accompanying Prospectus, or in the SAI, are made as of the date of this Prospectus Supplement or the accompanying Prospectus or SAI, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the Securities Act).
Currently known risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors described in the Risks section of the accompanying Prospectus as well as in the Special Characteristics and Risks of the Rights Offering section of this Prospectus Supplement. We urge you to review carefully those sections for a more detailed discussion of the risks of an investment in the Common Shares.
SUMMARY OF THE TERMS OF THE RIGHTS OFFERING
Purpose of the Rights Offering |
[To come.] | |
Terms of the Rights Offering |
[●] transferable subscription right (a Right) will be issued for each common share of the Trust (each, a Common Share, and collectively, the Common Shares) held on the Record Date (as defined below). Rights are expected to trade on the [●] under the symbol [●]. The Rights will allow Common Shareholders to subscribe for new Common Shares of the Trust. [●] Common Shares of the Trust are outstanding as of [●], 2022. [●] Rights will be required to purchase one Common Share. Shares of the Trust, as a closed-end fund, can trade at a discount to net asset value (NAV). Upon exercise of the Rights offering, Trust shares are expected to be issued at a price below NAV per Common Share. [An over-subscription privilege will be offered, [subject to the right of the Board of Trustees of the Trust (the Board) to eliminate the over-subscription privilege.] [●] Common Shares of the Trust will be issued if all Rights are exercised. See Terms of the Rights Offering.
The Trust has declared monthly distributions payable on [●], 2022 with a record date of [●], 2022. Any Common Shares issued as a result of the Rights offering will not be record date shares for the Trusts monthly distribution to be paid on [●], 2022 and will not be entitled to receive such distribution.
The exercise of Rights by a Rights holder is irrevocable. |
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Title Subscription Rights to Acquire Common Shares of Beneficial Interest Subscription Price The final subscription price per Common Share (the Subscription Price) will be determined based upon a formula
equal to [●]% of the average of the last reported sales price of the Trusts Common Shares on the New York Stock Exchange (NYSE ) on the Expiration Date (as defined below) and each of the [●] preceding trading days (the
Formula Price). If, however, the Formula Price is less than [●]% of the NAV per Common Share of the Trusts Common Shares at the close of trading on the NYSE on the Expiration Date, then the Subscription Price will be
[●]% of the Trusts NAV per Common Share at the close of trading on the NYSE on that day. See Terms of the Rights Offering. Record Date Rights will be issued to Common Shareholders of record as of the close of business on [●], 2022 (the Record
Date). See Terms of the Rights Offering. Number of Rights Issued [●] Right will be issued in respect of each Common Share of the Trust outstanding as of the close of business on the
Record Date. See Terms of the Rights Offering. Number of Rights Required to Purchase One Common Share A holder of Rights may purchase [●] Common Share of the Trust for every [●] Rights exercised. The number of
Rights to be issued to a shareholder as of the close of business on the Record Date will be rounded up to the nearest number of Rights evenly divisible by [●]. See Terms of the Rights Offering. Over-Subscription Privilege Common Shareholders as of the close of business on the Record Date (Record Date Shareholders) who fully
exercise all Rights initially issued to them (other than those Rights that cannot be exercised because they represent the right to acquire less than one Common Share) generally are entitled, subject to the limitations described herein, to buy those
Common Shares, referred to as primary over-subscription shares, that were not purchased by other Rights holders at the same Subscription Price. If enough primary over-subscription shares are available, all such requests will be honored
in full. If the requests for primary over-subscription shares exceed the primary over-subscription shares available, the available primary over-subscription shares will be allocated pro rata among those fully exercising Record Date Shareholders who
over-subscribe based on the number of Rights originally issued to them by the Trust. Common Shares acquired pursuant to the primary over-subscription privilege are subject to allotment. Holders of Rights acquired in the secondary market
may not participate in the primary over-subscription privilege. [In addition, the Trust, in its sole discretion, may determine to issue additional Common Shares at the same Subscription
Price in an amount of up to [●]% of the shares issued pursuant to the primary subscription, referred to as secondary over-subscription shares. Should the Trust determine to issue some or all of the secondary over-subscription
shares, they will be allocated only among Record Date Shareholders who submitted over-subscription requests. Secondary over-subscription shares will be allocated pro rata among those fully exercising Record Date Shareholders who over-subscribe based
on the number of Rights originally issued to them by the Trust. Rights acquired in the secondary market may not participate in the secondary over-subscription privilege.]
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Notwithstanding the above, the Board has the right in its absolute discretion to eliminate the primary over-subscription
privilege and/or secondary over-subscription privilege (together, the over-subscription privilege) if it considers it to be in the best interest of the Trust to do so. The Board may make that determination at any time, without prior
notice to Rights holders or others, up to and including the fifth day following the Expiration Date (as defined below). See Over-Subscription Privilege. Any Common Shares issued pursuant to the over-subscription privilege will be shares registered under the
Prospectus. Transfer of Rights The Rights will be transferable. See Terms of the Rights Offering, Sale of Rights and Method
of Transferring Rights. Subscription Period The Rights may be exercised at any time after issuance and prior to expiration of the Rights (the Subscription
Period), which will be [5:00 PM Eastern Time] on [●], 2022 (the Expiration Date), unless otherwise extended. See Terms of the Rights Offering and Method of Exercise of Rights. The Rights offering may
be terminated [or extended] by the Trust at any time for any reason before the Expiration Date. If the Trust terminates the Rights offering, the Trust will issue a press release announcing such termination and will direct the Subscription Agent
(defined below) to return, without interest, all subscription proceeds received to such shareholders who had elected to purchase Common Shares. Distribution Arrangements [●] Offering Expenses The expenses of the Rights offering are expected to be approximately $[●] and will be borne by holders of the
Trusts Common Shares. See Use of Proceeds. Sale of Rights The Rights are transferable until the completion of the Subscription Period and will be admitted for trading on the
[●] under the symbol [●]. Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the [●] is expected to begin two Business Days prior to the Record Date and may be
conducted until the close of trading on the last [●] trading day prior to the Expiration Date. For purposes of this Prospectus Supplement, a Business Day shall mean any day on which trading is conducted on the
[●]. The value of the Rights, if any, will be reflected by their market price on the [●]. Rights may be sold by individual
holders through their broker or financial advisor or may be submitted to the Subscription Agent (defined below) for sale. Any Rights submitted to the Subscription Agent for sale must be received by the Subscription Agent prior to [5:00 PM, Eastern
Time], on or before [●], 2022, [●] Business Days prior to the Expiration Date (or, if the Subscription Period is extended, prior to [5:00 PM, Eastern Time], on the [●] Business Day prior to the extended Expiration
Date).
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Rights that are sold will not confer any right to acquire any Common Shares in any over-subscription, and any Record Date
Shareholder who sells any Rights will not be eligible to participate in the over-subscription privilege, if any. Trading of the Rights on the [●] will be conducted on a when-issued basis until and including the date on which the
Subscription Certificates (as defined below) are mailed to Record Date Shareholders of record and thereafter will be conducted on a regular-way basis until and including the last [●] trading day prior to
the completion of the Subscription Period. The shares are expected to begin trading ex-Rights one Business Day prior to the Record Date. If the Subscription Agent receives Rights for sale in a timely manner, the Subscription Agent will use its best efforts to
sell the Rights on the [●]. The Subscription Agent will also attempt to sell any Rights attributable to shareholders of record whose addresses are outside the United States, or who have an APO or FPO address. See Foreign
Restrictions. The Subscription Agent will attempt to sell such Rights, including by first offering such Rights to the Dealer Manager (defined below) for purchase by the Dealer Manager at the then-current market price on the [●]. The
Subscription Agent will offer Rights to the Dealer Manager before attempting to sell them on the [●]. Any commissions will be paid by the selling Rights holders. Neither the Trust nor the Subscription Agent will be
responsible if Rights cannot be sold and neither has guaranteed any minimum sales price for the Rights. If the Rights can be sold, sales of these Rights will be deemed to have been effected at the weighted average price received by the Subscription
Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses (i.e., costs incidental to the sale of Rights). For a discussion of actions that may be taken by [●] (the Dealer Manager) to seek to facilitate the
trading market for Rights and the placement of Common Shares pursuant to the exercise of Rights, including the purchase of Rights and the sale during the Subscription Period by the Dealer Manager of Common Shares acquired through the exercise of
Rights and the terms on which such sales will be made, see Plan of Distribution. Shareholders are urged to obtain a recent trading price for the Rights on the [●] from their broker, bank, financial
advisor or the financial press. Banks, broker-dealers and trust companies that hold shares for the accounts of others are advised to notify those persons
that purchase Rights in the secondary market that such Rights will not participate in any over-subscription privilege. See Terms of the Rights Offering. Use of Proceeds The Trust estimates the net proceeds of the Rights offering to be approximately $[●]. This figure is based on the
Subscription Price per Common Share of $[●] ([●]% of the last reported sales price of the Trusts Common Shares on the NYSE on [●], 2022 and each of the [●(●)] preceding trading days) and assumes all new Common
Shares offered are sold and that the expenses related to the Rights offering estimated at approximately $[●] are paid.
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The Advisor anticipates that investment of the proceeds will be made in accordance with the Trusts investment
objective and policies as appropriate investment opportunities are identified, which is expected to be substantially completed in approximately [three] months; however, the identification of appropriate investment opportunities pursuant to the
Trusts investment style or changes in market conditions may cause the investment period to extend as long as [six] months. Pending such investment, the proceeds will be held in [short-term, tax-exempt or
taxable investment grade securities or in high quality, short-term money market instruments]. Depending on market conditions and operations, a portion of the cash held by the Trust, including any proceeds raised from
the offering, may be used to pay distributions in accordance with the Trusts distribution policy and may be a return of capital. A return of capital is a return to investors of a portion of their original investment in the Trust. In general
terms, a return of capital would involve a situation in which a Trust distribution (or a portion thereof) represents a return of a portion of a shareholders investment in the Trust, rather than making a distribution that is funded from the
Trusts earned income or other profits. Although return of capital distributions may not be currently taxable, such distributions would decrease the basis of a shareholders shares, and therefore, may increase a shareholders tax
liability for capital gains upon a sale of shares, even if sold at a loss to the shareholders original investments. See Use of Proceeds. Taxation/ERISA See Taxation and Employee Benefit Plan and IRA Considerations. Subscription Agent [●]. See Subscription Agent. Information Agent [●]. See Information Agent. DESCRIPTION OF THE RIGHTS OFFERING Terms of the Rights Offering The Trust is issuing to Record Date Shareholders Rights to subscribe for Common Shares of the Trust. Each Record Date
Shareholder is being issued one transferable Right for each Common Share owned on the Record Date. The Rights entitle the holder to acquire, at a subscription price per Common Share (the Subscription Price) determined based upon a
formula equal to [●]% of the average of the last reported sales price of the Trusts Common Shares on the NYSE on the Expiration Date (as defined below) and each of the [●] preceding trading days (the Formula Price),
[●] new Common Shares for each [●] Rights held. If, however, the Formula Price is less than [●]% of the NAV per share of the Trusts Common Shares at the close of trading on the NYSE on the Expiration Date, then the
Subscription Price will be [●]% of the Trusts NAV per Common Share at the close of trading on the NYSE on that day. The estimated Subscription Price to the public of $[●] is based upon [●]% of the last reported sales price of the
Trusts Common Shares on the NYSE on [●], 2022. Fractional shares will not be issued upon the exercise of the Rights. Accordingly, Common Shares may be purchased only pursuant to the exercise of Rights in integral multiples of [●].
The number of Rights to be issued to a Record Date Shareholder will be rounded up to the nearest number of Rights evenly divisible by [●]. In the case of Common Shares held of record by Cede & Co. (Cede), as nominee
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for the Depository Trust Company (DTC)], or any other depository or nominee, the number of Rights issued to Cede or such other depository or nominee will be adjusted to permit
rounding up (to the nearest number of Rights evenly divisible by [●]) of the Rights to be received by beneficial owners for whom it is the holder of record only if [insert nominee name] or such other depository or nominee provides to the Trust
on or before the close of business on [●], 2022 written representation of the number of Rights required for such rounding. Rights may be exercised at any time during the period (the Subscription Period) which commences on
[●], 2022, and ends at [5:00 PM Eastern Time] on [●], 2022 (the Expiration Date), unless otherwise extended. Shares of the Trust, as a closed-end fund, can trade at a discount to NAV.
Upon exercise of the Rights offering, Trust shares may be issued at a price below NAV per Common Share. The right to acquire one Common Share for each [●] Rights held during the Subscription Period (or any extension of the Subscription Period)
at the Subscription Price will be referred to in the remainder of this Prospectus Supplement as the Rights offering. Rights will expire on the Expiration Date and thereafter may not be exercised. The Trust has declared monthly distributions payable on [●], 2022 with a record date of [●], 2022. Any
Common Shares issued as a result of the Rights offering will not be Record Date shares for the Trusts monthly distribution to be paid on [●], 2022 and will not be entitled to receive such distribution.
The Trust has entered into a dealer manager agreement with [●] (the Dealer Manager) that allows the
Dealer Manager to take actions to seek to facilitate the trading market for Rights and the placement of Common Shares pursuant to the exercise of Rights. Those actions are expected to involve the Dealer Manager purchasing and exercising Rights
during the Subscription Period at prices determined at the time of such exercise, which are expected to vary from the Subscription Price. See Plan of Distribution for additional information. Rights may be evidenced by subscription certificates or may be uncertificated and evidenced by other appropriate documentation
(i.e., a rights card distributed to registered shareholders in lieu of a subscription certificate) (Subscription Certificates). The number of Rights issued to each holder will be stated on the Subscription Certificate delivered to
the holder. The method by which Rights may be exercised and Common Shares paid for is set forth below in Method of Exercise of Rights, Payment for Shares and Plan of Distribution. A holder of Rights will have no
right to rescind a purchase after [●] (the Subscription Agent) has received payment. See Payment for Shares below. It is anticipated that the Common Shares issued pursuant to an exercise of Rights will be listed on the
[●]. [Holders of Rights [who are Record Date Shareholders] are entitled to subscribe for additional Common Shares
at the same Subscription Price pursuant to the over-subscription privilege, subject to certain limitations, allotment and the right of the Board to eliminate the primary over-subscription privilege [or secondary] over-subscription privilege. See
Over-Subscription Privilege below.] For purposes of determining the maximum number of Common Shares that may
be acquired pursuant to the Rights offering, broker-dealers, trust companies, banks or others whose shares are held of record by Cede or by any other depository or nominee will be deemed to be the holders of the Rights that are held by Cede or such
other depository or nominee on their behalf. The Rights are transferable until the completion of the Subscription Period
and will be admitted for trading on the [●] under the symbol [●]. Assuming a market exists for the Rights, the Rights may be purchased and sold through usual brokerage channels and also sold through the Subscription Agent.
Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the [●] is expected to begin two Business Days prior to the Record Date and may be conducted until the close of trading on the last
[●] trading day prior to the Expiration Date. Trading of the Rights on the [●] is expected to be conducted on a when-issued basis until and including the date on which the Subscription Certificates are mailed to Record Date Shareholders
of record and thereafter is expected to be conducted on a regular way basis until and including the last [●] trading day prior to the Expiration Date. The method by which Rights may be transferred is set forth below under Method of
Transferring Rights. The Common Shares are expected to begin trading ex-Rights one Business Day prior to the Record Date as determined and announced by the []. The Rights offering may be terminated
or extended by the Trust at any time for any reason before the Expiration Date. If the Trust terminates the Rights offering, the Trust will issue a press release announcing such termination and will direct the Subscription Agent to return, without
interest, all subscription proceeds received to such shareholders who had elected to purchase Common Shares. R-10
Nominees who hold the Trusts Common Shares for the account of others, such as banks,
broker-dealers, trustees or depositories for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owners intentions and to obtain instructions with respect to the Rights. If
the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Subscription Agent with proper payment. In addition, beneficial owners of the Common Shares or Rights held through such a nominee should
contact the nominee and request the nominee to effect transactions in accordance with such beneficial owners instructions. [Participants in the Trusts Dividend Reinvestment Plan (the Plan) will be issued Rights in respect of the
Common Shares held in their accounts in the Plan. Participants wishing to exercise these Rights must exercise the Rights in accordance with the procedures set forth in Method of Exercise of Rights and Payment for Shares.]
Conditions of the Rights Offering The Rights offering is being made in accordance with the Investment Company Act of 1940, as amended (the Investment
Company Act), without shareholder approval. The staff of the SEC has interpreted the Investment Company Act as not requiring shareholder approval of a transferable rights offering to purchase common shares at a price below the then current NAV
so long as certain conditions are met, including: (i) a good faith determination by a funds board that such offering would result in a net benefit to existing shareholders; (ii) the offering fully protects shareholders
preemptive rights and does not discriminate among shareholders (except for the possible effect of not offering fractional rights); (iii) management uses its best efforts to ensure an adequate trading market in the rights for use by shareholders who
do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held. Important Dates to Remember [Please note that the dates in the table below may change if the Rights offering is extended.] Event Date [●], 2022 [●], 2022 through [●], 2022 [●], 2022 Payment for Common Shares and Subscription Certificate or Notice of Guaranteed Delivery
Due* [●], 2022 [●], 2022 [●], 2022 A shareholder exercising Rights must deliver to the Subscription Agent by [5:00 PM Eastern Time] on
[], 2022 (unless the Rights offering is extended) either (a) a Subscription Certificate and payment for Common Shares or (b) a notice of guaranteed delivery and payment for Common Shares. Unless the Rights offering is extended. [Over-Subscription Privilege Rights holders [who are Record Date Shareholders and who fully exercise all Rights initially issued to them (other than those
Rights that cannot be exercised because they represent the right to acquire less than one Common Share)] are entitled to subscribe for additional Common Shares at the same Subscription Price pursuant to the over-subscription privilege, subject to
certain limitations and subject to allotment. The Board has the right in its absolute discretion to eliminate the over-subscription privilege with respect to primary over-subscription shares and secondary over-subscription shares if it considers it
to be in the best interest of the Trust to do so. The Board may make that determination at any time, without prior notice to Rights holders or others, up to and including the fifth day following the Expiration Date. If the primary over-subscription
privilege is not eliminated, it will operate as set forth below. R-11
[Record Date Shareholders who fully exercise all Rights initially issued to them (other than
those Rights that cannot be exercised because they represent the right to acquire less than one Common Share)] are entitled to buy those Common Shares, referred to as primary over-subscription shares, that were not purchased by other
holders of Rights at the same Subscription Price. If enough primary over-subscription shares are available, all such requests will be honored in full. If the requests for primary over-subscription shares exceed the primary over-subscription shares
available, the available primary over-subscription shares will be allocated pro rata among those fully exercising [Record Date Shareholders] who over-subscribe based on the number of Rights originally issued to them by the Trust. Common Shares
acquired pursuant to the over-subscription privilege are subject to allotment. [In addition, the Trust, in its
sole discretion, may determine to issue additional Common Shares at the same Subscription Price in an amount of up to [ ]% of the shares issued pursuant to the primary subscription, referred to as secondary
over-subscription shares. Should the Trust determine to issue some or all of the secondary over-subscription shares, they will be allocated only among Record Date Shareholders who submitted over-subscription requests. Secondary
over-subscription shares will be allocated pro rata among those fully exercising Record Date Shareholders who over-subscribe based on the number of Rights originally issued to them by the Trust. Holders of Rights acquired in the secondary
market may not participate in the over-subscription privilege. In the event that the Subscription Price is lower than the Trusts NAV per, any secondary over-subscription shares issued by the Trust will not result in the ratio of
the Rights offering exceeding one new share for each three Rights.] Record Date Shareholders who are fully exercising
their Rights during the Subscription Period should indicate, on the Subscription Certificate that they submit with respect to the exercise of the Rights issued to them, how many Common Shares they are willing to acquire pursuant to the
over-subscription privilege. To the extent sufficient Common Shares are not available to fulfill all over-subscription
requests, unsubscribed Common Shares (the Excess Shares) will be allocated pro rata among those Record Date Shareholders who over-subscribe based on the number of Rights issued to them by the Trust. The allocation process may involve a
series of allocations in order to assure that the total number of Common Shares available for over-subscriptions is distributed on a pro rata basis. The formula to be used in allocating the Excess Shares is as follows: Shareholders Record Date Position X Excess Shares Remaining Total Record Date Position of All Over-Subscribers Banks, broker-dealers, trustees and other nominee holders of Rights will be required to
certify to the Subscription Agent, before any over-subscription privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of Rights exercised during the Subscription Period and the number of Common Shares
subscribed for pursuant to the over-subscription privilege by such beneficial owner and that such beneficial owners subscription was exercised in full. Nominee holder over-subscription forms and beneficial owner certification forms will be
distributed to banks, broker-dealers, trustees and other nominee holders of Rights with the Subscription Certificates. [Nominees should also notify holders purchasing Rights in the secondary market that such Rights may not participate in the
over-subscription privilege.] The Trust will not otherwise offer or sell any Common Shares that are not subscribed for
pursuant to the primary subscription, the primary over-subscription privilege or the secondary over-subscription privilege pursuant to the Rights offering.] [Dealer Manager [●] (previously defined as the Dealer Manager), a registered broker-dealer, may also act on behalf of its
clients to purchase or sell Rights in the open market and may receive commissions from its clients for such services. Holders of Rights attempting to sell any unexercised Rights in the open market through a broker-dealer other than the Dealer
Manager may be charged a different commission and should consider the commissions and fees charged by the broker-dealer prior to selling their Rights on the open market. The Dealer Manager is not expected to purchase Rights as principal for its own
account in order to seek to facilitate the trading market for Rights or otherwise. See Plan of Distribution for additional information.] R-12
Sale of Rights The Rights are transferable and will be admitted for trading on the [●] under the symbol [●]. Although
no assurance can be given that a market for the Rights will develop, trading in the Rights on the [●] is expected to begin two Business Days prior to the Record Date and may be conducted until the close of trading on the last [●] trading
day prior to the Expiration Date. The value of the Rights, if any, will be reflected by the market price. Rights may be
sold by individual holders through their broker or other financial intermediary. Holders of Rights attempting to sell any unexercised Rights in the open market through their broker or financial advisor may be charged a commission or incur other
transaction expenses and should consider the commissions and fees charged prior to selling their Rights on the open market. [Rights that are sold will not confer any right to acquire any Common Shares in any primary over-subscription privilege or
secondary over-subscription privilege, if any, and any Record Date Shareholder who sells any Rights will not be eligible to participate in the primary over-subscription privilege or secondary over-subscription privilege, if any.] Trading of the Rights on the [●] will be conducted on a when-issued basis until and including the date on which the
Subscription Certificates are mailed to Record Date Shareholders of record and thereafter will be conducted on a regular-way basis until and including the last [●] trading day prior to the Expiration
Date. The Common Shares are expected to begin trading ex-Rights one Business Day prior to the Record Date. Shareholders are urged to obtain a recent trading price for the Rights on the [●] from their broker, bank, financial
advisor or the financial press. Holders of Rights who are unable or do not wish to exercise any or all of their Rights
may contact the Subscription Agent to facilitate the sale of any unexercised Rights. The Subscription Agent will contact the Dealer Manager or other brokers in order to assist Rights holders whose Rights are not currently held at a broker-dealer or
other applicable financial intermediary to facilitate the sale of the Rights. Shareholders of record whose addresses are outside the United States, or who have an APO or FPO address, are encouraged to contact the Subscription Agent to facilitate the
sale of their Rights if they are otherwise unable or unwilling to exercise the Rights. The selling Rights holder will pay all applicable brokerage commissions incurred. There can be no assurance that the Subscription Agent will be able to facilitate
the sale of any of Rights and neither the Trust nor the Subscription Agent has guaranteed any minimum sales price for the Rights. Method of
Transferring Rights The Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing
the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent
a Subscription Certificate properly endorsed for transfer, with instructions to register the portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing the
transferred Rights). In this event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Rights holder or, if the Rights holder so instructs, to an additional transferee. Holders wishing to transfer all or a portion of their Rights (but not fractional Rights) should promptly transfer such Rights
to ensure that: (i) the transfer instructions will be received and processed by the Subscription Agent, (ii) a new Subscription Certificate will be issued and transmitted to the transferee or transferees with respect to transferred Rights,
and to the holder with respect to retained Rights, if any, and (iii) the Rights evidenced by the new Subscription Certificates may be exercised or sold by the recipients thereof prior to the Expiration Date. Neither the Trust nor the
Subscription Agent shall have any liability to a transferee or holder of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. R-13
Except for the fees charged by the Subscription Agent (which will be paid by the Trust as
described below), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale, transfer or exercise of Rights will be for the account of the holder of the Rights, and
none of these commissions, fees or expenses will be borne by the Trust or the Subscription Agent. The Trust anticipates
that the Rights will be eligible for transfer through, and that the exercise of the Rights may be effected through, the facilities of [insert depository] (Rights exercised through [insert depository] are referred to as [insert depository]
Exercised Rights). Subscription Agent The Subscription Agent is [●]. The Subscription Agent will receive from the Trust an amount estimated to be $[●],
comprised of the fee for its services and the reimbursement for certain expenses related to the Rights offering. The shareholders of the Trust will indirectly pay such amount. Information Agent INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED TO: THE INFORMATION AGENT, [●]; HOLDERS PLEASE CALL TOLL-FREE AT
[●]; BANKS AND BROKERS PLEASE CALL [●]. Method of Exercise of Rights Rights may be exercised by completing and signing the Subscription Certificate and delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with payment for the Common Shares as described below under Payment for Shares. Rights may also be exercised through the broker of a holder of Rights, who may charge the holder
of Rights a servicing fee in connection with such exercise. See Plan of Distribution for additional information regarding the purchase and exercise of Rights by the Dealer Manager. Completed Subscription Certificates and payment must be received by the Subscription Agent prior to [5:00 PM Eastern Time], on
the Expiration Date (unless payment is effected by means of a notice of guaranteed delivery as described below under Payment for Shares). Your broker, bank, trust company or other intermediary may impose a deadline for exercising Rights
earlier than [5:00 PM, Eastern Time], on the Expiration Date. The Subscription Certificate and payment should be delivered to the Subscription Agent at the following address: If By Mail: BlackRock Municipal Income Trust [●] If By Overnight Courier: BlackRock Municipal Income Trust [●] Payment for
Shares Holders of Rights who acquire Common Shares in the Rights offering may choose between the following methods of
payment: A holder of Rights can send the Subscription Certificate, together with payment in the form of a check
(which must include the name of the shareholder on the check) for the Common Shares subscribed for in the Rights offering and, if eligible, for any additional Common Shares subscribed for pursuant to the over-subscription privilege, to the
Subscription Agent based on the Subscription Price. To be accepted, R-14
the payment, together with the executed Subscription Certificate, must be received by the Subscription Agent at one of the addresses noted above prior to [5:00 PM Eastern Time] on the Expiration
Date. The Subscription Agent will deposit all share purchase checks received by it prior to the final due date into a segregated account pending proration and distribution of Common Shares. The Subscription Agent will not accept cash as a means of
payment for Common Shares. Alternatively, a subscription will be accepted by the Subscription Agent if, prior to [5:00 PM Eastern Time]
on the Expiration Date, the Subscription Agent has received a written notice of guaranteed delivery by mail or email from a bank, trust company, or a NYSE member, guaranteeing delivery of a properly completed and executed Subscription Certificate.
In order for the notice of guarantee to be valid, full payment for the Common Shares at the Subscription Price must be received with the notice. The Subscription Agent will not honor a notice of guaranteed delivery unless a properly completed and
executed Subscription Certificate is received by the Subscription Agent by the close of business on the [second] Business Day after the Expiration Date. The notice of guaranteed delivery must be emailed to the Subscription Agent at [●] or
delivered to the Subscription Agent at one of the addresses noted above. A PAYMENT PURSUANT TO THIS
METHOD MUST BE IN UNITED STATES DOLLARS BY CHECK (WHICH MUST INCLUDE THE NAME OF THE SHAREHOLDER ON THE CHECK) DRAWN ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES, MUST BE PAYABLE TO BLACKROCK MUNICIPAL INCOME TRUST AND MUST ACCOMPANY AN
EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. The method and timing of payment for Common Shares acquired by the
Dealer Manager through the exercise of Rights is described under Plan of Distribution. If a holder of Rights
who acquires Common Shares pursuant to the subscription makes payment of an insufficient amount, the Trust reserves the right to take any or all of the following actions: (i) reallocate such subscribed and
unpaid-for Common Shares to Record Date Shareholders exercising the over-subscription privilege who did not receive the full over-subscription requested; (ii) apply any payment actually received by it
toward the purchase of the greatest whole number of Common Shares which could be acquired by such holder upon exercise of the Rights or over-subscription privilege; and (iii) exercise any and all other rights or remedies to which it may be
entitled, including, without limitation, the right to set off against payments actually received by it with respect to such subscribed Common Shares (in other words, retain such payments) and to enforce the exercising Rights holders
relevant payment obligation. Any payment required from a holder of Rights must be received by the Subscription Agent
prior to [5:00 PM Eastern Time] on the Expiration Date. Issuance and delivery of the Common Shares purchased are subject to collection of checks. Within [●] Business Days following the Expiration Date (the Confirmation Date), a confirmation will be sent
by the Subscription Agent to each holder of Rights (or, if the Common Shares are held by [insert nominee name] or any other depository or nominee, to [insert nominee name] or such other depository or nominee), showing (i) the number of Common
Shares acquired pursuant to the subscription, (ii) the number of Common Shares, if any, acquired pursuant to the over-subscription privilege, and (iii) the per share and total purchase price for the Common Shares. Any payment required from
a holder of Rights must be received by the Subscription Agent on or prior to the Expiration Date. Any excess payment to be refunded by the Trust to a holder of Rights, or to be paid to a holder of Rights as a result of sales of Rights on its behalf
by the Subscription Agent, will be mailed by the Subscription Agent to the holder within [●] Business Days after the Expiration Date. A holder of Rights will have no right to rescind a purchase after the Subscription Agent has received payment either by means
of a notice of guaranteed delivery or a check, which must include the name of the shareholder on the check. Upon
acceptance of a subscription, all funds received by the Subscription Agent shall be held by the Subscription Agent as agent for the Trust and deposited in one or more bank accounts. Such funds may be invested by the Subscription Agent in: bank
accounts, short-term certificates of deposit, bank repurchase agreements, and disbursement accounts with commercial banks meeting certain standards. The Subscription Agent may receive interest, dividends or other earnings in connection with such
deposits or investments. R-15
Holders, such as broker-dealers, trustees or depositories for securities, who hold Common Shares
for the account of others, should notify the respective beneficial owners of the Common Shares as soon as possible to ascertain such beneficial owners intentions and to obtain instructions with respect to the Rights. If the beneficial owner so
instructs, the record holder of the Rights should complete Subscription Certificates and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of Common Shares or Rights held through such a holder should
contact the holder and request that the holder effect transactions in accordance with the beneficial owners instructions. [Banks, broker-dealers, trustees and other nominee holders that hold Common Shares of the Trust for the accounts of
others are advised to notify those persons that purchase Rights in the secondary market that such Rights may not participate in any over-subscription privilege offered.] THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATES SHOULD BE READ CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND
SUBSCRIPTION CERTIFICATES TO THE TRUST. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO [5:00 PM EASTERN TIME], ON THE EXPIRATION DATE BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights
will be determined by the Trust, whose determinations will be final and binding. The Trust in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Trust determines in its sole discretion. Neither the Trust nor
the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. Foreign Restrictions Offering documents, including Subscription Certificates, will not be mailed to Record Date Shareholders whose addresses are
outside the United States (for these purposes, the United States includes the District of Columbia and the territories and possessions of the United States) or who have an APO or FPO address (the Foreign Shareholders) if such mailing
cannot be made into the non-U.S. jurisdiction without additional registration and incurring other expense that the Board has determined is not in the best interest of the Trust and its shareholders. In such
cases, unless determined to be not in the best interest of the Trust and its shareholders in accordance with the previous sentence, the Subscription Agent will send a letter via regular mail to Foreign Shareholders who own Common Shares directly
(Direct Foreign Shareholders), as opposed to in street name with a broker or other financial intermediary, to notify them of the Rights offering. Direct Foreign Shareholders who wish to exercise their Rights should contact
the Information Agent, as described above under Information Agent, to facilitate the exercise of such Rights and for instructions or any other special requirements that may apply in order for such Direct Foreign Shareholder to exercise
its Rights. Direct Foreign Shareholders who wish to sell their Rights should contact the Subscription Agent and follow the procedures described above under Sale of Rights. Direct Foreign Shareholders are encouraged to contact the Trust
or the Subscription Agent as far in advance of the Expiration Date as possible to ensure adequate time for their Rights to be exercised or sold. Foreign Shareholders who own Common Shares in street name through a broker or other
financial intermediary should contact such broker or other financial intermediary with respect to any exercise or sale of Rights. R-16
Employee Benefit Plan and IRA Considerations [Holders of Rights that are employee benefit plans subject to limitations imposed by the Internal Revenue Code of 1986, as
amended (the Code), such as employee plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), Keogh Plans and Individual Retirement Accounts (IRA) (each a Benefit Plan
and collectively, Benefit Plans), should be aware that the use of additional contributions of cash outside of the Benefit Plan to exercise Rights may be treated as additional contributions to the Benefit Plan. When taken together with
contributions previously made, such deemed additional contributions may be in excess of tax limitations and subject the Rights holder to excise taxes for excess or nondeductible contributions. In the case of Benefit Plans qualified under
Section 401(a) of the Code, additional contributions could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to be violated. Benefit Plans contemplating making additional contributions to
exercise Rights should consult with their legal and tax counsel prior to making such contributions. Benefit Plans and
other tax exempt entities, including governmental plans, should also be aware that if they borrow to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income (UBTI) under Section 511
of the Code. If any portion of an IRA is used as security for a loan, the portion so used may also be treated as distributed to the IRA depositor. A Benefit Plan may also be subject to laws, such as ERISA, that impose certain requirements on the Benefit Plan and on those
persons who are fiduciaries with respect to the Benefit Plans. Such requirements may include prudence and diversification requirements and require that investments be made in accordance with the documents governing the fiduciary. The exercise of
Rights by a fiduciary for a Benefit Plan should be considered in light of such fiduciary requirements. In addition, ERISA
and the Code prohibit certain transactions involving the assets of a Benefit Plan and certain persons (referred to as parties in interest for purposes of ERISA and disqualified persons for purposes of the Code) having certain
relationships to such Benefit Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a nonexempt prohibited transaction may be subject to excise taxes and
other penalties and liabilities under ERISA and the Code (or with respect to certain Benefit Plans, such as IRAs, a prohibited transaction may cause the Benefit Plan to lose its tax-exempt status). In this
regard, the U.S. Department of Labor has issued prohibited transaction class exemptions (PTCEs) that may apply to the exercise of the Rights and holding of the Common Shares. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE
96-23 respecting transactions determined by in-house asset managers, PTCE 84-24 governing purchases of shares in investment
companies) and PTCE 75-1 respecting sales of securities. In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code each provides a limited exemption, commonly referred to as the
service provider exemption, from the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions between a Benefit Plan and a person that is a party in interest and/or a disqualified person
(other than a fiduciary or an affiliate that, directly or indirectly, has or exercises any discretionary authority or control or renders any investment advice with respect to the assets of any Benefit Plan involved in the transaction) solely by
reason of providing services to the Benefit Plan or by relationship to a service provider, provided that the Benefit Plan receives no less, nor pays no more, than adequate consideration. There can be no assurance that all of the conditions of any
such exemptions or any other exemption will be satisfied at the time that the Rights are exercised, or thereafter while the Common Shares are held, if the facts relied upon for utilizing a prohibited transaction exemption change. Due to the complexity of these rules and the penalties for noncompliance, fiduciaries of Benefit Plans should consult with
their legal and tax counsel regarding the consequences of their exercise of Rights under ERISA, the Code and other similar laws.] R-17
The following table and example are intended to assist you in understanding the various costs and expenses directly or
indirectly associated with investing in our Common Shares as a percentage of net assets attributable to Common Shares. Amounts are for the current fiscal year after giving effect to anticipated net proceeds of the Rights offering.. Shareholder Transaction Expenses Sales load paid by you (as a percentage of offering price)(1) Offering expenses borne by the Trust (as a percentage of offering price)(1) Dividend reinvestment plan fees Dividend reinvestment plan sale transaction fee Estimated Annual Expenses (as a percentage of net assets attributable to common
shares) Management fees(3) (4) Other Expenses(5) Miscellaneous Other Expenses Interest Expense(6) Total Annual Trust Operating Expenses Fee Waivers and/or Expense
Reimbursements(4) Total Annual Trust Operating Expenses after Fee Waivers and/or Expense Reimbursements(4)(6) Trust shareholders will pay all offering expenses involved with this offering. Computershare Trust Company, N.A.s (in such capacity, the Reinvestment Plan Agent) fees
for the handling of the reinvestment of dividends will be paid by the Trust. However, you will pay a $0.02 per share fee incurred in connection with open-market purchases, which will be deducted from the value of the dividend. You will also be
charged a $2.50 sales fee and pay a $0.15 per share fee if you direct the Reinvestment Plan Agent to sell your Common Shares held in a dividend reinvestment account. Per share fees include any applicable brokerage commissions the Reinvestment Plan
Agent is required to pay. The Trust currently pays the Advisor a monthly fee at an annual contractual investment management fee rate
of 0.60% of its average weekly managed assets. For purposes of calculating these fees, managed assets means the total assets of the Trust (including any assets attributable to money borrowed) minus the sum of its accrued liabilities
(other than money borrowed for investment purposes, including liabilities represented by TOB leverage and the liquidation preference of the Trusts VMTP Shares). The Trust and the Advisor have entered into a fee waiver agreement (the Fee Waiver Agreement),
pursuant to which the Advisor has contractually agreed to waive the management fee with respect to any portion of the Trusts assets attributable to investments in any equity and fixed-income mutual funds and exchange-traded funds managed by
the Advisor or its affiliates that have a contractual management fee, through June 30, 2023. In addition, pursuant to the Fee Waiver Agreement, the Advisor has contractually agreed to waive its management fees by the amount of investment
advisory fees the Trust pays to the Advisor indirectly through its investment in money market funds managed by the Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be terminated at any time, without the payment of
any penalty, only by the Trust (upon the vote of a majority of the Trustees who are not interested persons (as defined in the Investment Company Act) of the Trust) or a majority of the outstanding voting securities of the Trust), upon 90
days written notice by the Trust to the Advisor. Other expenses are estimated assuming net proceeds of the Rights offering to be approximately $[●],
based on the estimated Subscription Price per Common Share of $[●] ([●]% of the average of the last reported sales price of the Trusts Common Shares on the NYSE on [●], 2022 and each of the [● (●)] preceding
trading days), assuming all new Common Shares offered are sold and that the expenses related to the Rights offering estimated at approximately $[●] are paid. The total expense table includes interest expense associated with the Trusts investments in TOBs (also
known as inverse floaters). Although such interest expense is actually paid by special purpose vehicles in which the Trust invests, it is recorded on the Trusts financial statements for accounting purposes. The total expense table
also includes, in interest expense, dividends associated with the VMTP Shares, because the VMTP Shares are considered debt of the Trust for financial reporting purposes. The Trust uses leverage to seek to enhance its returns to common shareholders. This leverage generally takes two forms: the
issuance of VMTP Shares and investment in TOBs. Both forms of leverage benefit common shareholders if the cost of the leverage is lower than the returns earned by the Trust when it invests the proceeds from the leverage. In order to help you better
understand the costs associated with the Trusts leverage strategy, the Total annual Trust operating expenses after fee waivers (excluding interest expense) for are [●]%. The purpose of the table above and the examples below is to help you understand all fees and expenses that you, as a holder of
Common Shares, would bear directly or indirectly. R-18
Example The following example illustrates the expenses (including the sales load of $[●] and offering costs of $[●]) that
you would pay on a $1,000 investment in common shares, assuming (i) total net annual expenses of [●]% of net assets attributable to common shares, and (ii) a 5% annual return: Total expenses incurred The example should not be considered a representation of future expenses. The example assumes that the
estimated Other expenses set forth in the Estimated Annual Expenses table are accurate and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Trusts
actual rate of return may be greater or less than the hypothetical 5% return shown in the example. The Trust estimates the net proceeds of the Rights offering to be approximately $[●], based
on the estimated Subscription Price per Common Share of $[●] ([●]% of the last reported sales price of the Trusts Common Shares on the NYSE on [●], 2022 and each of the [● (●)] preceding trading days),
assuming all new Common Shares offered are sold and that the expenses related to the Rights offering estimated at approximately $[●] are paid. The net proceeds from the Rights offering hereunder will be invested in accordance with the Trusts investment objective
and policies as set forth in this Prospectus Supplement and the accompanying Prospectus. We currently anticipate that we will be able to invest all of the net proceeds in accordance with our investment objective and policies within approximately
three months of the receipt of such proceeds. Pending such investment, it is anticipated that the proceeds will be invested in short-term, tax-exempt or taxable investment grade securities. Depending on market
conditions and operations, a portion of the cash held by the Trust, including any proceeds raised from the offering, may be used to pay distributions in accordance with the Trusts distribution policy and may be a return of capital. A return of
capital is a return to investors of a portion of their original investment in the Trust. In general terms, a return of capital would involve a situation in which a Trust distribution (or a portion thereof) represents a return of a portion of a
shareholders investment in the Trust, rather than making a distribution that is funded from the Trusts earned income or other profits. Although return of capital distributions may not be currently taxable, such distributions would
decrease the basis of a shareholders shares, and therefore, may increase a shareholders tax liability for capital gains upon a sale of shares, even if sold at a loss to the shareholders original investments. The following table sets forth the unaudited capitalization of the Trust as of [●], 2022 and its adjusted capitalization
assuming the Common Shares available in the Rights offering discussed in this Prospectus Supplement had been issued. [To
be provided.] SPECIAL CHARACTERISTICS AND RISKS OF THE RIGHTS OFFERING Risk is inherent in all investing. Therefore, before investing in the Common Shares you should consider the risks associated
with such an investment carefully. See Risks in the Prospectus. The following summarizes some of the matters that you should consider before investing in the Trust through the Rights offering: Dilution. Record Date Shareholders who do not fully exercise their Rights will, at the completion of the Rights
offering, own a smaller proportional interest in the Trust than owned prior to the Rights offering. The completion of the Rights offering will result in immediate voting dilution for such shareholders. [Further, both the sales load and the expenses
associated with the Rights offering will immediately reduce the NAV of each outstanding Common Share.] In addition, if the Subscription Price is less than the NAV per Common Share as of the Expiration Date, the
R-19
completion of this Rights offering will result in an immediate dilution of the NAV per Common Share for all existing Common Shareholders (i.e., will cause the NAV per Common Share to
decrease). As a result, existing Common Shareholders may experience immediate dilution even if they fully exercise their Rights. Such dilution, if any, is not currently determinable because it is not known how many Common Shares will be subscribed
for, what the NAV per Common Share or market price of the Common Shares will be on the Expiration Date or what the Subscription Price per Common Share will be. If the Subscription Price is substantially less than the current NAV per Common Share,
this dilution could be substantial. The Trust will pay expenses associated with the Rights offering, estimated at approximately $[●]. In addition, the Trust has agreed to pay a dealer manager fee (sales load) equal to [●]% of the
Subscription Price per Common Share issued pursuant to the exercise of Rights (including pursuant to the Over-Subscription Privilege). The Trust, not investors, pays the sales load, which is ultimately borne by all Common Shareholders. All of the
costs of the Rights offering will be borne by the Trusts Common Shareholders. See Table of Fees and Expenses in this Prospectus Supplement and Summary of Trust Expenses in the accompanying Prospectus for more
information. You will experience an immediate dilution of the aggregate NAV per Common Share if you do not participate in
the Rights offering and will experience a reduction in the NAV per Common Share whether or not you exercise your Rights, if the Subscription Price is below the Trusts NAV per Common Share on the Expiration Date, because: the offered Common Shares are being sold at less than their current NAV; you will indirectly bear the expenses of the Rights offering; and the number of Common Shares outstanding after the Rights offering will have increased proportionately more
than the increase in the amount of the Trusts net assets. On the other hand, if the Subscription
Price is above the Trusts NAV per Common Share on the Expiration Date, you may experience an immediate accretion of the aggregate NAV per share of your Common Shares even if you do not exercise your Rights and an immediate increase in the NAV
per Common Share whether or not you participate in the Rights offering, because: the offered Common Shares are being sold at more than their current NAV after deducting the expenses of the
Rights offering; and the number of Common Shares outstanding after the Rights offering will have increased proportionately less
than the increase in the amount of the Trusts net assets. [Furthermore, if you do not participate
in the secondary over-subscription, if it is available, your percentage ownership will also be diluted.] The Trust cannot state precisely the amount of any dilution because it is not known at this time what the NAV per Common Share will be on the
Expiration Date or what proportion of the Rights will be exercised or what the Subscription Price per Common Share will be. The impact of the Rights offering on NAV per Common Share is shown by the following examples, assuming the Rights offering is
fully subscribed and the estimated Subscription Price of $[●]: [Scenario 1: (assumes NAV per share is above Subscription Price)(1) NAV(2) Subscription Price(3) Reduction in NAV ($)(4) Reduction in NAV (%) [Scenario 2: (assumes NAV per share is below Subscription Price)(1) NAV(2) Subscription Price(3) Increase in NAV ($)(4) Increase in NAV (%) R-20
Both examples assume the full primary subscription [and secondary over-subscription privilege] are
exercised. Actual amounts may vary due to rounding. For illustrative purposes only. It is not known at this time what the NAV per Common Share will be on the
Expiration Date. For illustrative purposes only; reflects an estimated Subscription Price of $[●] based upon [●]%
of the last reported sales price of the Trusts Common Shares on the NYSE on [●], 2022 and each of the [● (●)] preceding trading days. It is not known at this time what the Subscription Price will be on the Expiration Date.
Assumes $[●] in estimated offering expenses. If you do not wish to exercise your Rights, you should consider selling them as set forth in this Prospectus Supplement. Any
cash you receive from selling your Rights may serve as partial compensation for any possible dilution of your interest in the Trust. The Trust cannot give assurance, however, that a market for the Rights will develop or that the Rights will have any
marketable value. [The Trusts largest shareholders could increase their percentage ownership in the Trust through
the exercise of the primary subscription and over-subscription privilege.] Risks of Investing in Rights. Shares of
closed-end funds such as the Trust frequently trade at a discount to NAV. The Subscription Price may be greater than the market price of a Common Share on the Expiration Date. If that is the case, the Rights
will have no value, and a person who exercises Rights will experience an immediate loss of value. Leverage.
Leverage creates a greater risk of loss, as well as a potential for more gain, for the Common Shares than if leverage were not used. Following the completion of the Rights offering, the Trusts amount of leverage outstanding will decrease.
The leverage of the Trust as of [●], 2022 was approximately [●]% of the Trusts Managed Assets. After the completion of the Rights offering, the amount of leverage outstanding is expected to decrease to approximately [●]% of
the Trusts Managed Assets. The use of leverage for investment purposes creates opportunities for greater total returns but at the same time increases risk. When leverage is employed, the NAV and market price of the Common Shares and the yield
to holders of Common Shares may be more volatile. Any investment income or gains earned with respect to the amounts borrowed in excess of the interest due on the borrowing will augment the Trusts income. Conversely, if the investment
performance with respect to the amounts borrowed fails to cover the interest on such borrowings, the value of the Trusts Common Shares may decrease more quickly than would otherwise be the case, and distributions on the Common Shares could be
reduced or eliminated. Interest payments and fees incurred in connection with such borrowings will reduce the amount of net income available for distribution to holders of the Common Shares. Because the fee paid to the Advisor is calculated on the basis of the Trusts Managed Assets, which include the proceeds
of leverage, the dollar amount of the management fee paid by the Trust to the Advisor will be higher (and the Advisor will be benefited to that extent) when leverage is used. The Advisor will use leverage only if it believes such action would result
in a net benefit to the Trusts shareholders after taking into account the higher fees and expenses associated with leverage (including higher management fees). The Trusts leveraging strategy may not be successful. Increase in Share Price Volatility; Decrease in Share Price. The Rights offering may result in an increase in trading
of the Common Shares, which may increase volatility in the market price of the Common Shares. The Rights offering may result in an increase in the number of shareholders wishing to sell their Common Shares, which would exert downward price pressure
on the price of Common Shares. Under-Subscription. It is possible that the Rights offering will not be fully
subscribed. Under-subscription of the Rights offering would have an impact on the net proceeds of the Rights offering and whether the Trust achieves any benefits. R-21
The following is a general summary of the U.S. federal income tax consequences of the Rights offering to Record Date
Shareholders who are U.S. persons for U.S. federal income tax purposes. The following summary supplements the discussion set forth in the accompanying Prospectus and SAI and is subject to the qualifications and assumptions set forth therein. The
discussion set forth herein does not constitute tax advice and potential investors are urged to consult their own tax advisers to determine the tax consequences of investing in the Trust. Please refer to the Tax Matters sections in the Trusts Prospectus and SAI for a description of the consequences of investing
in the Trusts Common Shares. Special tax considerations relating to this Rights offering are summarized below: The value of a Right will not be includible in the income of a Common Shareholder at the time the subscription
Right is issued. The basis of a Right issued to a Common Shareholder will be zero, and the basis of the share with respect to
which the Right was issued (the old share) will remain unchanged, unless either (a) the fair market value of the Right on the date of distribution is at least 15% of the fair market value of the old share, or (b) such Common Shareholder
affirmatively elects (in the manner set out in Treasury regulations under the Code) to allocate to the Right a portion of the basis of the old share. If either (a) or (b) applies, such Common Shareholder must allocate basis between the old
share and the Right in proportion to their fair market values on the date of distribution. The basis of a Right purchased in the market will generally be its purchase price. The holding period of a Right issued to a Common Shareholder will include the holding period of the old share.
No loss will be recognized by a Common Shareholder if a Right distributed to such Common Shareholder expires
unexercised because the basis of the old share may be allocated to a Right only if the Right is exercised. If a Right that has been purchased in the market expires unexercised, there will be a recognized loss equal to the basis of the Right.
Any gain or loss on the sale of a Right will be a capital gain or loss if the Right is held as a capital asset
(which in the case of a Right issued to Record Date Shareholders will depend on whether the old share is held as a capital asset), and will be a long term capital gain or loss if the holding period is deemed to exceed one year.
No gain or loss will be recognized by a Common Shareholder upon the exercise of a Right, and the basis of any
Common Share acquired upon exercise (the new Common Share) will equal the sum of the basis, if any, of the Right and the subscription price for the new Common Share. The holding period for the new Common Share will begin on the date when the Right
is exercised (or, in the case of a Right purchased in the market, potentially the day after the date of exercise). The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly
govern the taxation of the Trust and holders of its Common Shares, with respect to U.S. federal income taxation only. Other tax issues such as state and local taxation may apply. Investors are urged to consult their own tax advisers to determine the
tax consequences of investing in the Trust. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. R-22
[Distribution Arrangements [●] will act as Dealer Manager for this Rights offering. Under the terms and subject to the conditions contained in the
Dealer Manager Agreement among the Dealer Manager, the Trust and the Advisor, the Dealer Manager will provide financial structuring and solicitation services in connection with the Rights offering and will solicit the exercise of Rights and
participation in the over-subscription privilege. The Rights offering is not contingent upon any number of Rights being exercised. The Dealer Manager will also be responsible for forming and managing a group of selling broker-dealers (each, a
Selling Group Member and collectively, the Selling Group Members), whereby each Selling Group Member will enter into a Selling Group Agreement with the Dealer Manager to solicit the exercise of Rights and to sell Common
Shares purchased by the Selling Group Member from the Dealer Manager. In addition, the Dealer Manager will enter into a Soliciting Dealer Agreement with other soliciting broker-dealers (each, a Soliciting Dealer and collectively, the
Soliciting Dealers) to solicit the exercise of Rights. See Compensation to Dealer Manager for a discussion of fees and other compensation to be paid to the Dealer Manager, Selling Group Members and Soliciting Dealers in
connection with the Rights offering. The Trust and the Advisor have each agreed to indemnify the Dealer Manager for
losses arising out of certain liabilities, including liabilities under the Securities Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be subject to any liability to the Trust in rendering the services contemplated by
the Dealer Manager Agreement except for any act of willful misfeasance, bad faith or gross negligence of the Dealer Manager or reckless disregard by the Dealer Manager of its obligations and duties under the Dealer Manager Agreement. In order to seek to facilitate the trading market in the Rights for the benefit of
non-exercising shareholders, and the placement of the Common Shares to new or existing investors pursuant to the exercise of the Rights, the Dealer Manager Agreement provides for special arrangements with the
Dealer Manager. Under these arrangements, the Dealer Manager is expected to purchase Rights on the [●], as well as Rights received by the Subscription Agent for sale by Record Date Shareholders and offered to the Dealer Manager and unexercised
Rights of Record Date Shareholders whose record addresses are outside the United States that are held by the Subscription Agent and for which no instructions are received. The number of rights, if any, purchased by the Dealer Manager will be
determined by the Dealer Manager in its sole discretion. The Dealer Manager is not obligated to purchase Rights or Common Shares as principal for its own account to facilitate the trading market for Rights or for investment purposes. Rather, its
purchases are expected to be closely related to interest in acquiring Common Shares generated by the Dealer Manager through its marketing and soliciting activities. The Dealer Manager intends to exercise Rights purchased by it during the
Subscription Period but prior to the Expiration Date. The Dealer Manager may exercise those Rights at its option on one or more dates, which are expected to be prior to the Expiration Date. The Subscription Price for the Common Shares issued through
the exercise of Rights by the Dealer Manager prior to the Expiration Date will be the greater of [●]% of the last reported sale price of a Common Share on the NYSE on the date of exercise or [●]% of the last reported NAV of a Common
Share on the date prior to the date of exercise. The price and timing of these exercises are expected to differ from those described herein for the Rights offering. The Subscription Price will be paid to the Trust and the dealer manager fee with
respect to such proceeds will be paid by the Trust on the applicable settlement date(s) of such exercise(s). In
connection with the exercise of Rights and receipt of Common Shares, the Dealer Manager intends to offer those Common Shares for sale to the public and/or through a group of selling members it has established. The Dealer Manager may set the price
for those Common Shares at any price that it determines, in its sole discretion. The Dealer Manager has advised that the price at which such Common Shares are offered is expected to be at or slightly below the closing price of the Common Shares on
the NYSE on the date the Dealer Manager exercises Rights. No portion of the amount paid to the Dealer Manager or to a Selling Group Member from the sale of Common Shares in this manner will be paid to the Trust. If the sales price of the Common
Shares is greater than the Subscription Price paid by the Dealer Manager for such Common Shares plus the costs to purchase Rights for the purpose of acquiring those Common Shares, the Dealer Manager will receive a gain. Alternatively, if the sales
price of the Common Shares is less than the Subscription Price for such Common Shares plus the costs to purchase Rights for the purpose of acquiring those Common Shares, the Dealer Manager will incur a loss. The Dealer Manager will pay a concession
to Selling Group Members in an amount equal to approximately [2.50]% of the aggregate price of the Common Shares sold by the respective Selling Group Member. Neither the Trust nor the Advisor has a role in setting the
R-23
terms, including the sales price, on which the Dealer Manager offers for sale and sells Common Shares it has acquired through purchasing and exercising Rights or the timing of the exercise of
Rights or sales of Common Shares by the Dealer Manager. Persons who purchase Common Shares from the Dealer Manager or the selling group will purchase shares at a price set by the Dealer Manager, which may be more or less than the Subscription Price,
and at a time set by the Dealer Manager, which is expected to be prior to the Expiration Date. The Dealer Manager may
purchase Rights as principal or act as agent on behalf of its clients for the resale of such Rights. The Dealer Manager may realize gains (or losses) in connection with the purchase and sale of Rights and the sale of Common Shares, although such
transactions are intended by the Dealer Manager to facilitate the trading market in the Rights and the placement of the Common Shares to new or existing investors pursuant to the exercise of the Rights. Any gains (or losses) realized by the Dealer
Manager from the purchase and sale of Rights and the sale of Common Shares is independent of and in addition to its fee as Dealer Manager. The Dealer Manager has advised that any such gains (or losses) are expected to be immaterial relative to its
fee as Dealer Manager. Since neither the Dealer Manager nor persons who purchase Common Shares from the Dealer Manager or
members of the selling group were Record Date Shareholders, they would not be able to participate in the over-subscription privilege. Persons who purchase Common Shares from the Dealer Manager or the selling group will not purchase shares at the Subscription
Price based on the formula price mechanism through which Common Shares will be sold in the Rights offering. Instead, those persons will purchase Common Shares at a price set by the Dealer Manager, which may be more or less than the Subscription
Price, and will not have the uncertainty of waiting for the determination of the Subscription Price on the Expiration Date. There is no limit on the number of Rights the Dealer Manager can purchase or exercise. Common Shares acquired by the Dealer
Manager pursuant to the exercise of Rights acquired by it will reduce the number of Common Shares available pursuant to the over-subscription privilege, perhaps materially, depending on the number of Rights purchased and exercised by the Dealer
Manager. Although the Dealer Manager can seek to facilitate the trading market for Rights as described above, investors
can acquire Common Shares at the Subscription Price by acquiring Rights on the [●] and exercising them in the method described above under Description of the RightsMethod of Exercise of Rights and Description of the
RightsPayment for Shares. [The Dealer Manager and selling members may engage in stabilizing activities,
which may have the effect of lowering or otherwise affecting the market price of the common shares.] In the ordinary
course of their businesses, the Dealer Manager and/or its affiliates may engage in investment banking or financial transactions with the Trust, the Advisor and their affiliates. In addition, in the ordinary course of their businesses, the Dealer
Manager and/or its affiliates may, from time to time, own securities of the Trust or its affiliates. The principal
business address of the Dealer Manager is [●]. Compensation to Dealer Manager Pursuant to the Dealer Manager Agreement, the Trust has agreed to pay the Dealer Manager a fee for its financial structuring
and solicitation services equal to [●]% of the Subscription Price per Common Share for each Common Share issued pursuant to the exercise of Rights, including the over-subscription privilege. The Dealer Manager will reallow to Selling Group Members in the selling group to be formed and managed by the Dealer Manager
selling fees equal to [●]% of the Subscription Price for each Common Share issued pursuant to the Rights offering or the over-subscription privilege as a result of their selling efforts. In addition, the Dealer Manager will reallow to
Soliciting Dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights, solicitation fees equal to [●]% of the Subscription Price for each Common Share issued pursuant to the exercise of
Rights as a result of their soliciting efforts, subject to a maximum fee based on the number of Common Shares held by such Soliciting Dealer through [insert depository] on the Record Date. Fees will be paid to the broker-dealer designated on the
applicable portion of the subscription certificates or, in the absence of such designation, to the Dealer Manager. R-24
In addition, the Trust, has agreed to pay the Dealer Manager an amount up to
$[●] as a partial reimbursement of its expenses incurred in connection with the Rights offering, including reasonable out-of-pocket fees and expenses, if any and
not to exceed $[●], incurred by the Dealer Manager, Selling Group Members, Soliciting Dealers and other brokers, dealers and financial institutions in connection with their customary mailing and handling of materials related to the Rights
offering to their customers. No other fees will be payable by the Trust or the Advisor to the Dealer Manager in connection with the Rights offering. Certain legal matters in connection with the Common Shares will be passed upon for the Trust by Willkie Farr &
Gallagher LLP, New York, New York, counsel to the Trust. Willkie Farr & Gallagher LLP may rely as to certain matters of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. [Certain legal
matters will be passed on by [●] as special counsel to the Dealer Manager in connection with the Rights offering.] The audited annual financial statements of the Trust for the fiscal year ended April 30,
202[●] [and the unaudited financial statements for the six months ended October 31, 202[●]] are incorporated by reference into this Prospectus Supplement, the accompanying Prospectus and the SAI. This Prospectus Supplement and the accompanying Prospectus constitute part of a Registration Statement filed by the Trust with
the SEC under the Securities Act and the Investment Company Act. This Prospectus Supplement and the accompanying Prospectus omit certain of the information contained in the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the Trust and the common shares offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained
from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SECs website (http://www.sec.gov). R-25
BLACKROCK MUNICIPAL INCOME TRUST [●] Rights for [●] Common Shares of Beneficial Interest Subscription Rights to Acquire Common Shares of Beneficial Interest Issuable Upon Exercise of Rights to Subscribe for Such Common Shares of Beneficial Interest PROSPECTUS SUPPLEMENT [●], 2022 Until [ ], 2022 (25 days after the date of this Prospectus
Supplement), all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as
underwriters.
Subject to Completion Dated March 15, 2022 THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. BlackRock Municipal Income Trust STATEMENT OF ADDITIONAL INFORMATION BlackRock Municipal Income Trust (the Trust) is a diversified, closed-end management
investment company. This Statement of Additional Information (SAI) relating to the Trusts common shares of beneficial interest (common shares) does not constitute a prospectus, but should be read in conjunction with the
prospectus relating thereto dated March 15, 2022 and any related prospectus supplement. This SAI, which is not a prospectus, does not include all information that a prospective investor should consider before purchasing common shares, and
investors should obtain and read the Prospectus and any related prospectus supplement prior to purchasing such shares. A copy of the Prospectus and any related prospectus supplement may be obtained without charge by calling (800) 882-0052. You may also obtain a copy of the Prospectus on the Securities and Exchange Commissions (the SEC) website (http://www.sec.gov). Capitalized terms used but not defined in this SAI have the
meanings ascribed to them in the Prospectus. References to the Investment Company Act of 1940, as amended (the Investment
Company Act), or other applicable law, will include any rules promulgated thereunder and any guidance, interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, including court interpretations,
and exemptive, no-action or other relief or permission from the SEC, SEC staff or other authority. S-1
This Statement of Additional Information is dated March 15, 2022. S-2
The Trust is a diversified, closed-end management investment company registered under the Investment
Company Act. The Trust was formed as a Delaware statutory trust on March 30, 2001 pursuant to an Agreement and Declaration of Trust of the Trust, as later amended and restated, and the Certificate of Trust filed with the Secretary of State of
the State of Delaware and is governed by pursuant to the Trusts Agreement and Declaration of Trust which is governed by the laws of the State of Delaware. The Trusts investment adviser is BlackRock Advisors, LLC (the
Advisor). The common shares of the Trust are listed on the New York Stock Exchange (NYSE) under the symbol
BFK. As of March 11, 2022, the Trust has outstanding 45,026,493 common shares and 2,708 Series W-7 Variable Rate Muni Term Preferred Shares (VMTP Shares). INVESTMENT OBJECTIVE AND POLICIES Investment Restrictions The Trust has
adopted restrictions and policies relating to the investment of the Trusts assets and its activities. Certain of the restrictions are fundamental policies of the Trust and may not be changed without the approval of the holders of a majority of
the Trusts outstanding common shares and outstanding preferred shares, including VMTP Shares, voting together as a single class, and a majority of the outstanding preferred shares, including the VMTP Shares, voting as a separate class (which
for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares of each class of shares represented at a meeting at which more than 50% of the outstanding shares of each class of shares are represented or
(ii) more than 50% of the outstanding shares of each class of shares). Fundamental Investment Restrictions. Under these fundamental
investment restrictions, the Trust may not: Invest 25% or more of the value of its total assets in any one industry, provided that this limitation does not
apply to securities of the U.S. Government, any state government or their respective agencies, or instrumentalities and securities backed by the credit of any federal or state governmental entity. Issue senior securities or borrow money other than as permitted by the Investment Company Act or pledge its
assets other than to secure such issuances or in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies. Make loans of money or property to any person, except through loans of portfolio securities, the purchase of
fixed income securities consistent with the Trusts investment objective and policies or the entry into repurchase agreements. Underwrite the securities of other issuers, except to the extent that in connection with the disposition of
portfolio securities or the sale of its own securities the Trust may be deemed to be an underwriter. Purchase or sell real estate or interests therein other than municipal securities secured by real estate or
interests therein, provided that the Trust may hold and sell any real estate acquired in connection with its investment in portfolio securities. Purchase or sell commodities or commodity contracts for any purposes except as, and to the extent, permitted by
applicable law without the Trust becoming subject to registration with the Commodity Futures Trading Commission (the CFTC) as a commodity pool. For purposes of applying the limitation set forth in subparagraph (1) above, securities of the U.S. Government, any state government
or their respective agencies, or instrumentalities and securities backed by the credit of any federal or state governmental entity are not considered to represent industries. However, obligations backed only by the assets and revenues of non-governmental issuers may for this purpose be deemed to be issued by such non-governmental issuers. Thus, the 25% limitation would apply to such obligations. It is
nonetheless possible that the Trust may invest more than 25% of its total assets in a broader economic sector of the market for municipal S-3
obligations, such as revenue obligations of hospitals and other health care facilities or electrical utility revenue obligations. The Trust reserves the right to invest more than 25% of its
Managed Assets in industrial development bonds and private activity securities. For the purpose of applying the limitation set forth in
subparagraph (1) above, a governmental issuer shall be deemed the sole issuer of a security when its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues. Similarly, in
the case of a non-governmental issuer, such as an industrial corporation or a privately owned or operated hospital, if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would be deemed to be the sole issuer. Where a security is backed by the enforceable obligation of a superior or
unrelated governmental entity, it will be included in the computation of securities owned that are issued by such governmental entity. When a security is backed by the enforceable obligation of a superior or unrelated
non-governmental entity (other than a bond insurer), it will also be included in the computation of securities owned that are issued by such non-governmental entity.
Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal security is insured by bond insurance, it shall not be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal security will be determined in
accordance with the principles set forth above. The foregoing restrictions do not limit the percentage of the Trusts assets that may be invested in municipal securities insured by any given insurer. Under the Investment Company Act, the Trust may invest up to 10% of its total assets in the aggregate in shares of other investment companies
and up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such shares are purchased. The Trust may invest a greater
percentage of its assets in money market funds to the extent permitted by the Investment Company Act or the Securities and Exchange Commission. As a fundamental policy, under normal market conditions, the Trust will invest at least 80% of its Managed Assets in investments the interest
of which is exempt from regular federal income tax (except that the interest may be subject to the federal alternative minimum tax). Non-Fundamental Investment Restrictions. Additional investment restrictions adopted by the
Trust, which may be changed by the Trusts Board of Trustees (the Board) without shareholder approval, provide that the Trust may not: Make any short sale of securities except in conformity with applicable laws, rules and regulations and unless
after giving effect to such sale, the market value of all securities sold short does not exceed 25% of the value of the Trusts total assets and the Trusts aggregate short sales of a particular class of securities does not exceed 25% of
the then outstanding securities of that class. The Trust may also make short sales against the box without respect to such limitations. In this type of short sale, at the time of the sale, the Trust owns or has the immediate and
unconditional right to acquire at no additional cost the identical security. Purchase securities of open-end or
closed-end investment companies except in compliance with the Investment Company Act or any regulations promulgated or exemptive relief obtained thereunder. Purchase securities of companies for the purpose of exercising control. The restrictions and other limitations set forth in the Trusts Prospectus and in this SAI will apply only at the time of purchase of
securities and will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of the acquisition of securities. Any investment policy or restriction described in the Prospectus or in this SAI is
deemed to be a non-fundamental policy or restriction of the Trust, unless otherwise stated. In
addition, to comply with Federal tax requirements for qualification as a regulated investment company, the Trusts investments will be limited in a manner such that at the close of each quarter of each taxable year, (a) no more
than 25% of the value of the Trusts total assets are invested in the securities (other than United States government securities or securities of other regulated investment companies) of a single issuer or two or more
S-4
issuers controlled by the Trust and engaged in the same, similar or related trades or businesses and (b) with regard to at least 50% of the Trusts total assets, no more than 5% of its
total assets are invested in the securities (other than United States government securities or securities of other regulated investment companies) of a single issuer and such securities do not represent more than 10 percent of the voting
securities of such issuer. These tax-related limitations may be changed by the trustees to the extent appropriate in light of changes to applicable tax requirements. The Trust is currently classified as a diversified fund under the Investment Company Act. This means that the Trust 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 Trusts total assets would be invested in securities of that issuer or (b) the Trust would hold more than 10% of the outstanding voting securities of that issuer. For purposes of this restriction, the Trust
will regard each state and each political subdivision, agency or instrumentality of such state and each multi-state agency of which such state is a member and each public authority which issues securities on behalf of a private entity as a separate
issuer, except that if the security is backed only by the assets and revenues of a non-government entity then the entity with the ultimate responsibility for the payment of interest and principal may be
regarded as the sole issuer. With respect to the remaining 25% of its total assets, the Trust can invest more than 5% of its assets in one issuer. Under the Investment Company Act, a fund cannot change its classification from diversified to non-diversified without shareholder approval. The Trusts VMTP
Shares are assigned long-term ratings by Moodys and Fitch. In order to maintain the required ratings, the Trust is required to comply with certain investment quality, diversification and other guidelines established by Moodys and Fitch.
Such guidelines may be more restrictive than the restrictions set forth above. The Trust does not anticipate that such guidelines would have a material adverse effect on its ability to achieve its investment objective. Moodys and Fitch receive
fees in connection with their ratings issuances. The Trust is also subject to certain covenants and requirements under the terms of the VMTP Shares and related documents. Such requirements may be more restrictive than the restrictions set forth
above. The Trust does not anticipate that such requirements would have a material adverse effect on its ability to achieve its investment objective. INVESTMENT POLICIES AND TECHNIQUES The following information supplements the discussion of the Trusts investment objective, policies and techniques that are described in
the Prospectus. Portfolio Investments Municipal Securities Municipal
security bonds are either general obligation or revenue bonds and typically are issued to finance public projects, such as roads or public buildings, to pay general operating expenses or to refinance outstanding debt. Municipal security bonds may
also be issued for private activities, such as housing, medical and educational facility construction or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit, or
taxing authority, of the issuer and may be repaid from any revenue source. Revenue bonds may be repaid only from the revenues of a specific facility or source. Issuers of securities rated Ba/BB or below are regarded as having current capacity to make principal and interest payments but are subject to
business, financial or economic conditions which could adversely affect such payment capacity. Municipal securities rated Baa/BBB or better are considered investment grade securities; municipal securities rated Baa are considered medium
grade obligations which lack outstanding investment characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal and interest. Municipal securities rated AAA in
which the Trust may invest may have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities rated below investment grade quality (Ba/BB or lower) are
obligations of issuers that are considered predominantly speculative with respect to the issuers capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment S-5
grade tend to be less marketable than higher-quality securities because the market for them is less broad. The market for unrated municipal securities is even narrower. During periods of thin
trading in these markets, the spread between bid and ask prices is likely to increase significantly and the Trust may have greater difficulty selling its portfolio securities. The Trust will be more dependent on the research and analysis of the
Advisor. A general description of Moodys, S&Ps and Fitchs ratings of municipal securities is set forth in
Appendix A hereto. The ratings of Moodys, S&P and Fitch represent their opinions as to the quality of the municipal securities they rate. It should be emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, municipal securities with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may have the same yield. The Trust will opportunistically manage the maturity and/or duration of its securities and the average weighted maturity and/or duration may
be shortened or lengthened from time to time depending on market conditions. As a result, the Trusts portfolio at any given time may include both long-term and intermediate-term municipal securities. Moreover, during temporary defensive
periods (e.g., times when, in the Advisors opinion, temporary imbalances of supply and demand or other temporary dislocations in the municipal securities market adversely affect the price at which long-term or intermediate-term municipal
securities are available), and in order to keep cash on hand fully invested, including the period during which the net proceeds of the offering of common shares or securities in connection with leverage, if any, are being invested, the Trust may
invest any percentage of its assets in short-term investments including high quality, short-term securities which may be either tax-exempt or taxable and securities of other open- or closed-end investment companies that invest primarily in municipal securities of the type in which the Trust may invest directly. Obligations of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 2005. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Short-Term Taxable Fixed Income
Securities For temporary defensive purposes or to keep cash on hand fully invested, the Trust may invest up to 100% of its Managed
Assets in cash equivalents and short-term taxable fixed income securities. The Trust may also invest in these instruments to achieve its investment objective. Short-term taxable fixed income investments are defined to include, without limitation,
the following: (1) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest
that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities. U.S. Government securities include securities issued by (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business Administration, and Government National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal Home
Loan Banks, Federal Intermediate Credit Banks, and Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association, whose securities are supported only by its credit. While the
U.S. Government provides financial support to such U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. Government, its agencies and
instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate. (2) Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon.
Certificates of deposit purchased by the Trust may not be fully insured by the Federal Deposit Insurance Corporation. S-6
(3) Repurchase agreements, which involve purchases of debt securities. At the time the Trust
purchases securities pursuant to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a
predetermined yield for the Trust during its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Trust to invest temporarily available
cash. The Trust may enter into repurchase agreements only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit; or bankers acceptances in which the Trust may invest. Repurchase
agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Trust is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase
agreement provides that the Trust is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, and if the seller defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, the Trust could incur a loss of both principal and interest. The Advisor monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase
agreement. The Advisor does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Trust. If the seller were to be subject to a Federal bankruptcy proceeding, the
ability of the Trust to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws. (4) Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes are direct lending arrangements between the Trust and a corporation. There is no secondary market for such notes. However, they are redeemable by the Trust at any time. The
Advisor will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporations ability to meet all of its financial obligations, because the
Trusts liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the highest categories by a major rating agency and which
mature within one year of the date of purchase or carry a variable or floating rate of interest. Short-Term
Tax-Exempt Fixed Income Securities For temporary defensive purposes or to keep cash on hand
fully invested, the Trust may invest up to 100% of its Managed Assets in cash equivalents and short-term tax-exempt fixed income securities. The Trust may also invest in these instruments to achieve its
investment objective. Short-term tax-exempt fixed income securities are securities that are exempt from regular Federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt fixed income securities are defined to include, without limitation, the following: Bond
Anticipation Notes (BANs) are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or
bonds. The ability of an issuer to meet its obligations on its BANs is primarily dependent on the issuers access to the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal
and interest on the BANs. Tax Anticipation Notes (TANs) are issued by state and local governments to finance the current
operations of such governments. Repayment is generally to be derived from specific future tax revenues. TANs are usually general obligations of the issuer. A weakness in an issuers capacity to raise taxes due to, among other things, a decline
in its tax base or a rise in delinquencies could adversely affect the issuers ability to meet its obligations on outstanding TANs. Revenue Anticipation Notes (RANs) are issued by governments or governmental bodies with the expectation that future revenues from
a designated source will be used to repay the notes. In general, they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as anticipated revenues from another level of government, could adversely
affect an issuers ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal and
interest on RANs. Construction Loan Notes are issued to provide construction financing for specific projects. Frequently, these notes are redeemed with funds obtained from the Federal Housing Administration. S-7
Bank Notes are notes issued by local government bodies and agencies such as those described above
to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but they are frequently issued to meet short-term working capital or capital-project needs. These notes may have risks similar to the risks
associated with TANs and RANs. Tax-Exempt Commercial Paper (municipal paper)
represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies. Payment of principal and interest on issues of municipal paper may be made from various sources, to the extent the funds are
available therefrom. Maturities on municipal paper generally will be shorter than the maturities of TANs, BANs or RANs. There is a limited secondary market for issues of municipal paper. Certain municipal securities may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with
changes in specified market rates or indices, such as a bank prime rate or tax-exempt money market indices. While the various types of notes described above as a group represent the major portion of the
tax-exempt note market, other types of notes are available in the marketplace and the Trust may invest in such other types of notes to the extent permitted under its investment objective, policies and
limitations. Such notes may be issued for different purposes and may be secured differently from those mentioned above. Strategic Transactions and
Other Management Techniques Consistent with its investment objective and policies set forth herein, the Trust may also enter into
certain hedging and risk management transactions or transactions to enhance total return. In particular, the Trust may purchase and sell futures contracts, exchange-listed and
over-the-counter put and call options on securities, financial indices and futures contracts, forward foreign currency contracts, and may enter into various interest
rate transactions (collectively, Strategic Transactions). Strategic Transactions may be used to attempt to protect against possible changes in the market value of the Trusts portfolio resulting from fluctuations in the debt
securities markets and changes in interest rates, to protect the Trusts unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes and to establish a position in the securities
markets as a temporary substitute for purchasing particular securities. Any or all of these Strategic Transactions may be used at any time whether for hedging and risk management or to enhance total return. There is no particular strategy that
requires use of one technique rather than another. Use of any Strategic Transaction is a function of market conditions. The Strategic Transactions that the Trust may use are described below. The ability of the Trust to hedge them successfully will
depend on the Advisors ability to predict pertinent market movements as well as sufficient correlation among the instruments, which cannot be assured. Interest Rate Transactions. The Trust may enter into interest rate swaps and purchase or sell
interest rate caps and floors primarily to preserve a return or spread on a particular investment or portion of its portfolio as a duration management technique or to protect against any increase in the price of securities the Trust anticipates
purchasing at a later date. The Trust intends to use these transactions for duration and risk management purposes and not as a speculative investment. The Trust will not sell interest rate caps or floors that it does not own. Interest rate swaps
involve the exchange by the Trust with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The Trust may enter into interest rate swaps, caps and floors on either an asset-based or liability-based basis, depending on whether it is
offsetting volatility with respect to its assets or liabilities, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Trust receiving or paying, as the case may be, only the net
amount of the two payments on the payment dates. In as much as these Strategic Transactions are entered into for good faith risk management purposes, the Advisor and the Trust believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its borrowing restrictions. The Trust will accrue the net amount of the excess, if any, of the Trusts obligations over its entitlements with respect to each interest rate swap on a daily
basis and will designate on its books and records with S-8
a custodian an amount of cash or liquid high grade securities having an aggregate net asset value at all times at least equal to the accrued excess. The Trust will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the claims-paying ability of the other party thereto is rated in the highest rating category of at least one nationally recognized statistical rating organization at the time of
entering into such transaction. If there is a default by the other party to such a transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. Caps and floors are more recent innovations for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps. Futures Contracts and Options on Futures Contracts. In connection with its
hedging and other risk management strategies, the Trust may also enter into contracts for the purchase or sale for future delivery (futures contracts) of debt securities, aggregates of debt securities or indices or prices thereof, other
financial indices and U.S. Government debt securities or options on the above. The Trust primarily intends to engage in such transactions for bona fide hedging or risk management and other portfolio management purposes. Calls on Securities, Indices and Futures Contracts. In order to enhance income or reduce fluctuations on net asset value, the
Trust may sell or purchase call options (calls) on municipal securities and indices based upon the prices of futures contracts and debt securities that are traded on U.S. and foreign securities exchanges and in the over-the-counter markets. A call option gives the purchaser of the option the right to buy, and obligates the seller to sell, the underlying security, futures contract or
index at the exercise price at any time or at a specified time during the option period. All such calls sold by the Trust must be covered as long as the call is outstanding (i.e., the Trust must own the instrument subject to the call or
other securities or assets acceptable for applicable segregation and coverage requirements). A call sold by the Trust exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the
underlying security, index or futures contract and may require the Trust to hold an instrument which it might otherwise have sold. The purchase of a call gives the Trust the right to buy a security, futures contract or index at a fixed price. Calls
on futures on municipal securities must also be covered by assets or instruments acceptable under applicable segregation and coverage requirements. Puts on Securities, Indices and Futures Contracts. As with calls, the Trust may purchase put options (puts) that
relate to municipal securities (whether or not it holds such securities in its portfolio), indices or futures contracts. For the same purposes, the Trust may also sell puts on municipal securities, indices or futures contracts on such securities if
the Trusts contingent obligations on such puts are secured by segregated assets consisting of cash or liquid high grade debt securities having a value not less than the exercise price. The Trust will not sell puts if, as a result, more than
50% of the Trusts total assets would be required to cover its potential obligations under its hedging and other investment transactions. In selling puts, there is a risk that the Trust may be required to buy the underlying security at a price
higher than the current market price. Credit Derivatives. The Trust may engage in credit derivative transactions. There are
two broad categories of credit derivatives: default price risk derivatives and market spread derivatives. Default price risk derivatives are linked to the price of reference securities or loans after a default by the issuer or borrower,
respectively. Market spread derivatives are based on the risk that changes in market factors, such as credit spreads, can cause a decline in the value of a security, loan or index. There are three basic transactional forms for credit derivatives:
swaps, options and structured instruments. The use of credit derivatives is a highly specialized activity which involves strategies and risks different from those associated with ordinary portfolio security transactions. If the Advisor is incorrect
in its forecasts of default risks, market spreads or other applicable factors, the investment performance of the Trust would diminish compared with what it would have been if these techniques were not used. Moreover, even if the Advisor is correct
in its forecasts, there is a risk that a credit derivative position may correlate imperfectly with the price of the asset or liability being hedged. There is no limit on the amount of credit derivative transactions that may be entered into by the
Trust. The Trusts risk of loss in a credit derivative transaction varies with the form of the transaction. For example, if the Trust purchases a default option on a security, and if no default occurs with respect to the security, the
Trusts loss is limited to the premium it paid for the default option. In contrast, if there is a default by the grantor of a default option, the Trusts loss will include both the premium that it paid for the option and the decline in
value of the underlying security that the default option hedged. Municipal Market Data Rate Locks. The Trust may purchase and
sell Municipal Market Data Rate Locks (MMD Rate Locks). An MMD Rate Lock permits the Trust to lock in a specified municipal interest rate for a portion of its S-9
portfolio to preserve a return on a particular investment or a portion of its portfolio as a duration management technique or to protect against any increase in the price of securities to be
purchased at a later date. The Trust will ordinarily use these transactions as a hedge or for duration or risk management although it is permitted to enter into them to enhance income or gain. An MMD Rate Lock is a contract between the Trust and an
MMD Rate Lock provider pursuant to which the parties agree to make payments to each other on a notional amount, contingent upon whether the Municipal Market Data AAA General Obligation Scale is above or below a specified level on the expiration date
of the contract. For example, if the Trust buys an MMD Rate Lock and the Municipal Market Data AAA General Obligation Scale is below the specified level on the expiration date, the counterparty to the contract will make a payment to the Trust equal
to the specified level minus the actual level, multiplied by the notional amount of the contract. If the Municipal Market Data AAA General Obligation Scale is above the specified level on the expiration date, the Trust will make a payment to the
counterparty equal to the actual level minus the specified level, multiplied by the notional amount of the contract. In entering into MMD Rate Locks, there is a risk that municipal yields will move in the direction opposite of the direction
anticipated by the Trust. The Trust will not enter into MMD Rate Locks if, as a result, more than 50% of its total assets would be required to cover its potential obligations under its hedging and other investment transactions. New Products. The financial markets continue to evolve and financial products continue to be developed. The Trust reserves the
right to invest in new financial products as they are developed or become more widely accepted. As with any new financial product, these products will entail risks, including risks to which the Trust currently is not subject. The principal risks relating to the use of futures contracts and other Strategic Transactions are: (a) less than perfect correlation
between the prices of the instrument and the market value of the securities in the Trusts portfolio; (b) possible lack of a liquid secondary market for closing out a position in such instruments; (c) losses resulting from interest
rate or other market movements not anticipated by the Advisor; and (d) the obligation to meet additional variation margin or other payment requirements, all of which could result in the Trust being in a worse position than if such techniques
had not been used. Certain provisions of the Code may restrict or affect the ability of the Trust to engage in Strategic Transactions.
See Tax Matters. Special Purpose Acquisition Companies The Trust may invest in stock, warrants, rights and other interests issued by special purpose acquisition companies (SPACs) or
similar special purpose entities that pool funds to seek potential acquisition opportunities, including the founders shares and warrants described below. A SPAC is a publicly traded company that raises investment capital via an
initial public offering (IPO) for the purpose of identifying and acquiring one or more operating businesses or assets. In connection with forming a SPAC, the SPACs sponsors acquire founders shares, generally for
nominal consideration, and warrants that will result in the sponsors owning a specified percentage (typically 20%) of the SPACs outstanding common stock upon completion of the IPO. At the time a SPAC conducts an IPO, it has selected a
management team but has not yet identified a specific acquisition opportunity. Unless and until an acquisition is completed, a SPAC generally invests its assets in U.S. government securities, money market securities and cash. If an acquisition that
meets the requirements for the SPAC is not completed within a pre-established period of time, the invested funds are returned to the SPACs public shareholders, the warrants expire, and the
founders shares and such warrants become worthless. Because SPACs and similar entities are in essence blank check companies without operating histories or ongoing business operations (other than identifying and pursuing
acquisitions), the potential for the long term capital appreciation of their securities is particularly dependent on the ability of the SPACs management to identify and complete a profitable acquisition. There is no guarantee that the SPACs in
which the Trust invests will complete an acquisition or that any acquisitions completed by the SPACs in which the Trust invests will be profitable. Some SPACs may pursue acquisitions only within certain industries or regions, which may ultimately
lead to an increase in the volatility of their prices following the acquisition. In addition, some of these securities may be considered illiquid and/or subject to restrictions on resale. S-10
Short Sales The Trust may make short sales of municipal securities and other securities. A short sale is a transaction in which the Trust sells a security
it does not own in anticipation that the market price of that security will decline. The Trust may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio flexibility or to enhance income or gain. When the Trust makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short
sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trust may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities. The Trusts obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash,
U.S. Government securities or other liquid securities. The Trust will also be required to designate on its books and records similar collateral with its custodian to the extent, if any, necessary so that the aggregate collateral value is at all
times at least equal to the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Trust on such security, the
Trust may not receive any payments (including interest) on its collateral deposited with such broker-dealer. If the price of the security
sold short increases between the time of the short sale and the time the Trust replaces the borrowed security, the Trust will incur a loss; conversely, if the price declines, the Trust will realize a gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. Although the Trusts gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited. The Trust will not make a short sale if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of the
value of its total assets or the Trusts aggregate short sales of a particular class of securities exceeds 25% of the outstanding securities of that class. The Trust may also make short sales against the box without respect to such
limitations. In this type of short sale, at the time of the sale, the Trust owns or has the immediate and unconditional right to acquire at no additional cost the identical security. Environmental, Social and Governance (ESG) Integration Although the Trust does not seek to implement a specific ESG, impact or sustainability strategy, Trust management will consider ESG
characteristics as part of the investment process for actively managed funds such as the Trust. These considerations will vary depending on a funds particular investment strategies and may include consideration of third-party research as well
as consideration of proprietary research of the Advisor across the ESG risks and opportunities regarding an issuer. Trust management will consider those ESG characteristics it deems relevant or additive when making investment decisions for the
Trust. The ESG characteristics utilized in the Trusts investment process are anticipated to evolve over time and one or more characteristics may not be relevant with respect to all issuers that are eligible for investment. ESG characteristics are not the sole considerations when making investment decisions for the Trust. Further, investors can differ in their
views of what constitutes positive or negative ESG characteristics. As a result, the Trust may invest in issuers that do not reflect the beliefs and values with respect to ESG of any particular investor. ESG considerations may affect the
Trusts exposure to certain companies or industries and the Trust may forego certain investment opportunities. While Trust management views ESG considerations as having the potential to contribute to the Trusts long-term performance,
there is no guarantee that such results will be achieved. OTHER INVESTMENT POLICIES AND TECHNIQUES
Restricted and Illiquid Investments The Trust may invest in investments that lack an established secondary trading market or otherwise are considered illiquid. Liquidity of an
investment relates to the ability to dispose easily of the investment and the price to be obtained upon disposition of the investment, which may be less than would be obtained for a comparable more liquid investment. Illiquid investments may trade
at a discount from comparable, more liquid investments. Investment of the Trusts assets in illiquid investments may restrict the ability of the Trust to dispose of its S-11
investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute where the
Trusts operations require cash, such as when the Trust pays dividends, and could result in the Trust borrowing to meet short-term cash requirements or incurring capital losses on the sale of illiquid investments. The Trust may invest in securities that are not registered under the Securities Act (restricted securities). Restricted securities
may be sold in private placement transactions between issuers and their purchasers and may be neither listed on an exchange nor traded in other established markets. In many cases, privately placed securities may not be freely transferable under the
laws of the applicable jurisdiction or due to contractual restrictions on resale. As a result of the absence of a public trading market, privately placed securities may be less liquid and more difficult to value than publicly traded securities. To
the extent that privately placed securities may be resold in privately negotiated transactions, the prices realized from the sales, due to illiquidity, could be less than those originally paid by the Trust or less than their fair market value. In
addition, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any privately placed securities held by
the Trust are required to be registered under the securities laws of one or more jurisdictions before being resold, the Trust may be required to bear the expenses of registration. Where registration is required for restricted securities, a
considerable time period may elapse between the time the Trust decides to sell the security and the time it is actually permitted to sell the security under an effective registration statement. If during such period, adverse market conditions were
to develop, the Trust might obtain less favorable pricing terms than when it decided to sell the security. Transactions in restricted securities may entail other transaction costs that are higher than those for transactions in unrestricted
securities. Certain of the Trusts investments in private placements may consist of direct investments and may include investments in smaller, less seasoned issuers, which may involve greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a limited management group. In making investments in such securities, the Trust may obtain access to material nonpublic information, which may restrict the Trusts ability to conduct
portfolio transactions in such securities. Reverse Repurchase Agreements The Trust may enter into reverse repurchase agreements with respect to its portfolio investments subject to the investment restrictions set
forth herein and in the Prospectus. Reverse repurchase agreements involve the sale of securities held by the Trust with an agreement by the Trust to repurchase the securities at an agreed upon price, date and interest payment. At the time the Trust
enters into a reverse repurchase agreement, it may designate on its books and records liquid instruments having a value not less than the repurchase price (including accrued interest). If the Trust establishes and maintains such a segregated
account, a reverse repurchase agreement will not be considered a borrowing by the Trust; however, under certain circumstances in which the Trust does not establish and maintain such a segregated account, such reverse repurchase agreement will be
considered a borrowing for the purpose of the Trusts limitation on borrowings. The use by the Trust of reverse repurchase agreements involves many of the same risks of leverage since the proceeds derived from such reverse repurchase agreements
may be invested in additional securities. Reverse repurchase agreements involve the risk that the market value of the securities acquired in connection with the reverse repurchase agreement may decline below the price of the securities the Trust has
sold but is obligated to repurchase. Also, reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Trust in connection with the reverse repurchase agreement may decline in price. If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the Trusts obligation to repurchase the securities, and the Trusts use of the proceeds of the reverse repurchase agreement may effectively be restricted pending
such decision. Also, the Trust would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement. Repurchase Agreements As temporary
investments, the Trust may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified price on a future date agreed upon by the parties.
The agreed-upon repurchase price determines the yield during the Trusts holding S-12
period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The Trust will only enter into repurchase
agreements with registered securities dealers or domestic banks that, in the opinion of the Advisor, present minimal credit risk. The risk to the Trust is limited to the ability of the issuer to pay the agreed-upon repurchase price on the delivery
date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both principal
and interest. In the event of default, the collateral may be sold but the Trust might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Trust may be delayed or limited. The Advisor will monitor the value of the collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the collateral declines below the
repurchase price, the Advisor will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest. VRDOs VRDOs are tax-exempt obligations that contain a floating or variable interest rate adjustment formula and right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period not to exceed seven days. There is, however, the possibility that because of default or insolvency the demand feature of VRDOs may not be honored. The interest rates are adjustable at intervals (ranging from daily
to up to one year) to some prevailing market rate for similar investments, such adjustment formula being calculated to maintain the market value of the VRDOs, at approximately the par value of the VRDOs on the adjustment date. The adjustments
typically are based upon the SIFMA or some other appropriate interest rate adjustment index. The Trust may invest in all types of tax exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and
quality standards. VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest on a notice period exceeding seven days may be deemed to be illiquid securities. Borrowings The Trust reserves the right
to borrow funds to the extent permitted as described under the above caption Investment Restrictions. The proceeds of borrowings may be used for any valid purpose including, without limitation, liquidity, investments and repurchases of
shares of the Trust. Borrowing is a form of leverage and, in that respect, entails risks comparable to those associated with the issuance of Preferred Shares. Lending of Securities The Trust may lend
its portfolio securities to banks or dealers which meet the creditworthiness standards established by the Board (Qualified Institutions). By lending its portfolio securities, the Trust attempts to increase its income through the receipt
of interest on the loan. Any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Trust. The Trust may lend its portfolio securities so long as the terms and the
structure of such loans are not inconsistent with requirements of the Investment Company Act, which currently require that (i) the borrower pledge and maintain with the Trust collateral consisting of cash, a letter of credit issued by a
domestic U.S. Bank, or securities issued or guaranteed by the U.S. Government having a value at all times not less than 100% of the value of the securities loaned, (ii) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the value of the loan is marked to the market on a daily basis), (iii) the loan be made subject to termination by the Trust at any time and (iv) the Trust receive reasonable interest on the loan
(which may include the Trusts investing any cash collateral in interest bearing short term investments), any distributions on the loaned securities and any increase in their market value. The Trust will not lend portfolio securities if, as a
result, the aggregate of such loans exceeds 331/3% of the value of the Trusts total assets (including such loans). Loan arrangements made by the Trust will comply with all other applicable regulatory requirements, including the rules of the
New York Stock Exchange, which rules presently require the borrower, after notice, to redeliver the securities within the normal settlement time of five business days. All relevant facts and circumstances, including the creditworthiness of the
Qualified Institution, will be monitored by the Advisor, and will be considered in making decisions with respect to lending securities, subject to review by the Board. S-13
The Trust may pay reasonable negotiated fees in connection with loaned securities, so long as
such fees are set forth in a written contract and approved by the Board. In addition, voting rights may pass with the loaned securities, but if a material event were to occur affecting such a loan, the loan must be called and the securities voted.
High Yield Securities The Trust may
invest up to 20% of its Managed Assets in securities rated below investment grade, such as those rated Ba or below by Moodys or BB or below by S&P or Fitch or securities comparably rated by other rating agencies or in unrated securities
determined by the Advisor to be of comparable quality. Securities rated Ba and below by Moodys and Fitch are judged to have speculative elements, their future cannot be considered as well assured and often the protection of interest and
principal payments may be very moderate. Securities rated BB by S&P are regarded as having predominantly speculative characteristics and, while such obligations have less near-term vulnerability to default than other speculative grade debt, they
face major ongoing uncertainties or exposure to adverse business, financial or economic conditions, which could lead to inadequate capacity to meet timely interest and principal payments. Lower grade securities, though high yielding, are characterized by high risk. They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher rated securities. The retail secondary market for lower grade securities may be less liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Trust to sell certain securities or could result in lower prices than those used in calculating the Trusts net asset value. The prices of debt securities generally are inversely related to interest rate changes; however, the price volatility caused by fluctuating
interest rates of securities also is inversely related to the coupons of such securities. Accordingly, below investment grade securities may be relatively less sensitive to interest rate changes than higher quality securities of comparable maturity
because of their higher coupon. This higher coupon is what the investor receives in return for bearing greater credit risk. The higher credit risk associated with below investment grade securities potentially can have a greater effect on the value
of such securities than may be the case with higher quality issues of comparable maturity. Lower grade securities may be particularly
susceptible to economic downturns. It is likely that an economic recession could severely disrupt the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. The ratings of Moodys, S&P and other rating agencies represent their opinions as to the quality of the obligations which they
undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, the Advisor also will independently evaluate these securities and the ability for the issuers of such securities to pay interest and principal. To the extent that the Trust invests in lower
grade securities that have not been rated by a rating agency, the Trusts ability to achieve its investment objective will be more dependent on the Advisors credit analysis than would be the case when the Trust invests in rated
securities. Risk Factors in Strategic Transactions and Derivatives The Trusts use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing
directly in securities and other traditional investments. Derivatives are subject to a number of risks such as credit risk, leverage risk, illiquidity risk, correlation risk and index risk as described below: Credit Riskthe risk that the counterparty in a derivative transaction will be unable to honor its
financial obligation to the Trust, or the risk that the reference entity in a derivative will not be able to honor its financial obligations. In particular, derivatives traded in OTC markets often are not guaranteed by an exchange or clearing
corporation and often do not require payment of margin, and to the extent that the Trust has unrealized gains in such instruments or has deposited collateral with its counterparties the Trust is at risk that its counterparties will become bankrupt
or otherwise fail to honor their obligations. S-14
Currency Riskthe risk that changes in the exchange rate between two currencies will adversely affect
the value (in U.S. dollar terms) of an investment. Leverage Riskthe risk associated with certain types of investments or trading strategies (such as,
for example, borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain transactions in derivatives (such as futures transactions or sales of put
options) involve substantial leverage risk and may expose the Trust to potential losses that exceed the amount originally invested by the Trust. When the Trust engages in such a transaction, the Trust will deposit in a segregated account, or earmark
on its books and records, liquid assets with a value at least equal to the Trusts exposure, on a mark-to-market basis, to the transaction (as calculated pursuant
to requirements of the SEC). Such segregation or earmarking will ensure that the Trust has assets available to satisfy its obligations with respect to the transaction, but will not limit the Trusts exposure to loss. Illiquidity Riskthe risk that certain securities may be difficult or impossible to sell at the time
that the Trust would like or at the price that the Trust as seller believes the security is currently worth. There can be no assurance that, at any specific time, either a liquid secondary market will exist for a derivative or the Trust will
otherwise be able to sell such instrument at an acceptable price. It may, therefore, not be possible to close a position in a derivative without incurring substantial losses, if at all. The absence of liquidity may also make it more difficult for
the Trust to ascertain a market value for such instruments. Although both OTC and exchange-traded derivatives markets may experience a lack of liquidity, certain derivatives traded in OTC markets, including swaps and OTC options, involve substantial
illiquidity risk. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and
technical and operational or system failures. In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by daily price fluctuation limits established by the exchanges which limit
the amount of fluctuation in an exchange-traded contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open
positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days. If it is not possible to close an open derivative position entered into by the Trust, the Trust would continue to be required to make daily cash
payments of variation margin in the event of adverse price movements. In such a situation, if the Trust has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be
disadvantageous to do so. Correlation Riskthe risk that changes in the value of a derivative will not match the changes in the
value of the portfolio holdings that are being hedged or of the particular market or security to which the Trust seeks exposure through the use of the derivative. There are a number of factors which may prevent a derivative instrument from achieving
the desired correlation (or inverse correlation) with an underlying asset, rate or index, such as the impact of fees, expenses and transaction costs, the timing of pricing, and disruptions or illiquidity in the markets for such derivative
instrument. Index RiskIf the derivative is linked to the performance of an index, it will be subject to the
risks associated with changes in that index. If the index changes, the Trust could receive lower interest payments or experience a reduction in the value of the derivative to below the price that the Trust paid for such derivative.
Volatility Riskthe risk that the Trusts use of derivatives may reduce income or gain and/or
increase volatility. Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price over a defined time period. The Trust could suffer losses related to its derivative positions as a result of
unanticipated market movements, which losses are potentially unlimited. S-15
When a derivative is used as a hedge against a position that the Trust holds, any loss generated
by the derivative generally should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying security, and there can be no assurance that the Trusts hedging transactions will be effective. The Trust could also suffer losses related to its derivative positions as a result of unanticipated
market movements, which losses are potentially unlimited. The Advisor may not be able to predict correctly the direction of securities prices, interest rates and other economic factors, which could cause the Trusts derivatives positions to
lose value. In addition, some derivatives are more sensitive to interest rate changes and market price fluctuations than other securities. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Trust to
sell or otherwise close a derivatives position could expose the Trust to losses and could make derivatives more difficult for the Trust to value accurately. When engaging in a hedging transaction, the Trust may determine not to seek to establish a perfect correlation between the hedging instruments
utilized and the portfolio holdings being hedged. Such an imperfect correlation may prevent the Trust from achieving the intended hedge or expose the Trust to a risk of loss. The Trust may also determine not to hedge against a particular risk
because it does not regard the probability of the risk occurring to be sufficiently high as to justify the cost of the hedge or because it does do not foresee the occurrence of the risk. It may not be possible for the Trust to hedge against a change
or event at attractive prices or at a price sufficient to protect the assets of the Trust from the decline in value of the portfolio positions anticipated as a result of such change. The Trust may also be restricted in its ability to effectively
manage the portion of its assets that are segregated or earmarked to cover its obligations. In addition, it may not be possible to hedge at all against certain risks. If the Trust invests in a derivative instrument it could lose more than the principal amount invested. Moreover, derivatives raise certain
tax, legal, regulatory and accounting issues that may not be presented by investments in securities, and there is some risk that certain issues could be resolved in a manner that could adversely impact the performance of the Trust. The Trust is not required to use derivatives or other portfolio strategies to seek to increase return or to seek to hedge its portfolio and
may choose not to do so. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Trust will engage in these transactions to reduce exposure to other risks when that would be beneficial.
Although the Advisor seeks to use derivatives to further the Trusts investment objective, there is no assurance that the use of derivatives will achieve this result. Options Risk. There are several risks associated with transactions in options on securities and indexes. For example, there are
significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. In addition, a liquid secondary market for particular
options, whether traded OTC or on a recognized securities exchange (e.g., NYSE), separate trading boards of a securities exchange or through a market system that provides contemporaneous transaction pricing information (an Exchange) may
be absent for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an Exchange on opening transactions or closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of options or underlying securities; unusual or unforeseen circumstances may interrupt normal operations on an Exchange; the facilities of an Exchange or the OCC may not at all
times be adequate to handle current trading volume; or one or more Exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in
which event the secondary market on that Exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by the OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms. Futures Transactions and Options Risk. The primary risks associated with the use of futures contracts
and options are (a) the imperfect correlation between the change in market value of the instruments held by the Trust and the price of the futures contract or option; (b) possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the Advisors inability to predict correctly the direction of securities
prices, interest rates, currency exchange rates and other economic factors; and (e) the possibility that the counterparty will default in the performance of its obligations. S-16
Investment in futures contracts involves the risk of imperfect correlation between movements in
the price of the futures contract and the price of the security being hedged. The hedge will not be fully effective when there is imperfect correlation between the movements in the prices of two financial instruments. For example, if the price of
the futures contract moves more or less than the price of the hedged security, the Trust will experience either a loss or gain on the futures contract which is not completely offset by movements in the price of the hedged securities. To compensate
for imperfect correlations, the Trust may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the volatility of the hedged securities is historically greater than the volatility of the futures contracts.
Conversely, the Trust may purchase or sell fewer futures contracts if the volatility of the price of the hedged securities is historically lower than that of the futures contracts. The particular securities comprising the index underlying a securities index financial futures contract may vary from the securities held by
the Trust. As a result, the Trusts ability to hedge effectively all or a portion of the value of its securities through the use of such financial futures contracts will depend in part on the degree to which price movements in the index
underlying the financial futures contract correlate with the price movements of the securities held by the Trust. The correlation may be affected by disparities in the average maturity, ratings, geographical mix or structure of the Trusts
investments as compared to those comprising the securities index and general economic or political factors. In addition, the correlation between movements in the value of the securities index may be subject to change over time as additions to and
deletions from the securities index alter its structure. The correlation between futures contracts on U.S. Government securities and the securities held by the Trust may be adversely affected by similar factors and the risk of imperfect correlation
between movements in the prices of such futures contracts and the prices of securities held by the Trust may be greater. The trading of futures contracts also is subject to certain market risks, such as inadequate trading activity, which could at
times make it difficult or impossible to liquidate existing positions. The Trust may liquidate futures contracts it enters into through
offsetting transactions on the applicable contract market. There can be no assurance, however, that a liquid secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close out a futures
position. In the event of adverse price movements, the Trust would continue to be required to make daily cash payments of variation margin. In such situations, if the Trust has insufficient cash, it may be required to sell portfolio securities to
meet daily variation margin requirements at a time when it may be disadvantageous to do so. The inability to close out futures positions also could have an adverse impact on the Trusts ability to hedge effectively its investments in
securities. The liquidity of a secondary market in a futures contract may be adversely affected by daily price fluctuation limits established by commodity exchanges which limit the amount of fluctuation in a futures contract price during
a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past moved beyond the daily limit
on a number of consecutive trading days. The successful use of transactions in futures and related options also depends on the ability of
the Advisor to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates remain stable during the period in which a futures contract or option is held by the Trust or such rates
move in a direction opposite to that anticipated, the Trust may realize a loss on the Strategic Transaction which is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Trusts total return for
such period may be less than if it had not engaged in the Strategic Transaction. Because of low initial margin deposits made upon the
opening of a futures position, futures transactions involve substantial leverage. As a result, relatively small movements in the price of the futures contracts can result in substantial unrealized gains or losses. There is also the risk of loss by
the Trust of margin deposits in the event of bankruptcy of a broker with which the Trust has an open position in a financial futures contract. Because the Trust will engage in the purchase and sale of futures contracts for hedging purposes or to
seek to enhance the Trusts return, any losses incurred in connection therewith may, if the strategy is successful, be offset in whole or in part by increases in the value of securities held by the Trust or decreases in the price of securities
the Trust intends to acquire. S-17
The amount of risk the Trust assumes when it purchases an option on a futures contract is the
premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of an option on a futures contract also entails the risk that changes in the value of the underlying futures contract will
not be fully reflected in the value of the option purchased. General Risk Factors in Hedging Foreign Currency. Hedging
transactions involving Currency Instruments involve substantial risks, including correlation risk. While the Trusts use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the NAV of the Trusts
common shares, the NAV of the Trusts common shares will fluctuate. Moreover, although Currency Instruments may be used with the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that
anticipated currency movements will not be accurately predicted and that the Trusts hedging strategies will be ineffective. To the extent that the Trust hedges against anticipated currency movements that do not occur, the Trust may realize
losses and decrease its total return as the result of its hedging transactions. Furthermore, the Trust will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates
occur. It may not be possible for the Trust to hedge against currency exchange rate movements, even if correctly anticipated, in the
event that (i) the currency exchange rate movement is so generally anticipated that the Trust is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange rate movement relates to a market with
respect to which Currency Instruments are not available and it is not possible to engage in effective foreign currency hedging. The cost to the Trust of engaging in foreign currency transactions varies with such factors as the currencies involved,
the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency exchange usually are conducted on a principal basis, no fees or commissions are involved. Foreign Currency Forwards Risk. Forward foreign currency exchange contracts do not eliminate fluctuations in the value of Non-U.S. Securities (as defined in the Prospectus) but rather allow the Trust to establish a fixed rate of exchange for a future point in time. This strategy can have the effect of reducing returns and minimizing
opportunities for gain. In connection with its trading in forward foreign currency contracts, the Trust will contract with a foreign or
domestic bank, or foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required
to continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price at which the
bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, the Trust will be subject
to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect to such contracts. Any such default would deprive the Trust of any profit potential or force the Trust to cover its commitments for
resale, if any, at the then market price and could result in a loss to the Trust. The Trust may also engage in proxy hedging transactions
to reduce the effect of currency fluctuations on the value of existing or anticipated holdings of portfolio securities. Proxy hedging is often used when the currency to which the Trust is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose changes in value are generally considered to be linked to a currency or currencies in which some or all of the Trusts securities are, or are expected to be,
denominated, and to buy U.S. dollars. Proxy hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Trust if the currency being hedged fluctuates in
value to a degree or in a direction that is not anticipated. In addition, there is the risk that the perceived linkage between various currencies may not be present or may not be present during the particular time that the Trust is engaging in proxy
hedging. The Trust may also cross-hedge currencies by entering into forward contracts to sell one or more currencies that are expected to decline in value relative to other currencies to which the Trust has or in which the Trust expects to have
portfolio exposure. For example, the Trust may hold both Canadian government bonds and Japanese government bonds, and the Advisor may believe that Canadian dollars will deteriorate against Japanese yen. The Trust would sell Canadian dollars to
reduce its exposure to that currency and buy Japanese yen. This strategy would be a hedge against a decline in the value of Canadian dollars, although it would expose the Trust to declines in the value of the Japanese yen relative to the U.S.
dollar. S-18
Some of the forward non-U.S. currency contracts entered
into by the Trust may be classified as non-deliverable forwards (NDFs). NDFs are cash-settled, short-term forward contracts that may be thinly traded or are denominated in non-convertible foreign currency, where the profit or loss at the time at the settlement date is calculated by taking the difference between the agreed upon exchange rate and the spot rate at the time of settlement,
for an agreed upon notional amount of funds. All NDFs have a fixing date and a settlement date. The fixing date is the date at which the difference between the prevailing market exchange rate and the agreed upon exchange rate is calculated. The
settlement date is the date by which the payment of the difference is due to the party receiving payment. NDFs are commonly quoted for time periods of one month up to two years, and are normally quoted and settled in U.S. dollars. They are often
used to gain exposure to and/or hedge exposure to foreign currencies that are not internationally traded. Currency Futures Risk.
The Trust may also seek to hedge against the decline in the value of a currency or to enhance returns through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are
standardized, exchange-traded contracts while forward foreign exchange transactions are traded in the OTC market. Currency futures involve substantial currency risk, and also involve leverage risk. Currency Options Risk. The Trust may also seek to hedge against the decline in the value of a currency or to enhance returns through
the use of currency options. Currency options are similar to options on securities. For example, in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the case of a
put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Trust may engage in transactions in options on currencies either on exchanges or OTC markets. Currency options
involve substantial currency risk, and may also involve credit, leverage or illiquidity risk. Currency Swaps Risk. The Trust may
enter into currency swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Currency swaps involve the exchange of the rights of the
Trust and another party to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency. Because currency swaps
usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default
on its contractual delivery obligations. Over-the-Counter Trading Risk. The derivative
instruments that may be purchased or sold by the Trust may include instruments not traded on an exchange. The risk of nonperformance by the counterparty to an instrument may be greater than, and the ease with which the Trust can dispose of or enter
into closing transactions with respect to an instrument may be less than, the risk associated with an exchange traded instrument. In addition, significant disparities may exist between bid and asked prices for derivative
instruments that are not traded on an exchange. The absence of liquidity may make it difficult or impossible for the Trust to sell such instruments promptly at an acceptable price. Derivative instruments not traded on exchanges also are not subject
to the same type of government regulation as exchange traded instruments, and many of the protections afforded to participants in a regulated environment may not be available in connection with the transactions. Because derivatives traded in OTC
markets generally are not guaranteed by an exchange or clearing corporation and generally do not require payment of margin, to the extent that the Trust has unrealized gains in such instruments or has deposited collateral with its counterparties the
Trust is at risk that its counterparties will become bankrupt or otherwise fail to honor its obligations. Dodd-Frank Act Risk.
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) (the Derivatives Title) imposed a substantially new regulatory structure on derivatives markets, with particular emphasis
on swaps (which were subject to oversight by the CFTC) and security-based swaps (which were subject to oversight by the SEC). The regulatory framework covers a broad range of swap market participants, including banks,
non-banks, credit unions, insurance companies, broker-dealers and investment advisers. Prudential regulators were granted authority to regulate margining of swaps and security-based swaps of banks and
bank-related entities. S-19
Current regulations for swaps require the mandatory central clearing and mandatory exchange
trading of particular types of interest rate swaps and index credit default swaps (together, Covered Swaps). The Trust is required to clear its Covered Swaps through a clearing broker, which requires, among other things, posting initial
margin and variation margin to the Trusts clearing broker in order to enter into and maintain positions in Covered Swaps. Covered
Swaps generally are required to be executed through a swap execution facility (SEF), which can involve additional transaction fees. Additionally, with respect to uncleared swaps, swap dealers are required to collect variation margin from the Fund and may be required by
applicable regulations to collect initial margin from the Fund. Both initial and variation margin may be comprised of cash and/or securities, subject to applicable regulatory haircuts. Shares of investment companies (other than certain money market
funds) may not be posted as collateral under applicable regulations. As capital and margin requirements for swap dealers and capital and margin requirements for security-based swaps are implemented, such requirements may make certain types of trades
and/or trading strategies more costly. There may be market dislocations due to uncertainty during the implementation period of any new regulation and the Advisor cannot know how the derivatives market will adjust to such new regulations. In addition, regulations adopted by global prudential regulators that are now in effect require certain bank- regulated counterparties and
certain of their affiliates to include in qualified financial contracts, including many derivatives contracts as well as repurchase agreements and securities lending agreements, terms that delay or restrict the rights of counterparties
to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of affiliate credit enhancements (such as guarantees) in the event that the bank-regulated counterparty and/or its affiliates are subject to
certain types of resolution or insolvency proceedings. Legal and Regulatory Risk. At any time after the date hereof, legislation
or additional regulations may be enacted that could negatively affect the assets of the Trust. Changing approaches to regulation may have a negative impact on the securities in which the Trust invests. Legislation or regulation may also change the
way in which the Trust itself is regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Trust or will not impair the ability of the Trust to achieve its investment
objective. In addition, as new rules and regulations resulting from the passage of the Dodd-Frank Act are implemented and new international capital and liquidity requirements are introduced under the Basel III Accords, the market may not react the
way the Advisor expects. Whether the Trust achieves its investment objective may depend on, among other things, whether the Advisor correctly forecasts market reactions to this and other legislation. In the event the Advisor incorrectly forecasts
market reaction, the Trust may not achieve its investment objective. Investment Management Agreement Although
the Advisor intends to devote such time and effort to the business of the Trust as is reasonably necessary to perform its duties to the Trust, the services of the Advisor are not exclusive and the Advisor provides similar services to other
investment companies and other clients and may engage in other activities. The investment management agreement between the Advisor and
the Trust (the Investment Management Agreement) also provides that except for a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Advisors part in the performance of its duties or from reckless disregard by the Advisor of its duties under the Investment Management Agreement, the Advisor is not liable for any error of judgment or mistake of law or for
any loss suffered by the Advisor or the Trust in connection with the performance of the Investment Management Agreement. The Investment Management Agreement also provides for indemnification by the Trust of the Advisor and each of the Advisors
directors, officers, employees, agents, associates and controlling persons, and the directors, partners, members, officers, employees and agents thereof (including any individual who serves at the Advisors request as director, officer,
partner, member, trustee or the like of another entity) for liabilities and expenses incurred by them in connection with their services to the Trust, subject to certain limitations and conditions. S-20
The Investment Management Agreement provides for the Trust to pay a monthly management fee at an
annual rate equal to 0.60% of the average weekly value of the Trusts Managed Assets. Managed Assets means the total assets of the Trust (including any assets attributable to money borrowed for investment purposes) minus the sum of
the Trusts accrued liabilities (other than money borrowed for investment purposes). The Trust and the Advisor have entered into a
fee waiver agreement (the Fee Waiver Agreement), pursuant to which the Advisor has contractually agreed to waive the management fee with respect to any portion of the Trusts assets attributable to investments in any equity and
fixed-income mutual funds and ETFs managed by the Advisor or its affiliates that have a contractual management fee, through June 30, 2023. In addition, effective December 1, 2019, pursuant to the Fee Waiver Agreement, the Advisor has
contractually agreed to waive its management fees by the amount of investment advisory fees the Trust pays to the Advisor indirectly through its investment in money market funds advised by the Advisor or its affiliates, through June 30, 2023.
The Fee Waiver Agreement may be continued from year to year thereafter, provided that such continuance is specifically approved by the Advisor and the Trust (including by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) (the Independent Trustees)). Neither the Advisor nor the Trust is obligated to extend the Fee Waiver Agreement. The Fee Waiver Agreement may be terminated at any time, without the payment of any
penalty, only by the Trust (upon the vote of a majority of the Independent Trustees or a majority of the outstanding voting securities of the Trust), upon 90 days written notice by the Trust to the Advisor. Prior to December 1, 2019, the
agreement to waive a portion of the Trusts management fee in connection with the Trusts investment in affiliated money market funds was voluntary. The Investment Management Agreement will continue in effect from year to year provided that each continuance is specifically approved at least
annually by both (1) the vote of a majority of the Board or the vote of a majority of the outstanding voting securities of the Trust (as such term is defined in the Investment Company Act) and (2) by the vote of a majority of the Trustees
who are not parties to the Investment Management Agreement or interested persons (as such term is defined in the Investment Company Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval.
The Investment Management Agreement may be terminated as a whole at any time by the Trust, without the payment of any penalty, upon the vote of a majority of the Trustees or a majority of the outstanding voting securities of the Trust or by the
Advisor, on 60 days written notice by either party to the other which can be waived by the non-terminating party. The Investment Management Agreement will terminate automatically in the event of its
assignment (as such term is defined in the Investment Company Act and the rules thereunder). The table below sets forth
information about the total management fees paid by the Trust to the Advisor, and the amounts waived by the Advisor, for the periods indicated: Fiscal Year Ended April 30, 2021 2020 2019 Biographical Information Pertaining to the Trustees The Board consists of eleven individuals (each, a Trustee), nine of whom are Independent Trustees. The registered investment
companies advised by the Advisor 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 Trust is 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. S-21
Please refer to the section of the Trusts June 8, 2021 definitive proxy statement on
Schedule 14A for the annual meeting of the Trusts shareholders entitled: Proposal 1 - Board Members/Nominees Biographical
Information, which is incorporated by reference herein, for a discussion of the Trusts trustees other than Lorenzo A. Flores, their principal occupations and other affiliates during the past five years, the number of portfolios in
the Fixed-Income Complex that they oversee, and other information about them. Effective July 30, 2021, Lorenzo A. Flores was
appointed to the Board as an Independent Trustee. Certain biographical and other information relating to Lorenzo A. Flores is set forth below, including his year of birth, his principal occupation for at least the last five years, the length of time
served, the total number of BlackRock-advised Funds overseen and any public directorships or trusteeships. Name and Principal Occupation(s) Public Lorenzo A. Flores 1964 (Since The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.
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 Trusts bylaws 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 Trusts bylaws 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. The table below discusses some of the experiences, qualifications and skills of Lorenzo A. Flores that support the conclusion that he should
serve on the Board. Trustee Experience, Qualifications and Skills Lorenzo A. Flores Effective December 31, 2021, Michael J. Castellano and Richard E. Cavanagh each retired as a Trustee of
the Trust. Ms. Robards intends to retire as a Trustee of the Trust and, in that regard, has resigned as a Trustee of the Trust effective
as of May 31, 2022. Board Leadership Structure and Oversight Please refer to the sections of the Trusts definitive proxy statement on Schedule 14A for the annual meeting of the Trusts
shareholders entitled: Proposal 1 - Board Leadership Structure and Oversight and Appendix
E Committees of the Board which is incorporated by reference herein, for a discussion of the Boards leadership structure and oversight other than as noted below. S-22
During the Trusts fiscal year ended April 30, 2021, the Boards Audit Committee,
Governance and Nominating Committee, Compliance Committee and Executive Committee met the following number of times: Number of Number of Number of Number
of Number
of 12 Effective July 30, 2021, J. Phillip Holloman was appointed to the Audit Committee of the Board and Stayce
D. Harris was appointed to the Compliance Committee of the Board. Effective August 5, 2021, Lorenzo A. Flores was appointed to the Audit Committee of the Board. Effective November 18, 2021, Lorenzo A. Flores, Stayce D. Harris and J. Phillip Holloman were each appointed to the Performance Oversight
Committee of the Board. Effective January 1, 2022, R. Glenn Hubbard was appointed to serve as a Chair of the Board and as a
member and Chair of the Executive Committee of the Board; W. Carl Kester was appointed to serve as Vice Chair of the Board, as a member and Chair of the Governance and Nominating Committee of the Board and as a member of the Executive Committee of
the Board; Catherine A. Lynch was appointed to serve as Chair of the Audit Committee of the Board; and Karen P. Robards no longer serves as Co-Chair of the Board. Trustee Share Ownership Information
relating to each Trustees share ownership in the Trust and in all BlackRock-advised Funds that are currently overseen by the respective Trustee (Supervised Funds) as of December 31, 2021 is set forth in the chart below: Name of Trustee Independent Trustees Cynthia L. Egan Frank J. Fabozzi Lorenzo A. Flores Stayce D. Harris J. Phillip Holloman R. Glenn Hubbard W. Carl Kester S-23
Catherine A. Lynch Karen P. Robards Interested Trustees Robert Fairbairn John M. Perlowski 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. Compensation of Trustees
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 Trust, 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, the 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. Effective January 1, 2022, the
Vice Chair of the Board is paid an additional annual retainer of $60,000. The Trust 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 Trustees total compensation paid by funds in the
BlackRock Fixed-Income Complex may be deferred pursuant to the BlackRock Fixed-Income Complexs 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. The following table sets forth the compensation paid to the Trustees by the Trust for the fiscal year ended
April 30, 2021, and the aggregate compensation, including deferred compensation amounts, paid to them by all BlackRock-advised Funds for the calendar year ended December 31, 2021. Messrs. Fairbairn and Perlowski serve without compensation
from the Trust because of their affiliation with BlackRock, Inc. and the Advisor. Name(1) Independent Trustees Michael J. Castellano(4) Richard E. Cavanagh(5) Cynthia L. Egan Frank J. Fabozzi Lorenzo A. Flores(6) Stayce D. Harris(7) J. Phillip Holloman(8) S-24
R. Glenn Hubbard W. Carl Kester Catherine A. Lynch Karen P. Robards Interested Trustees Robert Fairbairn John M. Perlowski For the number of BlackRock-advised Funds from which each Trustee receives compensation, see the Biographical
Information Chart beginning on page S-[21]. 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, 2021. Of this amount, Mr. Castellano, Mr. Cavanagh, Dr. Fabozzi, Mr. Flores, Ms. Harris, Mr. Holloman, Dr. Hubbard, Dr. Kester
and Ms. Lynch deferred $133,500, $163,350, $71,812, $50,000, $51,514, $52,567, $216,250, $20,000 and $66,187, respectively, pursuant to the BlackRock Fixed-Income Complexs deferred compensation plan. Total amount of deferred compensation payable by the BlackRock Fixed-Income Complex to Mr. Castellano,
Mr. Cavanagh, Dr. Fabozzi, Mr. Flores, Ms. Harris, Mr. Holloman, Dr. Hubbard, Dr. Kester and Ms. Lynch is $1,563,029, $2,322,521, $1,263,915, $50,820, $52,360, $53,430, $3,749,161, $1,769,688 and $395,097,
respectively, as of December 31, 2021. Ms. Egan and Ms. Robards did not participate in the deferred compensation plan as of December 31, 2021. Mr. Castellano retired as a Trustee of the Trust and Chair of the Audit Committee effective
December 31, 2021. Mr. Cavanagh retired as a Trustee of the Trust and Co-Chair of the
Board effective December 31, 2021. Mr. Flores was appointed as a Trustee of the Trust effective July 30, 2021, a member of the Audit
Committee effective August 5, 2021 and a member of the Performance Oversight Committee effective November 18, 2021. Ms. Harris was appointed as a Trustee of the Trust effective June 10, 2021, a member of the
Compliance Committee effective July 30, 2021 and a member of the Performance Oversight Committee effective November 18, 2021. Mr. Holloman was appointed as a Trustee of the Trust effective June 10, 2021, a member of the Audit
Committee effective July 30, 2021 and a member of the Performance Oversight Committee effective November 18, 2021. Independent Trustee Ownership of Securities As of December 31, 2021, none of the Independent Trustees of the Trust or their immediate family members owned beneficially or of record
any securities of BlackRock or any affiliate of any BlackRock person controlling, controlled by or under common control with BlackRock nor did any Independent Trustee of the Trust or their immediate family member have any material interest in any
transaction, or series of similar transactions, during the most recently completed two calendar years involving the Trust BlackRock or any affiliate of any BlackRock person controlling, controlled by or under common control with the Trust or
BlackRock. As of the date of this SAI, the officers and Trustees of the Trust, as a group, beneficially owned less than 1% of the
outstanding common shares of the Trust. Information Pertaining to the Officers Please refer to the section of the Trusts definitive proxy statement on Schedule 14A for the annual meeting of the Trusts
shareholders entitled: Appendix F Information Pertaining to the Executive Officers of the Funds, which is
incorporated by reference herein, for certain biographical and other information relating to the officers of the Trust who are not Trustees. Indemnification of Trustees and Officers The governing documents of the Trust generally provide that, to the extent permitted by applicable law, the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with litigation in S-23
which they may be involved because of their offices with the Trust unless, as to liability to the Trust or its investors, it is finally adjudicated that they engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in their offices. In addition, the Trust will not indemnify Trustees with respect to any matter as to which Trustees did not act in good faith in the reasonable belief that his or
her action was in the best interest of the Trust or, in the case of any criminal proceeding, as to which Trustees had reasonable cause to believe that the conduct was unlawful. Indemnification provisions contained in the Trusts governing
documents are subject to any limitations imposed by applicable law. Closed-end funds in the
BlackRock Fixed-Income Complex, including the Trust, have also entered into a separate indemnification agreement with the board members of each board of such funds (the Indemnification Agreement). The Indemnification Agreement
(i) extends the indemnification provisions contained in a funds governing documents to board members who leave that funds board and serve on an advisory board of a different fund in the BlackRock Fixed-Income Complex; (ii) sets
in place the terms of the indemnification provisions of a funds governing documents once a board member retires from a board; and (iii) in the case of board members who left the board of a fund in connection with or prior to the board
consolidation that occurred in 2007 as a result of the merger of BlackRock and Merrill Lynch & Co., Inc.s investment management business, clarifies that such fund continues to indemnify the trustee for claims arising out of his or her
past service to that fund. Portfolio Management Portfolio Manager Assets Under Management The following table sets forth information about funds and accounts other than the Trust for which the portfolio managers are primarily
responsible for the day-to-day portfolio management as of April 30, 2021: (i) Name of Portfolio Manager Theodore R. Jaeckel, Jr., CFA Walter OConnor, CFA Portfolio Manager Compensation Overview The discussion below describes the portfolio managers compensation as of April 30, 2021. The Advisors 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 the Advisor. 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 managers group within BlackRock, the investment performance, including risk-adjusted returns, of the firms assets under management or supervision by that portfolio manager relative to
predetermined benchmarks, and the individuals performance and S-26
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 Trust
or other accounts managed by the portfolio managers are measured. Among other things, BlackRocks Chief Investment Officers make a subjective determination with respect to each portfolio managers compensation based on the performance of
the Trust 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 Trust and other accounts are: Portfolio Managers Applicable Benchmarks Walter OConnor Theodore R. Jaeckel,
Jr. 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 BlackRocks 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 this Trust 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 PlansBlackRock, Inc. has created
a variety of incentive savings plans in which BlackRock, Inc. 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 ($305,000 for 2022). The RSP offers a range of investment options, including registered investment companies and collective
investment funds managed by the firm. BlackRock, Inc. 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, Inc. 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. All of the eligible portfolio managers are eligible to participate in these plans. S-27
Securities Ownership of Portfolio Managers As of April 30, 2021, the end of the Trusts most recently completed fiscal year end, the dollar range of securities beneficially
owned by each portfolio manager in the Trust is shown below: Portfolio Manager Theodore R. Jaeckel, Jr., CFA Walter OConnor, CFA Potential Material Conflicts of Interest The Advisor 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. The Advisor 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, the Advisor furnishes investment management and advisory services to numerous clients in addition to the
Trust, and the Advisor 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 the Advisor, 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 Trust. In addition, BlackRock, Inc., 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 the Advisor recommends to the Trust. BlackRock, Inc. 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 Trust by the Advisor with respect to the same securities. Moreover, the Advisor may refrain from rendering any advice or services concerning securities of companies of which any
of BlackRock, Inc.s (or its affiliates or significant shareholders) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. 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 a fund. It should also be noted that a portfolio manager may be managing certain hedge fund and/or long only accounts, or may be part of a team managing certain hedge fund and/or long
only accounts, subject to incentive fees. Such portfolio managers may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of this fund are not entitled to receive a portion of
incentive fees of other accounts. As a fiduciary, the Advisor owes a duty of loyalty to its clients and must treat each client fairly.
When the Advisor purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. The Advisor attempts to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide the Advisor with sufficient flexibility to allocate
investments in a manner that is consistent with the particular investment discipline and client base, as appropriate. Proxy Voting Policies The Board has delegated the voting of proxies for the Trusts securities to the Advisor pursuant to the Advisors proxy voting
guidelines. Under these guidelines, the Advisor will vote proxies related to Trust securities in the best interests of the Trust and its shareholders. From time to time, a vote may present a conflict between the interests of the Trusts
shareholders, on the one hand, and those of the Advisor, or any affiliated person of the Trust or the Advisor, on the other. In such event, provided that the Advisors Equity Investment Policy Oversight Committee, or a sub-committee thereof (the Oversight Committee), is aware of the real or potential conflict, if the matter to be voted on represents a material, non-routine matter
and if the Oversight Committee does not reasonably believe it is S-28
able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Oversight Committee may retain an independent
fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the Advisors clients. If the Advisor determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent
fiduciary, the Oversight Committee shall determine how to vote the proxy after consulting with the Advisors Portfolio Management Group and/or the Advisors Legal and Compliance Department and concluding that the vote cast is in its
clients best interest notwithstanding the conflict. A copy of the Closed-End Fund Proxy Voting Policy is included as Appendix B to this SAI. Information on how the Trust voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 will be available (i) at www.blackrock.com and (ii) on the SECs website at http://www.sec.gov. Codes of Ethics The Trust and the
Advisor have adopted codes of ethics pursuant to Rule 17j-1 under the Investment Company Act. These codes permit personnel subject to the codes to invest in securities, including securities that may be
purchased or held by the Trust. These codes may be obtained by calling the SEC at (202) 551-8090. These codes of ethics are available on the EDGAR Database on the SECs website (http://www.sec.gov), and
copies of these codes may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov. Other Information BlackRock, Inc. is
independent in ownership and governance, with no single majority stockholder and a majority of independent directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE Subject to policies established by the Board, the Advisor is primarily responsible for the
execution of the Trusts portfolio transactions and the allocation of brokerage. The Advisor does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for the Trust, taking into account such
factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, operational facilities of the firm and the firms risk and skill in positioning blocks of securities. While the Advisor
generally seeks reasonable trade execution costs, the Trust does not necessarily pay the lowest spread or commission available, and payment of the lowest commission or spread is not necessarily consistent with obtaining the best price and execution
in particular transactions. Subject to applicable legal requirements, the Advisor may select a broker based partly upon brokerage or research services provided to the Advisor and its clients, including the Trust. In return for such services, the
Advisor may cause the Trust to pay a higher commission than other brokers would charge if the Advisor determines in good faith that the commission is reasonable in relation to the services provided. In selecting brokers or dealers to execute portfolio transactions, the Advisor seeks to obtain the best price and most favorable execution for
the Trust, taking into account a variety of factors including: (i) the size, nature and character of the security or instrument being traded and the markets in which it is purchased or sold; (ii) the desired timing of the transaction;
(iii) the Advisors knowledge of the expected commission rates and spreads currently available; (iv) the activity existing and expected in the market for the particular security or instrument, including any anticipated execution
difficulties; (v) the full range of brokerage services provided; (vi) the brokers or dealers capital; (vii) the quality of research and research services provided; (viii) the reasonableness of the commission, dealer
spread or its equivalent for the specific transaction; and (ix) the Advisors knowledge of any actual or apparent operational problems of a broker or dealer. Section 28(e) of the Exchange Act (Section 28(e)) permits an investment adviser, under certain circumstances, to cause
an account to pay a broker or dealer a commission for effecting a transaction that exceeds the amount another broker or dealer would have charged for effecting the same transaction in recognition of the value of brokerage and research services
provided by that broker or dealer. This includes commissions paid on riskless principal transactions under certain conditions. Brokerage and research services include: (1) furnishing advice as to the value of securities, including pricing and
appraisal advice, credit analysis, risk measurement analysis, performance and other analysis, as well as the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities;
(2) furnishing analyses and reports concerning issuers, industries, S-29
securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental to securities
transactions (such as clearance, settlement, and custody). The Advisor believes that access to independent investment research is beneficial to its investment decision-making processes and, therefore, to the Trust. The Advisor may participate in client commission arrangements under which the Advisor may execute transactions through a broker-dealer and
request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to the Advisor. The Advisor believes that research services obtained through soft dollar or commission sharing
arrangements enhance its investment decision-making capabilities, thereby increasing the prospects for higher investment returns. The Advisor will engage only in soft dollar or commission sharing transactions that comply with the requirements of
Section 28(e). The Advisor regularly evaluates the soft dollar products and services utilized, as well as the overall soft dollar and commission sharing arrangements to ensure that trades are executed by firms that are regarded as best able to
execute trades for client accounts, while at the same time providing access to the research and other services the Advisor views as impactful to its trading results. The Advisor may utilize soft dollars and related services, including research (whether prepared by the broker-dealer or prepared by a
third-party and provided to the Advisor by the broker-dealer) and execution or brokerage services within applicable rules and the Advisors policies to the extent that such permitted services do not compromise the Advisors ability to seek
to obtain best execution. In this regard, the portfolio management investment and/or trading teams may consider a variety of factors, including the degree to which the broker-dealer: (a) provides access to company management; (b) provides
access to their analysts; (c) provides meaningful/insightful research notes on companies or other potential investments; (d) facilitates calls on which meaningful or insightful ideas about companies or potential investments are discussed;
(e) facilitates conferences at which meaningful or insightful ideas about companies or potential investments are discussed; or (f) provides research tools such as market data, financial analysis, and other third party related research and
brokerage tools that aid in the investment process. Research-oriented services for which the Advisor might pay with Trust commissions may
be in written form or through direct contact with individuals and may include information as to particular companies or industries and securities or groups of securities, as well as market, economic, or institutional advice and statistical
information, political developments and technical market information that assists in the valuation of investments. Except as noted immediately below, research services furnished by brokers may be used in servicing some or all client accounts and not
all services may be used in connection with the Trust or account that paid commissions to the broker providing such services. In some cases, research information received from brokers by investment company management personnel, or personnel
principally responsible for the Advisors individually managed portfolios, is not necessarily shared by and between such personnel. Any investment advisory or other fees paid by the Trust to the Advisor are not reduced as a result of the
Advisors receipt of research services. In some cases, the Advisor may receive a service from a broker that has both a research and a non-research use. When this occurs the Advisor
makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with
client commissions, while the Advisor will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Advisor faces a potential
conflict of interest, but the Advisor believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and
non-research uses. Payments of commissions to brokers who are affiliated persons of the Trust
will be made in accordance with Rule 17e-1 under the Investment Company Act. From time to time,
the Trust may purchase new issues of securities in a fixed price offering. In these situations, the broker may be a member of the selling group that will, in addition to selling securities, provide the Advisor with research services. The Financial
Industry Regulatory Authority, Inc. has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the broker will provide research credits in these situations at a rate that is higher than
that available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e). S-30
The Advisor does not consider sales of shares of the investment companies it advises as a factor
in the selection of brokers or dealers to execute portfolio transactions for the Trust; however, whether or not a particular broker or dealer sells shares of the investment companies advised by the Advisor neither qualifies nor disqualifies such
broker or dealer to execute transactions for those investment companies. The Trust anticipates that its brokerage transactions involving
foreign securities generally will be conducted primarily on the principal stock exchanges of the applicable country. Foreign equity securities may be held by the Trust in the form of depositary receipts, or other securities convertible into foreign
equity securities. Depositary receipts may be listed on stock exchanges, or traded in OTC markets in the United States or Europe, as the case may be. American Depositary Receipts, like other securities traded in the United States, will be subject to
negotiated commission rates. The Trust may invest in certain securities traded in the OTC market and intends to deal directly with the
dealers who make a market in the particular securities, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust and persons who are affiliated
with such affiliated persons are prohibited from dealing with the Trust as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the SEC. Since transactions in the OTC market usually
involve transactions with the dealers acting as principal for their own accounts, the Trust will not deal with affiliated persons in connection with such transactions. However, an affiliated person of the Trust may serve as its broker in OTC
transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions. OTC issues, including most
fixed-income securities such as corporate debt and U.S. Government securities, are normally traded on a net basis without a stated commission, through dealers acting for their own account and not as brokers. The Trust will primarily
engage in transactions with these dealers or deal directly with the issuer unless a better price or execution could be obtained by using a broker. Prices paid to a dealer with respect to both foreign and domestic securities will generally include a
spread, which is the difference between the prices at which the dealer is willing to purchase and sell the specific security at the time, and includes the dealers normal profit. Purchases of money market instruments by the Trust are made from dealers, underwriters and issuers. The Trust does not currently expect to
incur any brokerage commission expense on such transactions because money market instruments are generally traded on a net basis with dealers acting as principal for their own accounts without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriters concession or discount. When securities are purchased or sold directly from or to an issuer, no commissions or discounts are paid. The Advisor may seek to obtain an undertaking from issuers of commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from the Trust prior to maturity at their original cost plus interest (sometimes adjusted to reflect the actual maturity of the securities), if it believes that the Trusts anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that the Trust would incur a capital loss in liquidating commercial paper, especially if interest rates have risen since acquisition of such commercial paper. Investment decisions for the Trust and for other investment accounts managed by the Advisor are made independently of each other in light of
differing conditions. The Advisor allocates investments among client accounts in a fair and equitable manner. A variety of factors will be considered in making such allocations. These factors include: (i) investment objectives or strategies for
particular accounts, including sector, industry, country or region and capitalization weightings, (ii) tax considerations of an account, (iii) risk or investment concentration parameters for an account, (iv) supply or demand for a
security at a given price level, (v) size of available investment, (vi) cash availability and liquidity requirements for accounts, (vii) regulatory restrictions, (viii) minimum investment size of an account, (ix) relative
size of account, and (x) such other factors as may be approved by the Advisors general counsel. Moreover, investments may not be allocated to one client account over another based on any of the following considerations: (i) to favor
one client account at the expense of another, (ii) to S-31
generate higher fees paid by one client account over another or to produce greater performance compensation to the Advisor, (iii) to develop or enhance a relationship with a client or
prospective client, (iv) to compensate a client for past services or benefits rendered to the Advisor or to induce future services or benefits to be rendered to the Advisor, or (v) to manage or equalize investment performance among
different client accounts. Equity securities will generally be allocated among client accounts within the same investment mandate on a
pro rata basis. This pro-rata allocation may result in the Trust receiving less of a particular security than if pro-ration had not occurred. All allocations of equity
securities will be subject, where relevant, to share minimums established for accounts and compliance constraints. Initial public
offerings of securities may be over-subscribed and subsequently trade at a premium in the secondary market. When the Advisor is given an opportunity to invest in such an initial offering or new or hot issue, the supply of
securities available for client accounts is often less than the amount of securities the accounts would otherwise take. In order to allocate these investments fairly and equitably among client accounts over time, each portfolio manager or a member
of his or her respective investment team will indicate to the Advisors trading desk their level of interest in a particular offering with respect to eligible clients accounts for which that team is responsible. Initial public offerings
of U.S. equity securities will be identified as eligible for particular client accounts that are managed by portfolio teams who have indicated interest in the offering based on market capitalization of the issuer of the security and the investment
mandate of the client account and in the case of international equity securities, the country where the offering is taking place and the investment mandate of the client account. Generally, shares received during the initial public offering will be
allocated among participating client accounts within each investment mandate on a pro rata basis. In situations where supply is too limited to be allocated among all accounts for which the investment is eligible, portfolio managers may rotate such
investment opportunities among one or more accounts so long as the rotation system provides for fair access for all client accounts over time. Other allocation methodologies that are considered by the Advisor to be fair and equitable to clients may
be used as well. Because different accounts may have differing investment objectives and policies, the Advisor may buy and sell the same
securities at the same time for different clients based on the particular investment objective, guidelines and strategies of those accounts. For example, the Advisor may decide that it may be entirely appropriate for a growth fund to sell a security
at the same time a value fund is buying that security. To the extent that transactions on behalf of more than one client of the Advisor or its affiliates during the same period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price. For example, sales of a security by the Advisor on behalf of one or more of its clients may decrease the market price of such security, adversely impacting other of the Advisors
clients that still hold the security. If purchases or sales of securities arise for consideration at or about the same time that would involve the Trust or other clients or funds for which the Advisor or an affiliate act as investment manager,
transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. In certain instances, the Advisor may find it efficient for purposes of seeking to obtain best execution, to aggregate or bunch
certain contemporaneous purchases or sale orders of its advisory accounts. In general, all contemporaneous trades for client accounts under management by the same portfolio manager or investment team will be bunched in a single order if the trader
believes the bunched trade would provide each client with an opportunity to achieve a more favorable execution at a potentially lower execution cost. The costs associated with a bunched order will be shared pro rata among the clients in the bunched
order. Generally, if an order for a particular portfolio manager or management team is filled at several different prices through multiple trades, all accounts participating in the order will receive the average price except in the case of certain
international markets where average pricing is not permitted. While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Trust is concerned, in other cases it could be beneficial to the
Trust. Transactions effected by the Advisor on behalf of more than one of its clients during the same period may increase the demand for securities being purchased or the supply of securities being sold, causing an adverse effect on price. The
trader will give the bunched order to the broker dealer that the trader has identified as being able to provide the best execution of the order. Orders for purchase or sale of securities will be placed within a reasonable amount of time of the order
receipt and bunched orders will be kept bunched only long enough to execute the order. S-32
The Trust will not purchase securities during the existence of any underwriting or selling group
relating to such securities of which the Advisor or any affiliated person (as defined in the Investment Company Act) thereof is a member except pursuant to procedures adopted by the Board in accordance with Rule
10f-3 under the Investment Company Act. In no instance will portfolio securities be purchased from or sold to the Advisor or any affiliated person of the foregoing entities except as permitted by SEC exemptive
order or by applicable law. While the Trust generally does not expect to engage in trading for short-term gains, it will effect portfolio
transactions without regard to any holding period if, in the Advisors judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market, economic or
financial conditions. The portfolio turnover rate is calculated by dividing the lesser of the Trusts annual sales or purchases of portfolio securities (exclusive of purchases or sales of U.S. Government Securities and all other 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. A high rate of portfolio turnover results in certain tax consequences, such as increased capital gain
dividends and/or ordinary income dividends, and in correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by the Trust. Information about the brokerage commissions paid by the Trust, including commissions paid to affiliates, for the last three fiscal years, is
set forth in the following table: Fiscal Year Ended April 30, 2021 2020 2019 For the fiscal year ended April 30, 2021, the brokerage commissions paid to affiliates by the Trust
represented 0% of the aggregate brokerage commissions paid and involved 0% of the dollar amount of transactions involving payment of commissions during the year. The following table shows the dollar amount of brokerage commissions paid to brokers for providing third-party research services and the
approximate dollar amount of the transactions involved for the fiscal year ended April 30, 2021. The provision of third-party research services was not necessarily a factor in the placement of all brokerage business with such brokers. Amount of Commissions Paid to Brokers for Amount of Brokerage Transactions Involved $0 As of April 30, 2021, the Trust held no securities of its regular brokers or dealers (as
defined in Rule 10b-1 under the Investment Company Act) whose shares were purchased during the fiscal year ended April 30, 2021. Certain activities of BlackRock, Inc., the Advisor and the other subsidiaries of BlackRock, Inc. (collectively referred to in this section
as BlackRock) and their respective directors, officers or employees, with respect to the Trust and/or other accounts managed by BlackRock, may give rise to actual or perceived conflicts of interest such as those described below. BlackRock is one of the worlds largest asset management firms. BlackRock, its subsidiaries and their respective directors, officers and
employees, including the business units or entities and personnel who may be involved in the investment activities and business operations of the Trust, are engaged worldwide in businesses, including managing equities, fixed income securities, cash
and alternative investments, and other financial services, and have interests other than that of managing the Trust. These are considerations of which investors in the Trust should be aware, and which may cause conflicts of interest that could
disadvantage the Trust and its shareholders. These businesses and interests include potential multiple advisory, transactional, financial and other relationships with, or interests in companies and interests in securities or other instruments that
may be purchased or sold by the Trust. S-33
BlackRock has proprietary interests in, and may manage or advise with respect to, accounts or
funds (including separate accounts and other funds and collective investment vehicles) that have investment objectives similar to those of the Trust and/or that engage in transactions in the same types of securities, currencies and instruments as
the Trust. BlackRock is also a major participant in the global currency, equities, swap and fixed income markets, in each case, for the accounts of clients and, in some cases, on a proprietary basis. As such, BlackRock is or may be actively engaged
in transactions in the same securities, currencies, and instruments in which the Trust invests. Such activities could affect the prices and availability of the securities, currencies, and instruments in which the Trust invests, which could have an
adverse impact on the Trusts performance. Such transactions, particularly in respect of most proprietary accounts or client accounts, will be executed independently of the Trusts transactions and thus at prices or rates that may be more
or less favorable than those obtained by the Trust. When BlackRock seeks to purchase or sell the same assets for client accounts,
including the Trust, the assets actually purchased or sold may be allocated among the accounts on a basis determined in its good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets
purchased or sold for the Trust. In addition, transactions in investments by one or more other accounts managed by BlackRock may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Trust,
particularly, but not limited to, with respect to small capitalization, emerging market or less liquid strategies. This may occur with respect to BlackRock-advised accounts when investment decisions regarding the Trust are based on research or other
information that is also used to support decisions for other accounts. When BlackRock implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for the Trust, market
impact, liquidity constraints, or other factors could result in the Trust receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or the Trust could otherwise be disadvantaged. BlackRock
may, in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause the Trust to be unable to engage in certain activities, including purchasing or disposing of securities, when it might
otherwise be desirable for it to do so. Conflicts may also arise because portfolio decisions regarding the Trust may benefit other accounts managed by BlackRock. For example, the sale of a long position or establishment of a short position by the
Trust may impair the price of the same security sold short by (and therefore benefit) BlackRock or its other accounts or funds, and the purchase of a security or covering of a short position in a security by the Trust may increase the price of the
same security held by (and therefore benefit) BlackRock or its other accounts or funds. BlackRock, on behalf of other client accounts, on
the one hand, and the Trust, on the other hand, may invest in or extend credit to different parts of the capital structure of a single issuer. BlackRock may pursue rights, provide advice or engage in other activities, or refrain from pursuing
rights, providing advice or engaging in other activities, on behalf of other clients with respect to an issuer in which the Trust has invested, and such actions (or refraining from action) may have a material adverse effect on the Trust. In
situations in which clients of BlackRock (including the Trust) hold positions in multiple parts of the capital structure of an issuer, BlackRock may not pursue certain actions or remedies that may be available to the Trust, as a result of legal and
regulatory requirements or otherwise. BlackRock addresses these and other potential conflicts of interest based on the facts and circumstances of particular situations. For example, BlackRock may determine to rely on information barriers between
different business units or portfolio management teams. BlackRock may also determine to rely on the actions of similarly situated holders of loans or securities rather than, or in connection with, taking such actions itself on behalf of the Trust.
In addition, to the extent permitted by applicable law, the Trust may invest its assets in other funds advised by BlackRock, including
funds that are managed by one or more of the same portfolio managers, which could result in conflicts of interest relating to asset allocation, timing of Trust purchases and redemptions, and increased remuneration and profitability for BlackRock
and/or its personnel, including portfolio managers. In certain circumstances, BlackRock, on behalf of the Trust, may seek to buy from or
sell securities to another fund or account advised by BlackRock. BlackRock may (but is not required to) effect purchases and sales between BlackRock clients (cross trades), including the Trust, if BlackRock believes such transactions are
appropriate based on each partys investment objectives and guidelines, subject to applicable law and regulation. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit
BlackRocks decision to engage in these transactions for the Trust. BlackRock may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions. S-34
BlackRock and its clients may pursue or enforce rights with respect to an issuer in which the
Trust has invested, and those activities may have an adverse effect on the Trust. As a result, prices, availability, liquidity and terms of the Trusts investments may be negatively impacted by the activities of BlackRock or its clients, and
transactions for the Trust may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case. The results of the Trusts investment activities may differ significantly from the results achieved by BlackRock for its proprietary
accounts or other accounts (including investment companies or collective investment vehicles) that it manages or advises. It is possible that one or more accounts managed or advised by BlackRock and such other accounts will achieve investment
results that are substantially more or less favorable than the results achieved by the Trust. Moreover, it is possible that the Trust will sustain losses during periods in which one or more proprietary or other accounts managed or advised by
BlackRock achieve significant profits. The opposite result is also possible. From time to time, the Trust may be restricted from
purchasing or selling securities, or from engaging in other investment activities because of regulatory, legal or contractual requirements applicable to BlackRock or other accounts managed or advised by BlackRock, and/or the internal policies of
BlackRock designed to comply with such requirements. As a result, there may be periods, for example, when BlackRock will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock is
performing services or when position limits have been reached. For example, the investment activities of BlackRock for its proprietary accounts and accounts under its management may limit the investment opportunities for the Trust in certain
emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors. In connection with its management of the Trust, BlackRock may have access to certain fundamental analysis and proprietary technical models
developed by BlackRock. BlackRock will not be under any obligation, however, to effect transactions on behalf of the Trust in accordance with such analysis and models. In addition, BlackRock will not have any obligation to make available any
information regarding its proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Trust and it is not anticipated that BlackRock will have access to such
information for the purpose of managing the Trust. The proprietary activities or portfolio strategies of BlackRock, or the activities or strategies used for accounts managed by BlackRock or other client accounts could conflict with the transactions
and strategies employed by BlackRock in managing the Trust. The Trust may be included in investment models developed by BlackRock for use
by clients and financial advisors. To the extent clients invest in these investment models and increase the assets under management of the Trust, the investment management fee amounts paid by the Trust to BlackRock may also increase. The liquidity
of the Trust may be impacted by redemptions of the Trust by model-driven investment portfolios. In addition, certain principals and
certain employees of the Trusts investment adviser are also principals or employees of other business units or entities within BlackRock. As a result, these principals and employees may have obligations to such other business units or entities
or their clients and such obligations to other business units or entities or their clients may be a consideration of which investors in the Trust should be aware. BlackRock may enter into transactions and invest in securities, instruments and currencies on behalf of the Trust in which clients of
BlackRock, or, to the extent permitted by the SEC and applicable law, BlackRock, serves as the counterparty, principal or issuer. In such cases, such partys interests in the transaction will be adverse to the interests of the Trust, and such
party may have no incentive to assure that the Trust obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such investments by the Trust may enhance the profitability of
BlackRock. BlackRock may also create, write or issue derivatives for clients, the underlying securities, currencies or instruments of
which may be those in which the Trust invests or which may be based on the performance of the Trust. BlackRock has entered into an arrangement with Markit Indices Limited, the index provider for underlying
fixed- S-35
income indexes used by certain iShares ETFs, related to derivative fixed-income products that are based on such iShares ETFs. BlackRock will receive certain payments for licensing intellectual
property belonging to BlackRock and for facilitating provision of data in connection with such derivative products, which may include payments based on the trading volumes of, or revenues generated by, the derivative products. The Trust and other
accounts managed by BlackRock may from time to time transact in such derivative products where permitted by the Trusts investment strategy, which could contribute to the viability of such derivative products by making them more appealing to
funds and accounts managed by third parties, and in turn lead to increased payments to BlackRock. Trading activity in these derivative products could also potentially lead to greater liquidity for such products, increased purchase activity with
respect to these iShares ETFs and increased assets under management for BlackRock. The Trust may, subject to applicable law, purchase
investments that are the subject of an underwriting or other distribution by BlackRock and may also enter into transactions with other clients of BlackRock where such other clients have interests adverse to those of the Trust. At times, these
activities may cause business units or entities within BlackRock to give advice to clients that may cause these clients to take actions adverse to the interests of the Trust. To the extent such transactions are permitted, the Trust will deal with
BlackRock on an arms-length basis. To the extent authorized by applicable law, BlackRock may act as broker, dealer, agent, lender or
adviser or in other commercial capacities for the Trust. It is anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and
commitment fees, brokerage fees, other fees, compensation or profits, rates, terms and conditions charged by BlackRock will be in its view commercially reasonable, although BlackRock, including its sales personnel, will have an interest in obtaining
fees and other amounts that are favorable to BlackRock and such sales personnel, which may have an adverse effect on the Trust. Index based funds may use an index provider that is affiliated with another service provider of the Trust or BlackRock
that acts as a broker, dealer, agent, lender or in other commercial capacities for the Trust or BlackRock. Subject to applicable law,
BlackRock (and its personnel and other distributors) will be entitled to retain fees and other amounts that they receive in connection with their service to the Trust as broker, dealer, agent, lender, adviser or in other commercial capacities. No
accounting to the Trust or its shareholders will be required, and no fees or other compensation payable by the Trust or its shareholders will be reduced by reason of receipt by BlackRock of any such fees or other amounts. When BlackRock acts as broker, dealer, agent, adviser or in other commercial capacities in relation to the Trust, BlackRock may take
commercial steps in its own interests, which may have an adverse effect on the Trust. The Trust will be required to establish business
relationships with its counterparties based on the Trusts own credit standing. BlackRock will not have any obligation to allow its credit to be used in connection with the Trusts establishment of its business relationships, nor is it
expected that the Trusts counterparties will rely on the credit of BlackRock in evaluating the Trusts creditworthiness. BlackRock Investment Management, LLC (BIM), an affiliate of BlackRock, pursuant to SEC exemptive relief, acts as securities
lending agent to, and receives a share of securities lending revenues from, the Trust. BIM may receive compensation for managing the reinvestment of the cash collateral from securities lending. There are potential conflicts of interests in managing
a securities lending program, including but not limited to: (i) BIM as securities lending agent may have an incentive to increase or decrease the amount of securities on loan or to lend particular securities in order to generate additional
risk-adjusted revenue for BIM and its affiliates; and (ii) BIM as securities lending agent may have an incentive to allocate loans to clients that would provide more revenue to BIM. As described further below, BIM seeks to mitigate this
conflict by providing its securities lending clients with equal lending opportunities over time in order to approximate pro rata allocation. As part of its securities lending program, BlackRock indemnifies certain clients and/or funds against a shortfall in collateral in the event
of borrower default. BlackRock calculates, on a regular basis, its potential dollar exposure to the risk of collateral shortfall upon counterparty default (shortfall risk) under the securities lending program for both indemnified and non-indemnified clients. On a periodic basis, BlackRock also determines the maximum amount of potential indemnified shortfall risk arising from securities lending activities (indemnification exposure
limit) and the maximum amount of counterparty-specific credit exposure (credit limits) BlackRock is willing to S-36
assume as well as the programs operational complexity. BlackRock oversees the risk model that calculates projected shortfall values using loan-level factors such as loan and collateral type
and market value as well as specific borrower counterparty credit characteristics. When necessary, BlackRock may further adjust other securities lending program attributes by restricting eligible collateral or reducing counterparty credit limits. As
a result, the management of the indemnification exposure limit may affect the amount of securities lending activity BlackRock may conduct at any given point in time and impact indemnified and non-indemnified
clients by reducing the volume of lending opportunities for certain loans (including by asset type, collateral type and/or revenue profile). BlackRock uses a predetermined systematic process in order to approximate pro rata allocation over time. In order to allocate a loan to a
portfolio: (i) BlackRock as a whole must have sufficient lending capacity pursuant to the various program limits (i.e. indemnification exposure limit and counterparty credit limits); (ii) the lending portfolio must hold the asset at the time a
loan opportunity arrives; and (iii) the lending portfolio must also have enough inventory, either on its own or when aggregated with other portfolios into one single market delivery, to satisfy the loan request. In doing so, BlackRock seeks to
provide equal lending opportunities for all portfolios, independent of whether BlackRock indemnifies the portfolio. Equal opportunities for lending portfolios does not guarantee equal outcomes. Specifically, short and long-term outcomes for
individual clients may vary due to asset mix, asset/liability spreads on different securities, and the overall limits imposed by the firm. Purchases and sales of securities and other assets for the Trust may be bunched or aggregated with orders for other BlackRock client accounts,
including with accounts that pay different transaction costs solely due to the fact that they have different research payment arrangements. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for
different accounts are made separately, or if they determine that bunching or aggregating is not practicable or required, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities
purchased or sold. When this occurs, the various prices may be averaged, and the Trust will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Trust. In
addition, under certain circumstances, the Trust will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order. As discussed in the section below entitled Portfolio Transactions and Brokerage in this SAI, BlackRock, unless prohibited by
applicable law, may cause the Trust or account to pay a broker or dealer a commission for effecting a transaction that exceeds the amount another broker or dealer would have charged for effecting the same transaction in recognition of the value of
brokerage and research services provided by that broker or dealer. Under MiFID II, EU investment managers, including BlackRock International Limited (BIL) which acts as a sub-adviser to certain
BlackRock-advised funds, pay for research from brokers and dealers directly out of their own resources, rather than through client commissions. Subject to applicable law, BlackRock may select brokers that furnish BlackRock, the Trust, other BlackRock client accounts or personnel,
directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRocks view, appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures,
fixed-price offerings and OTC transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis;
trade industry seminars; computer data bases; research-oriented software and other services and products. Research or other services
obtained in this manner may be used in servicing any or all of the Trust and other BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or
other service arrangements. Such products and services may disproportionately benefit other BlackRock client accounts relative to the Trust based on the amount of brokerage commissions paid by the Trust and such other BlackRock client accounts. For
example, research or other services that are paid for through one clients commissions may not be used in managing that clients account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate
benefits, of economies of scale or price discounts in connection with products and services that may be provided to the Trust and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for
those products and services itself. S-37
BlackRock, unless prohibited by applicable law, may endeavor to execute trades through brokers
who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time
choose not to engage in the above described arrangements to varying degrees. BlackRock, unless prohibited by applicable law, may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer
and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts
related to traditional soft dollars may exist. BlackRock may utilize certain electronic crossing networks (ECNs) (including,
without limitation, ECNs in which BlackRock has an investment or other interest, to the extent permitted by applicable law) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services,
including access fees and transaction fees. The transaction fees, which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the
securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing transactions on behalf of clients, including the Trust. In certain circumstances, ECNs may offer volume discounts that will reduce the
access fees typically paid by BlackRock. BlackRock will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions. BlackRock owns a minority interest in, and is a member of, Members Exchange (MEMX), a newly created U.S. stock exchange.
Transactions for the Trust may be executed on MEMX if third party brokers select MEMX as the appropriate venue for execution of orders placed by BlackRock traders on behalf of client portfolios. BlackRock has adopted policies and procedures designed to prevent conflicts of interest from influencing proxy voting decisions that it makes
on behalf of advisory clients, including the Trust, and to help ensure that such decisions are made in accordance with BlackRocks fiduciary obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures,
actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock, provided that BlackRock believes such voting decisions to be in accordance with its
fiduciary obligations. For a more detailed discussion of these policies and procedures, see Appendix B. It is also possible that, from
time to time, BlackRock may, subject to compliance with applicable law, purchase and hold shares of the Trust. Increasing the Trusts assets may enhance investment flexibility and diversification and may contribute to economies of scale that
tend to reduce the Trusts expense ratio. BlackRock reserves the right, subject to compliance with applicable law, to redeem at any time some or all of the shares of the Trust acquired for its own accounts. A large redemption of shares of the
Trust by BlackRock could significantly reduce the asset size of the Trust, which might have an adverse effect on the Trusts investment flexibility, portfolio diversification and expense ratio. BlackRock seeks to consider the effect of
redemptions on the Trust and other shareholders in deciding whether to redeem its shares but is not obligated to do so and may elect not to do so. It is possible that the Trust may invest in securities of, or engage in transactions with, companies in which BlackRock has significant debt
or equity investments or other interests. The Trust may also invest in issuances (such as structured notes) by entities for which BlackRock provides and is compensated for cash management services relating to the proceeds from the sale of such
issuances. In making investment decisions for the Trust, BlackRock is not permitted to obtain or use material non-public information acquired by any unit of BlackRock, in the course of these activities. In
addition, from time to time, the activities of BlackRock may limit the Trusts flexibility in purchases and sales of securities. As indicated below, BlackRock may engage in transactions with companies in which BlackRock-advised funds or other
clients of BlackRock have an investment. BlackRock and Chubb Limited (Chubb), a public company whose securities are held by
BlackRock-advised funds and other accounts, partially funded the creation of a re-insurance company (Re Co) pursuant to which each has approximately a 9.9% ownership interest and each has
representation on the board of directors. Certain employees and executives of BlackRock have a less than 1⁄2 of 1% ownership interest in Re Co. BlackRock manages
the investment portfolio of Re Co, which is held in a wholly-owned subsidiary. Re Co participates as a reinsurer with reinsurance contracts underwritten by subsidiaries of Chubb. S-38
BlackRock and its personnel and other financial service providers may have interests in promoting
sales of the Trust. With respect to BlackRock and its personnel, the remuneration and profitability relating to services to and sales of the Trust or other products may be greater than remuneration and profitability relating to services to and sales
of certain funds or other products that might be provided or offered. BlackRock and its sales personnel may directly or indirectly receive a portion of the fees and commissions charged to the Trust or their shareholders. BlackRock and its advisory
or other personnel may also benefit from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services, and the remuneration and profitability to BlackRock and such personnel resulting from
transactions on behalf of or management of the Trust may be greater than the remuneration and profitability resulting from other funds or products. BlackRock may provide valuation assistance to certain clients with respect to certain securities or other investments and the valuation
recommendations made for such clients accounts may differ from the valuations for the same securities or investments assigned by the Trusts pricing vendors, especially if such valuations are based on broker-dealer quotes or other data
sources unavailable to the Trusts pricing vendors. While BlackRock will generally communicate its valuation information or determinations to the Trusts pricing vendors and/or fund accountants, there may be instances where the
Trusts pricing vendors or fund accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by BlackRock. As disclosed in more detail in Net Asset Value in the Prospectus, when market quotations are not readily available or are believed
by BlackRock to be unreliable, the Trusts investments are valued at fair value by BlackRocks Valuation Committee (the Valuation Committee), in accordance with policies and procedures approved by the Trusts Board of
Trustees (the Valuation Procedures). When determining a fair value price, the Valuation Committee seeks to determine the price that the Trust might reasonably expect to receive from the current sale of that asset or liability
in an arms-length transaction. The price generally may not be determined based on what the Trust might reasonably expect to receive for selling an asset or liability at a later time or if it holds the
asset or liability to maturity. While fair value determinations will be based upon all available factors that BlackRock deems relevant at the time of the determination, and may be based on analytical values determined by BlackRock using proprietary
or third party valuation models, fair value represents only a good faith approximation of the value of an asset or liability. The fair value of one or more assets or liabilities may not, in retrospect, be the price at which those assets or
liabilities could have been sold during the period in which the particular fair values were used in determining the Trusts NAV. As a result, the Trusts sale or redemption of its shares at NAV, at a time when a holding or holdings are
valued by the Valuation Committee at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders and may affect the amount of revenue received by BlackRock with respect to services for which it receives
an asset-based fee. To the extent permitted by applicable law, the Trust may invest all or some of its short term cash investments in any
money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, the Trust, to the extent permitted by the Investment Company Act, may pay its share of expenses of a money market fund or
other similarly-managed private fund in which it invests, which may result in the Trust bearing some additional expenses. BlackRock and
its directors, officers and employees, may buy and sell securities or other investments for their own accounts and may have conflicts of interest with respect to investments made on behalf of the Trust. As a result of differing trading and
investment strategies or constraints, positions may be taken by directors, officers and employees of BlackRock that are the same, different from or made at different times than positions taken for the Trust. To lessen the possibility that the Trust
will be adversely affected by this personal trading, the Trust and the Advisor each have adopted a Code of Ethics in compliance with Section 17(j) of the Investment Company Act that restricts securities trading in the personal accounts of
investment professionals and others who normally come into possession of information regarding the Trusts portfolio transactions. Each Code of Ethics is also available on the EDGAR Database on the SECs Internet site at
http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov. BlackRock will not purchase securities or other property from, or sell securities or other property to, the Trust, except that the Trust may
in accordance with rules or guidance adopted under the Investment Company Act engage in transactions with another BlackRock-advised fund or accounts that are affiliated with the Trust as a result of S-39
common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Trust and/or BlackRock by the Commission. These transactions would be effected in circumstances
in which BlackRock determined that it would be appropriate for the Trust to purchase and another client of BlackRock to sell, or the Trust to sell and another client of BlackRock to purchase, the same security or instrument on the same day. From
time to time, the activities of the Trust may be restricted because of regulatory requirements applicable to BlackRock and/or BlackRocks internal policies designed to comply with, limit the applicability of, or otherwise relate to such
requirements. A client not advised by BlackRock would not be subject to some of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may otherwise restrict or limit its advice in
certain securities or instruments issued by or related to companies for which BlackRock is performing advisory or other services or has proprietary positions. For example, when BlackRock is engaged to provide advisory or risk management services for
a company, BlackRock may be prohibited from or limited in purchasing or selling securities of that company on behalf of the Trust, particularly where such services result in BlackRock obtaining material
non-public information about the company (e.g., in connection with participation in a creditors committee). Similar situations could arise if personnel of BlackRock serve as directors of companies the
securities of which the Trust wishes to purchase or sell. However, if permitted by applicable law, and where consistent with BlackRocks policies and procedures (including the necessary implementation of appropriate information barriers), the
Trust may purchase securities or instruments that are issued by such companies, are the subject of an advisory or risk management assignment by BlackRock, or where personnel of BlackRock are directors or officers of the issuer. The investment activities of BlackRock for its proprietary accounts and for client accounts may also limit the investment strategies and
rights of the Trust. For example, in certain circumstances where the Trust invests in securities issued by companies that operate in certain regulated industries, in certain emerging or international markets, or are subject to corporate or
regulatory ownership restrictions, or invest in certain futures and derivative transactions, there may be limits on the aggregate amount invested by BlackRock for their proprietary accounts and for client accounts (including the Trust) that may not
be exceeded without the grant of a license or other regulatory or corporate consent, or, if exceeded, may cause BlackRock, the Trust or other client accounts to suffer disadvantages or business restrictions. If certain aggregate ownership thresholds
are reached or certain transactions undertaken, the ability of BlackRock on behalf of clients (including the Trust) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or
otherwise impaired. As a result, BlackRock on behalf of its clients (including the Trust) may limit purchases, sell existing investments, or otherwise restrict, forgo or limit the exercise of rights (including transferring, outsourcing or limiting
voting rights or forgoing the right to receive dividends) when BlackRock, in its sole discretion, deems it appropriate in light of potential regulatory or other restrictions on ownership or other consequences resulting from reaching investment
thresholds. In those circumstances where ownership thresholds or limitations must be observed, BlackRock seeks to allocate limited
investment opportunities equitably among clients (including the Trust), taking into consideration benchmark weight and investment strategy. When ownership in certain securities nears an applicable threshold, BlackRock may limit purchases in such
securities to the issuers weighting in the applicable benchmark used by BlackRock to manage the Trust. If client (including Trust) holdings of an issuer exceed an applicable threshold and BlackRock is unable to obtain relief to enable the
continued holding of such investments, it may be necessary to sell down these positions to meet the applicable limitations. In these cases, benchmark overweight positions will be sold prior to benchmark positions being reduced to meet applicable
limitations. In addition to the foregoing, other ownership thresholds may trigger reporting requirements to governmental and regulatory
authorities, and such reports may entail the disclosure of the identity of a client or BlackRocks intended strategy with respect to such security or asset. BlackRock may maintain securities indices. To the extent permitted by applicable laws, the Trust may seek to license and use such indices as
part of their investment strategy. Index based funds that seek to track the performance of securities indices also may use the name of the index or index provider in the fund name. Index providers, including BlackRock (to the extent permitted by
applicable law), may be paid licensing fees for use of their index or index name. BlackRock is not obligated to license its indices to the Trust and the Trust is under no obligation to use BlackRock indices. The Trust cannot be assured that the
terms of any index licensing agreement with BlackRock will be as favorable as those terms offered to other licensees. S-40
BlackRock may not serve as an Authorized Participant in the creation and redemption of
BlackRock-advised ETFs. The custody arrangement described in Management and Other Service Arrangements may lead to potential
conflicts of interest with BlackRock where BlackRock has agreed to waive fees and/or reimburse ordinary operating expenses in order to cap expenses of the Trust or where BlackRock charges a unitary management fee. This is because the custody
arrangements with certain of the Trusts custodian may have the effect of reducing custody fees when the Trust leaves cash balances uninvested. When a Trusts actual operating expense ratio exceeds a stated cap, a reduction in custody fees
reduces the amount of waivers and/or reimbursements BlackRock would be required to make to the Trust. This could be viewed as having the potential to provide BlackRock an incentive to keep high positive cash balances for the Trust in order to offset
fund custody fees that BlackRock might otherwise reimburse or pay. However, BlackRocks portfolio managers do not intentionally keep uninvested balances high, but rather make investment decisions that they anticipate will be beneficial to fund
performance. BlackRock may enter into contractual arrangements with third-party service providers to the Trust (e.g., custodians,
administrators and index providers) pursuant to which BlackRock receives fee discounts or concessions in recognition of BlackRocks overall relationship with such service providers. To the extent that BlackRock is responsible for paying these
service providers out of its management fee, the benefits of any such fee discounts or concessions may accrue, in whole or in part, to BlackRock. BlackRock owns or has an ownership interest in certain trading, portfolio management, operations and/or information systems used by Trust
service providers. These systems are, or will be, used by a Trust service provider in connection with the provision of services to accounts managed by BlackRock and funds managed and sponsored by BlackRock, including the Trust, that engage the
service provider (typically the custodian). The Trusts service provider remunerates BlackRock for the use of the systems. A Trust service providers payments to BlackRock for the use of these systems may enhance the profitability of
BlackRock. BlackRocks receipt of fees from a service provider in connection with the use of systems provided by BlackRock may
create an incentive for BlackRock to recommend that the Trust enter into or renew an arrangement with the service provider. In
recognition of a BlackRock clients overall relationship with BlackRock, BlackRock may offer special pricing arrangements for certain services provided by BlackRock. Any such special pricing arrangements will not affect Trust fees and expenses
applicable to such clients investment in the Trust. Present and future activities of BlackRock and its directors, officers and
employees, in addition to those described in this section, may give rise to additional conflicts of interest. Common Shares The Trust intends to hold
annual meetings of shareholders so long as the common shares are listed on a national securities exchange and such meetings are required as a condition to such listing. Preferred Shares The Agreement and
Declaration of Trust provides that the Board may authorize and issue preferred shares, with rights as determined by the Board, by action of the Board without the approval of the holders of the common shares. Holders of common shares have no
preemptive right to purchase any preferred shares that might be issued. The Trust is authorized to issue an unlimited number of preferred shares of beneficial interest, par value $0.001 per share. The Trust has issued 2,708 Series W-7 Variable Rate Muni Term Preferred Shares (previously defined as VMTP Shares). Distribution Preference and Liquidation Preference. The VMTP Shares rank prior to the Trusts common shares as to the payment of
dividends by the Trust, and distribution of assets upon dissolution or liquidation of the Trust. The S-41
Investment Company Act prohibits the declaration of any dividend on the Trusts common shares or the repurchase of the Trusts common shares if the Trust fails to maintain asset
coverage of at least 200% of the liquidation preference of the Trusts outstanding VMTP Shares. In addition, pursuant to the Trusts Articles Supplementary governing the VMTP Shares (the Articles Supplementary), the Trust is
restricted from declaring and paying dividends on classes of shares ranking junior to or on parity with the VMTP Shares or repurchasing such shares if the Trust fails to declare and pay dividends on the VMTP Shares, redeem any VMTP Shares required
to be redeemed under the Articles Supplementary or comply with the basic maintenance amount requirement of the ratings agencies rating the VMTP Shares. Voting Rights. The holders of the VMTP Shares have voting rights equal to the voting rights of the holders of the Trusts common
shares (one vote per share) and will vote together with holders of the common shares (one vote per share) as a single class on certain matters. However, the holders of the VMTP Shares, voting as a separate class, are also entitled to elect two
trustees to the Board of the Trust. Holders of VMTP Shares are also entitled to elect the Trusts full Board if dividends on the VMTP Shares are not paid for a period of two years. Holders of VMTP Shares are also generally entitled to a
separate class vote to amend the Articles Supplementary. In addition, the Investment Company Act requires the approval of the holders of a majority of any outstanding VMTP Shares, voting as a separate class, to (a) adopt any plan of
reorganization that would adversely affect the VMTP Shares, (b) change the Trusts sub-classification as a closed-end investment company or change its
fundamental investment restrictions or (c) change its business so as to cease to be an investment company. Redemption, Purchase
and Sale of VMTP Shares. The VMTP Shares may be redeemed, in whole or in part, at any time at the option of the Trust. The redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends
and, applicable redemption premiums. If the Trust redeems the VMTP Shares prior to the term redemption date of the VMTP Shares and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then rating the VMTP
Shares, then such redemption may be subject to a prescribed redemption premium (up to 2% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining until the term redemption date of the VMTP Shares, subject
to certain exceptions for redemptions that are required to comply with minimum asset coverage requirements. The Trust is required to redeem its VMTP Shares on the term redemption date of the VMTP Shares, unless earlier redeemed or repurchased or
unless extended. Such term redemption date is July 2, 2023, unless extended. Six months prior to the term redemption date of the VMTP Shares, the Trust is required to begin to segregate liquid assets with its custodian to fund the redemption.
In addition, the Trust is required to redeem certain of its outstanding VMTP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements. Other Shares The Board (subject to
applicable law and the Agreement and Declaration of Trust) may authorize an offering, without the approval of the holders of common shares and, depending on their terms, any preferred shares outstanding at that time, of other classes of shares, or
other classes or series of shares, as they determine to be necessary, desirable or appropriate, having such terms, rights, preferences, privileges, limitations and restrictions as the Board sees fit. The Trust currently does not expect to issue any
other classes of shares, or series of shares, except for the common shares and VMTP Shares. The Trust is a closed-end management investment company and as such its
shareholders will not have the right to cause the Trust to redeem their shares. Instead, the Trusts common shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn
affected by expenses), NAV, call protection for portfolio securities, dividend stability, liquidity, relative demand for and supply of the common shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may frequently trade at prices lower than NAV, the Board may consider action that might be taken to reduce or eliminate any material discount from NAV in respect of common shares, which
may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares, or the conversion of the Trust to an open-end investment company. The
Board may decide not to take any of these actions. In addition, there can be no assurance that share repurchases or tender offers, if undertaken, will reduce market discount. S-42
Notwithstanding the foregoing, at any time when the Trust has preferred shares outstanding, the
Trust may not purchase, redeem or otherwise acquire any of its common shares unless (1) all accrued preferred share dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the NAV of the Trusts
portfolio (determined after deducting the acquisition price of the common shares) is at least 200% of the liquidation value of any outstanding preferred shares (expected to equal the original purchase price per share plus any accrued and unpaid
dividends thereon). Any service fees incurred in connection with any tender offer made by the Trust will be borne by the Trust and will not reduce the stated consideration to be paid to tendering shareholders. Subject to its investment restrictions, the Trust may borrow to finance the repurchase of shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash by the Trust in anticipation of share repurchases or tender offers will reduce the Trusts net income. Any share repurchase, tender offer or borrowing that might be
approved by the Board would have to comply with the Exchange Act, the Investment Company Act and the rules and regulations thereunder. Although the decision to take action in response to a discount from NAV will be made by the Board at the time it considers such issue, it is
the Boards present policy, which may be changed by the Board, not to authorize repurchases of common shares or a tender offer for such shares if: (i) such transactions, if consummated, would (a) result in the delisting of the common
shares from the NYSE, or (b) impair the Trusts status as a RIC under the Code, (which would make the Trust a taxable entity, causing the Trusts income to be taxed at the corporate level in addition to the taxation of shareholders
who receive dividends from the Trust) or as a registered closed-end investment company under the Investment Company Act; (ii) the Trust would not be able to liquidate portfolio securities in an orderly
manner and consistent with the Trusts investment objective and policies in order to repurchase shares; or (iii) there is, in the Boards judgment, any (a) material legal action or proceeding instituted or threatened challenging
such transactions or otherwise materially adversely affecting the Trust, (b) general suspension of or limitation on prices for trading securities on the NYSE, (c) declaration of a banking moratorium by federal or state authorities or any
suspension of payment by United States or New York banks, (d) material limitation affecting the Trust or the issuers of its portfolio securities by federal or state authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (f) other event or condition which would have a material adverse
effect (including any adverse tax effect) on the Trust or its shareholders if shares were repurchased. The Board may in the future modify these conditions in light of experience. The repurchase by the Trust of its shares at prices below NAV will result in an increase in the NAV of those shares that remain outstanding.
However, there can be no assurance that share repurchases or tender offers at or below NAV will result in the Trusts common shares trading at a price equal to their NAV. Nevertheless, the fact that the Trusts common shares may be the
subject of repurchases or tender offers from time to time, or that the Trust may be converted to an open-end investment company, may reduce any spread between market price and NAV that might otherwise exist.
In addition, a purchase by the Trust of its common shares will decrease the Trusts net assets which would likely have the effect of
increasing the Trusts expense ratio. Any purchase by the Trust of its common shares at a time when preferred shares are outstanding will increase the leverage applicable to the outstanding common shares then remaining. Before deciding whether to take any action if the common shares trade below NAV, the Board would likely consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Trusts portfolio, the impact of any action that might be taken on the Trust or its shareholders and market considerations. Based on these considerations, even if the
Trusts common shares should trade at a discount, the Board may determine that, in the interest of the Trust and its shareholders, no action should be taken. The following is a description of certain U.S. federal income tax consequences to a shareholder of acquiring, holding and disposing of common
shares of the Trust. Except as otherwise noted, this discussion assumes you are a taxable U.S. holder (as defined below). This discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the Code), the
regulations promulgated thereunder and judicial and administrative S-43
authorities, all of which are subject to change or differing interpretations by the courts or the Internal Revenue Service, possibly with retroactive effect. No attempt is made to present a
detailed explanation of all U.S. federal income tax concerns affecting the Trust and its shareholders, and the discussions set forth here do not constitute tax advice. This discussion assumes that investors hold common shares of the Trust as capital
assets for U.S. federal income tax purposes(generally, assets held for investment). The Trust has not sought and will not seek any ruling from the Internal Revenue Service regarding any matters discussed herein. No assurance can be given that the
Internal Revenue Service would not assert, or that a court would not sustain, a position contrary to those set forth below. This summary does not discuss any aspects of non-U.S., state or local tax.
Prospective investors must consult their own tax advisers as to the U.S. federal income tax consequences (including the alternative minimum tax consequences) of acquiring, holding and disposing of the Trusts common shares, as well as the
effects of state, local and non-U.S. tax laws. In addition, no attempt is made to address tax
considerations applicable to an investor with a special tax status, such as a financial institution, REIT, insurance company, regulated investment company, individual retirement account, other tax-exempt
organization, dealer in securities or currencies, person holding shares of the Trust as part of a hedging, integrated, conversion or straddle transaction, trader in securities that has elected the mark-to-market method of accounting for its securities, U.S. holder (as defined below) whose functional currency is not the U.S. dollar, investor with applicable financial statements within the
meaning of Section 451(b) of the Code, or non-U.S. investor. Furthermore, this discussion does not reflect possible application of the alternative minimum tax. A U.S. holder is a beneficial owner that is for U.S. federal income tax purposes: a citizen or individual resident of the United States (including certain former citizens and former long-term
residents); a corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized
in or under the laws of the United States or any state thereof or the District of Columbia; an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust with respect to which a court within the United States is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of its substantial decisions or the trust has made a valid election in effect under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income
tax purposes, whose status as a U.S. person is not overridden by an applicable tax treaty. Taxation of the Trust The Trust intends to elect to be treated and to qualify to be taxed as a RIC under Subchapter M of the Code. In order to qualify as a RIC, the
Trust must, among other things, satisfy certain requirements relating to the sources of its income, diversification of its assets, and distribution of its income to its shareholders. First, the Trust must derive at least 90% of its annual gross
income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies, or other income (including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock, securities or currencies, or net income derived from interests in qualified publicly traded partnerships (as defined in the Code) (the 90% gross income
test). Second, the Trust must diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets consists of cash, cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of the Trusts total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the market value of the total assets is invested in the securities (other than U.S. Government securities and securities of other RICs) of any one issuer, any two or more issuers controlled by the
Trust and engaged in the same, similar or related trades or businesses, or any one or more qualified publicly traded partnerships. S-44
As long as the Trust qualifies as a RIC, the Trust will generally not be subject to
corporate-level U.S. federal income tax on income and gains that it distributes each taxable year to its shareholders, provided that in such taxable year it distributes at least 90% of the sum of (i) its net
tax-exempt interest income, if any, and (ii) its investment company taxable income (which includes, among other items, dividends, taxable interest, taxable original issue discount and market
discount income, income from securities lending, net short-term capital gain in excess of net long-term capital loss, and any other taxable income other than net capital gain (as defined below) and is reduced by deductible expenses)
determined without regard to the deduction for dividends paid. The Trust may retain for investment its net capital gain (which consists of the excess of its net long-term capital gain over its net short-term capital loss). However, if the Trust
retains any net capital gain or any investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. The Code imposes a 4% nondeductible excise tax on the Trust to the extent the Trust does not distribute by the end of any calendar year at
least the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii) 98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Trusts fiscal year). In addition, the minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, from the previous year. For purposes of the excise tax, the Trust will be deemed to have distributed any income on which
it paid U.S. federal income tax. While the Trust intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% nondeductible excise tax, there can be no assurance that sufficient amounts of the
Trusts taxable income and capital gain will be distributed to entirely avoid the imposition of the excise tax. In that event, the Trust will be liable for the excise tax only on the amount by which it does not meet the foregoing distribution
requirement. If in any taxable year the Trust should fail to qualify under Subchapter M of the Code for tax treatment as a RIC, the Trust
would incur a regular corporate U.S. federal income tax upon all of its taxable income for that year, and all distributions to its shareholders (including distributions of net capital gain) would be taxable to shareholders as ordinary dividend
income for U.S. federal income tax purposes to the extent of the Trusts earnings and profits. Provided that certain holding period and other requirements were met, such dividends would be eligible (i) to be treated as qualified dividend
income in the case of shareholders taxed as individuals and (ii) for the dividends received deduction in the case of corporate shareholders. In addition, to qualify again to be taxed as a RIC in a subsequent year, the Trust would be
required to distribute to shareholders its earnings and profits attributable to non-RIC years. In addition, if the Trust failed to qualify as a RIC for a period greater than two taxable years, then, in order
to qualify as a RIC in a subsequent year, the Trust would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss
that would have been realized if the Trust had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years. The remainder of this discussion assumes that the Trust qualifies for taxation as a RIC. The Trusts Investments Certain of
the Trusts investment practices are subject to special and complex U.S. federal income tax provisions (including mark-to-market, constructive sale, straddle, wash
sale, short sale and other rules) that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gains or qualified dividend income into
higher taxed short-term capital gains or ordinary income, (iii) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (iv) cause the Trust to recognize income or gain without a corresponding
receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions and (vii) produce income that
will not be qualified income for purposes of the 90% annual gross income requirement described above. These U.S. federal income tax provisions could therefore affect the amount, timing and character of distributions to common
shareholders. The Trust intends to monitor its transactions and may make certain tax elections and may be required to dispose of securities to mitigate the effect of these provisions and prevent disqualification of the Trust as a RIC. Additionally,
the Trust may be required to limit its activities in derivative instruments in order to enable it to maintain its RIC status. S-45
The Trust may invest a portion of its net assets in below investment grade securities, commonly
known as junk securities. Investments in these types of securities may present special tax issues for the Trust. U.S. federal income tax rules are not entirely clear about issues such as when the Trust may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income and whether
modifications or exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues could affect the Trusts ability to distribute sufficient income to preserve its status as a RIC or to avoid the imposition of
U.S. federal income or excise tax. Certain debt securities acquired by the Trust may be treated as debt securities that were originally
issued at a discount. Generally, the amount of the original issue discount is treated as interest income and is included in taxable income (and required to be distributed by the Trust in order to qualify as a RIC and avoid U.S. federal income tax or
the 4% excise tax on undistributed income) over the term of the security, even though payment of that amount is not received until a later time, usually when the debt security matures. If the Trust purchases a debt security on a secondary market at a price lower than its adjusted issue price, the excess of the adjusted issue
price over the purchase price is market discount. Unless the Trust makes an election to accrue market discount on a current basis, generally, any gain realized on the disposition of, and any partial payment of principal on, a debt
security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the accrued market discount on the debt security. Market discount generally accrues in equal daily installments.
If the Trust ultimately collects less on the debt instrument than its purchase price plus the market discount previously included in income, the Trust may not be able to benefit from any offsetting loss deductions. The Trust may invest in preferred securities or other securities the U.S. federal income tax treatment of which may not be clear or may be
subject to recharacterization by the Internal Revenue Service. To the extent the tax treatment of such securities or the income from such securities differs from the tax treatment expected by the Trust, it could affect the timing or character of
income recognized by the Trust, potentially requiring the Trust to purchase or sell securities, or otherwise change its portfolio, in order to comply with the tax rules applicable to RICs under the Code. Gain or loss on the sale of securities by the Trust will generally be long-term capital gain or loss if the securities have been held by the
Trust for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss. Because the Trust may invest in foreign securities, its income from such securities may be subject to
non-U.S. taxes. Foreign currency gain or loss on foreign currency exchange contracts, non-U.S. dollar-denominated securities contracts, and non-U.S. dollar-denominated futures contracts, options and forward contracts that are not section 1256 contracts (as
defined below) generally will be treated as ordinary income and loss. Income from options on individual securities written by the Trust
will generally not be recognized by the Trust for tax purposes until an option is exercised, lapses or is subject to a closing transaction (as defined by applicable regulations) pursuant to which the Trusts obligations with respect
to the option are otherwise terminated. If the option lapses without exercise, the premiums received by the Trust from the writing of such options will generally be characterized as short-term capital gain. If the Trust enters into a closing
transaction, the difference between the premiums received and the amount paid by the Trust to close out its position will generally be treated as short-term capital gain or loss. If an option written by the Trust is exercised, thereby requiring the
Trust to sell the underlying security, the premium will increase the amount realized upon the sale of the security, and the character of any gain on such sale of the underlying security as short-term or long-term capital gain will depend on the
holding period of the Trust in the underlying security. Because the Trust will not have control over the exercise of the options it writes, such exercises or other required sales of the underlying securities may cause the Trust to realize gains or
losses at inopportune times. Options on indices of securities and sectors of securities that qualify as section 1256
contracts will generally be marked-to-market for U.S. federal income tax purposes. As a result, the Trust will generally recognize gain or loss on the
last day of each taxable year equal to the difference between the value of the option on that date and the S-46
adjusted basis of the option. The adjusted basis of the option will consequently be increased by such gain or decreased by such loss. Any gain or loss with respect to options on indices and
sectors that qualify as section 1256 contracts will be treated as short-term capital gain or loss to the extent of 40% of such gain or loss and long-term capital gain or loss to the extent of 60% of such gain or loss. Because the mark-to-market rules may cause the Trust to recognize gain in advance of the receipt of cash, the Trust may be required to dispose of investments in order to meet its
distribution requirements. Mark-to-market losses may be suspended or otherwise limited if such losses are part of a straddle or similar transaction. Taxation of Common Shareholders Trust
distributions of its tax-exempt interest on municipal securities, if properly reported by the Trust to its shareholders (exempt-interest dividends), will generally be exempt from regular federal
income tax. In order for the Trust to pay exempt-interest dividends, at least 50% of the value of the Trusts total assets must consist of tax-exempt obligations on a quarterly basis. Although the Trust
intends to meet this requirement, no assurance can be given in this regard. If the Trust failed to do so, it would not be able to pay tax-exempt dividends, and your distributions attributable to interest
received by the Trust from any source (including distributions of tax-exempt interest income) would be taxable as ordinary income to the extent of the Trusts earnings and profits. The Trust will either distribute or retain for reinvestment all or part of its net capital gain. If any such gain is retained, the Trust will
be subject to a corporate income tax on such retained amount. In that event, the Trust expects to report the retained amount as undistributed capital gain in a notice to its common shareholders, each of whom, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes as long-term capital gain its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax
paid by the Trust against its U.S. federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its common shares by the amount of undistributed capital gains
included in the shareholders income less the tax deemed paid by the shareholder under clause (ii). Distributions paid to you by the
Trust from its net capital gain, if any, that the Trust properly reports as capital gain dividends (capital gain dividends) are taxable as long-term capital gains, regardless of how long you have held your common shares. All other
dividends paid to you by the Trust (including dividends from net short-term capital gains) from its current or accumulated earnings and profits, other than exempt-interest dividends (ordinary income dividends), are generally subject to
tax as ordinary income. Provided that certain holding period and other requirements are met, ordinary income dividends (if properly reported by the Trust) may qualify (i) for the dividends received deduction in the case of corporate
shareholders to the extent that the Trusts income consists of dividend income from U.S. corporations, and (ii) in the case of individual shareholders, as qualified dividend income eligible to be taxed at long-term capital
gains rates to the extent that the Trust receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain qualified foreign corporations (e.g., generally, foreign
corporations incorporated in a possession of the United States or in certain countries with a qualifying comprehensive tax treaty with the United States, or whose stock with respect to which such dividend is paid is readily tradable on an
established securities market in the United States). There can be no assurance as to what portion, if any, of the Trusts distributions will constitute qualified dividend income or be eligible for the dividends received deduction. Any distributions you receive that are in excess of the Trusts current and accumulated earnings and profits will be treated as a return
of capital to the extent of your adjusted tax basis in your common shares, and thereafter as capital gain from the sale of common shares. The amount of any Trust distribution that is treated as a return of capital will reduce your adjusted tax basis
in your common shares, thereby increasing your potential gain or reducing your potential loss on any subsequent sale or other disposition of your common shares. Common shareholders may be entitled to offset their capital gain dividends with capital losses. The Code contains a number of statutory
provisions affecting when capital losses may be offset against capital gain, and limiting the use of losses from certain investments and activities. Accordingly, common shareholders that have capital losses are urged to consult their tax advisers.
S-47
Dividends and other taxable distributions are taxable to you even though they are reinvested in
additional common shares of the Trust. Dividends and other distributions paid by the Trust are generally treated under the Code as received by you at the time the dividend or distribution is made. If, however, the Trust pays you a dividend in
January that was declared in the previous October, November or December to common shareholders of record on a specified date in one of such months, then such dividend will be treated for U.S. federal income tax purposes as being paid by the Trust
and received by you on December 31 of the year in which the dividend was declared. In addition, certain other distributions made after the close of the Trusts taxable year may be spilled back and treated as paid by the Trust
(except for purposes of the 4% nondeductible excise tax) during such taxable year. In such case, you will be treated as having received such dividends in the taxable year in which the distributions were actually made. Interest on certain private activity bonds is an item of tax preference subject to the alternative minimum tax on individuals. The
Trust may invest a portion of its assets in municipal bonds subject to this provision so that a portion of its exempt-interest dividends is an item of tax preference to the extent such dividends represent interest received from these private
activity bonds. Accordingly, investment in the Trust could cause a holder of common shares to be subject to, or result in an increased liability under, the alternative minimum tax. Exempt-interest dividends are included in determining what portion, if any, of a persons Social Security and railroad retirement
benefits will be includable in gross income subject to federal income tax. The price of common shares purchased at any time may reflect
the amount of a forthcoming distribution. Those purchasing common shares just prior to the record date for a distribution will receive a distribution which will be taxable to them even though it represents, economically, a return of invested
capital. The Trust will send you information after the end of each year setting forth the amount and tax status of any distributions paid
to you by the Trust. The sale or other disposition of common shares will generally result in capital gain or loss to you and will be
long-term capital gain or loss if you have held such common shares for more than one year at the time of sale. Any loss upon the sale or other disposition of common shares held for six months or less will be treated as long-term capital loss to the
extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by you with respect to such common shares. Any loss you recognize on a sale or other disposition of common shares will be disallowed
if you acquire other common shares (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after your sale or exchange of
the common shares. In such case, your tax basis in the common shares acquired will be adjusted to reflect the disallowed loss. If the
Trust conducts a tender offer for its shares, a repurchase by the Trust of a shareholders shares pursuant to such tender offer generally will be treated as a sale or exchange of the shares by a shareholder provided that either (i) the
shareholder tenders, and the Trust repurchases, all of such shareholders shares, thereby reducing the shareholders percentage ownership of the Trust, whether directly or by attribution under Section 318 of the Code, to 0%,
(ii) the shareholder meets numerical safe harbors under the Code with respect to percentage voting interest and reduction in ownership of the Trust following completion of the tender offer, or (iii) the tender offer otherwise results in a
meaningful reduction of the shareholders ownership percentage interest in the Trust, which determination depends on a particular shareholders facts and circumstances. If a tendering shareholders proportionate ownership of the Trust (determined after applying the ownership attribution rules under
Section 318 of the Code) is not reduced to the extent required under the tests described above, such shareholder will be deemed to receive a distribution from the Trust under Section 301 of the Code with respect to the shares held (or
deemed held under Section 318 of the Code) by the shareholder after the tender offer (a Section 301 distribution). The amount of this distribution will equal the price paid by the Trust to such shareholder for the shares sold,
and will be taxable as a dividend, i.e., as ordinary income, to the extent of the Trusts current or accumulated earnings and profits allocable to such distribution, with the excess treated as a return of capital reducing the
shareholders tax basis in the shares held after the tender offer, and thereafter as capital gain. Any Trust shares held by a shareholder after a tender offer will be subject to basis adjustments in accordance with the provisions of the Code.
S-48
Provided that no tendering shareholder is treated as receiving a Section 301 distribution as
a result of selling shares pursuant to a particular tender offer, shareholders who do not sell shares pursuant to that tender offer will not realize constructive distributions on their shares as a result of other shareholders selling shares in the
tender offer. In the event that any tendering shareholder is deemed to receive a Section 301 distribution, it is possible that shareholders whose proportionate ownership of the Trust increases as a result of that tender offer, including
shareholders who do not tender any shares, will be deemed to receive a constructive distribution under Section 305(c) of the Code in an amount equal to the increase in their percentage ownership of the Trust as a result of the tender offer.
Such constructive distribution will be treated as a dividend to the extent of current or accumulated earnings and profits allocable to it. Use of the Trusts cash to repurchase shares may adversely affect the Trusts ability to satisfy the distribution requirements for
treatment as a regulated investment company described above. The Trust may also recognize income in connection with the sale of portfolio securities to fund share purchases, in which case the Trust would take any such income into account in
determining whether such distribution requirements have been satisfied. If the Trust liquidates, shareholders generally will realize
capital gain or loss upon such liquidation in an amount equal to the difference between the amount of cash or other property received by the shareholder (including any property deemed received by reason of its being placed in a liquidating trust)
and the shareholders adjusted tax basis in its shares. Any such gain or loss will be long-term if the shareholder is treated as having a holding period in Trust shares of greater than one year, and otherwise will be short-term. The foregoing discussion does not address the tax treatment of shareholders who do not hold their shares as a capital asset. Such shareholders
should consult their own tax advisors on the specific tax consequences to them of participating or not participating in the tender offer or upon liquidation of the Trust. Current U.S. federal income tax law taxes both long-term and short-term capital gain of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, short-term capital gain is currently taxed at rates applicable to ordinary income while long-term capital gain generally is taxed at a reduced maximum rate. The
deductibility of capital losses is subject to limitations under the Code. Certain U.S. holders who are individuals, estates or trusts and
whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on all or a portion of their net investment income, which includes dividends received from the Trust and capital gains from the sale or other disposition
of the Trusts common shares. A common shareholder that is a nonresident alien individual or a foreign corporation (a foreign
investor) generally will be subject to U.S. federal withholding tax at the rate of 30% (or possibly a lower rate provided by an applicable tax treaty) on ordinary income dividends (except as discussed below). In general, U.S. federal
withholding tax and U.S. federal income tax will not apply to any gain or income realized by a foreign investor in respect of any distribution of exempt-interest dividends or net capital gain (including amounts credited as an undistributed capital
gain dividend) or upon the sale or other disposition of common shares of the Trust. Different tax consequences may result if the foreign investor is engaged in a trade or business in the United States or, in the case of an individual, is present in
the United States for 183 days or more during a taxable year and certain other conditions are met. Foreign investors should consult their tax advisers regarding the tax consequences of investing in the Trusts common shares. Ordinary income dividends properly reported by the RIC are generally exempt from U.S. federal withholding tax where they (i) are paid in
respect of the RICs qualified net interest income (generally, its U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which the RIC is at least a 10%
shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of the RICs qualified short-term capital gains (generally, the excess of the RICs net short-term capital gain over its
long-term capital loss for such taxable year). Depending on its circumstances, the Trust may report all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and/or treat
such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a foreign investor needs to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, W-8BEN-E, or substitute
Form). In the case of common shares held through an intermediary, the intermediary may S-49
have withheld tax even if the Trust reported the payment as qualified net interest income or qualified short-term capital gain. Foreign investors should contact their intermediaries with respect
to the application of these rules to their accounts. There can be no assurance as to what portion of the Trusts distributions would qualify for favorable treatment as qualified net interest income or qualified short-term capital gains if the
provision is extended. In addition withholding at a rate of 30% will apply to dividends paid in respect of common shares of the Trust
held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Treasury to report, on an annual basis, information with respect to shares in, and accounts maintained
by, the institution to the extent such shares or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain
payments. Accordingly, the entity through which common shares of the Trust are held will affect the determination of whether such withholding is required. Similarly, dividends paid in respect of common shares of the Trust held by an investor that is
a non-financial foreign entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any
substantial United States owners or (ii) provides certain information regarding the entitys substantial United States owners, which the applicable withholding agent will in turn provide to the Secretary of the
Treasury. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. The Trust will not pay any additional amounts to common
shareholders in respect of any amounts withheld. Foreign investors are encouraged to consult with their tax advisers regarding the possible implications of these rules on their investment in the Trusts common shares. U.S. federal backup withholding tax may be required on dividends, distributions and sale proceeds payable to certain non-exempt common shareholders who fail to supply their correct taxpayer identification number (in the case of individuals, generally, their social security number) or to make required certifications, or who are
otherwise subject to backup withholding. Backup withholding is not an additional tax and any amount withheld may be refunded or credited against your U.S. federal income tax liability, if any, provided that you timely furnish the required
information to the Internal Revenue Service. Ordinary income dividends, capital gain dividends, and gain from the sale or other
disposition of common shares of the Trust also may be subject to state, local, and/or foreign taxes. Common shareholders are urged to consult their own tax advisers regarding specific questions about U.S. federal, state, local or foreign tax
consequences to them of investing in the Trust. Under U.S. Treasury regulations, if a common shareholder recognizes a loss with respect
to common shares of $2 million or more for an individual shareholder in a single taxable year (or $4 million or more in any combination of taxable years in which the transaction is entered into and the five succeeding taxable years) or
$10 million or more for a corporate shareholder in any single taxable year (or $20 million or more in any combination of taxable years in which the transaction is entered into and the five succeeding taxable years), the shareholder must
file with the Internal Revenue Service a disclosure statement on Internal Revenue Service Form 8886. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the
loss is proper. Common shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. *** The foregoing is a general
and abbreviated summary of certain provisions of the Code and the Treasury Regulations presently in effect as they directly govern the taxation of the Trust and its shareholders. For complete provisions, reference should be made to the pertinent
Code sections and Treasury Regulations. The Code and the Treasury Regulations are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Trust transactions. Holders of common shares are
advised to consult their own tax advisers for more detailed information concerning the U.S. federal income taxation of the Trust and the income tax consequences to its holders of common shares. The custodian of the assets of the Trust is State Street Bank and Trust Company, whose principal business address is One Lincoln Street,
Boston, Massachusetts 02111. The custodian is responsible for, among other things, receipt of and disbursement of funds from the Trusts accounts, establishment of segregated accounts as necessary, and transfer, exchange and delivery of Trust
portfolio securities. S-50
Computershare Trust Company, N.A., whose principal business address is 150 Royall Street, Canton,
Massachusetts 02021, serves as the Trusts transfer agent with respect to the common shares. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP, whose principal business address is 200 Berkeley Street, Boston, MA 02116, is the independent registered
public accounting firm of the Trust and is expected to render an opinion annually on the financial statements of the Trust.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES A control person is a person who beneficially owns, either directly or
indirectly, more than 25% of the voting securities of a company. As of February 28, 2022, the Trust did not know of any person or entity who controlled the Trust. As of February 28, 2022, to the knowledge of the Trust, no
person owned of record or beneficially 5% or more of the outstanding common shares of any class of the Trust. This SAI is part of a registration statement that we have filed with the SEC. We are allowed to
incorporate by reference the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. We incorporate by reference into this SAI the documents listed below
and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including any filings on or after the date of this SAI from the date of filing (excluding any information furnished, rather than filed), until
we have sold all of the offered securities to which this SAI, the Prospectus and any accompanying prospectus supplement relates or the offering is otherwise terminated. The information incorporated by reference is an important part of this SAI. Any
statement in a document incorporated by reference into this SAI will be deemed to be automatically modified or superseded to the extent a statement contained in (1) this SAI or (2) any other subsequently filed document that is incorporated
by reference into this SAI modifies or supersedes such statement. The documents incorporated by reference herein include: The Trusts Prospectus, dated March 15, 2022, filed with this SAI; our annual
report on Form N-CSR for the fiscal year ended April 30, 2021 filed with the SEC on July 6, 2021; our semi-annual report
on Form N-CSRS for the fiscal period ended October 31, 2021 filed with the SEC on January 4, 2022; the Trusts definitive
proxy statement on Schedule 14A, filed with the SEC on June 8, 2021; and the description of the Trusts
common shares contained in our Registration Statement on Form 8-A (File No. 001-16593) filed with the SEC on July 13, 2001, including any amendment or
report filed for the purpose of updating such description prior to the termination of the offering registered hereby. The Trust will provide without charge to each person, including any beneficial owner, to whom this SAI is delivered, upon written or oral
request, a copy of any and all of the documents that have been or may be incorporated by reference in this SAI, the Prospectus or the accompanying prospectus supplement. You should direct requests for documents by calling: Client Services Desk (800) 882-0052 S-51
The Trust makes available the Prospectus, SAI and the Trusts annual and semi-annual
reports, free of charge, at http://www.blackrock.com. You may also obtain this SAI, the Prospectus, other documents incorporated by reference and other information the Trust files electronically, including reports and proxy statements, on the SEC
website (http://www.sec.gov) or with the payment of a duplication fee, by electronic request at publicinfo@sec.gov. Information contained in, or that can be accessed through, the Trusts website is not part of this SAI, the Prospectus or the
accompanying prospectus supplement. The audited financial statements and financial highlights included in the annual
report to the Trusts shareholders for the fiscal year ended April 30, 2021 (the 2021 Annual Report), together with the report of Deloitte
& Touche LLP on the financial statements and financial highlights included in the Trusts 2021 Annual Report, and the unaudited financial statements and financial highlights included in the semi-annual
report to the Trusts shareholders for the six months ended October 31, 2021, are incorporated herein by reference. S-52
Description of Bond Ratings Description of S&P Global Ratings (S&P), a Division of S&P Global Inc., Issue Credit Ratings An S&P issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects S&Ps view of the obligors capacity and willingness to meet its financial commitments as
they come due, and this opinion may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. Issue credit ratings can be either long-term or short-term. Short-term issue credit ratings are generally assigned to those obligations
considered short-term in the relevant market, typically with an original maturity of no more than 365 days. Short-term issue credit ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term
obligations. S&P would typically assign a long-term issue credit rating to an obligation with an original maturity of greater than 365 days. However, the ratings S&P assigns to certain instruments may diverge from these guidelines based on
market practices. Medium-term notes are assigned long-term ratings. Issue credit ratings are based, in varying degrees, on S&Ps
analysis of the following considerations: The likelihood of paymentthe capacity and willingness of the obligor to meet its financial commitments on
an obligation in accordance with the terms of the obligation; The nature and provisions of the financial obligation, and the promise S&P imputes; and
The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights. An
issue rating is an assessment of default risk but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in
bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Long-Term Issue Credit Ratings* Issue
credit ratings are based, in varying degrees, on S&Ps analysis of the following considerations: The likelihood of payment the capacity and willingness of the obligor to meet its financial commitments on
an obligation in accordance with the terms of the obligation; The nature and provisions of the financial obligation, and the promise we impute; and The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights. A-1
An issue rating is an assessment of default risk but may incorporate an assessment of relative
seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and
subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) BB, B, CCC, CC, and C A-2
* Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the rating categories. Short-Term Issue Credit Ratings A-1 A-2 A-3 B C D Description of S&Ps Municipal Short-Term Note Ratings An S&P U.S. municipal note rating reflects S&Ps opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&Ps
analysis will review the following considerations: Amortization schedule the larger the final maturity relative to other maturities, the more likely it will
be treated as a note; and Source of payment the more dependent the issue is on the market for its refinancing, the more likely it
will be treated as a note. S&Ps municipal short-term note rating symbols are as follows: SP-1 A-3
SP-2 SP-3 D Description of Moodys Investors Service, Inc.s (Moodys) Global Rating Scales Ratings assigned on Moodys global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of
financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Moodys defines credit risk as the risk
that an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default or impairment. The contractual financial obligations addressed by Moodys ratings are those that call
for, without regard to enforceability, the payment of an ascertainable amount, which may vary based upon standard sources of variation (e.g., floating interest rates), by an ascertainable date. Moodys rating addresses the issuers ability
to obtain cash sufficient to service the obligation, and its willingness to pay. Moodys ratings do not address non-standard sources of variation in the amount of the principal obligation (e.g., equity
indexed), absent an express statement to the contrary in a press release accompanying an initial rating. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a
default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment. Short-term ratings are assigned for obligations with an original maturity of thirteen months or less and
reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment. Moodys issues ratings at the issuer level and instrument level on
both the long-term scale and the short-term scale. Typically, ratings are made publicly available although private and unpublished ratings may also be assigned. Description of Moodys Global Long Term Rating Scale Aaa Aa A Baa Ba B Caa Ca C A-4
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category. Additionally, a (hyb) indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms. By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result
in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a
hybrid security is an expression of the relative credit risk associated with that security. Global Short-Term Rating Scale P-1 P-2 P-3 NP Description of Moodys US Municipal Short-Term Debt and Demand Obligation Ratings Description of Moodys Short-Term Obligation Ratings Moodys uses the global short-term Prime rating scale for commercial paper issued by U.S. municipalities and nonprofits. These commercial
paper programs may be backed by external letters of credit or liquidity facilities, or by an issuers self-liquidity. For other
short-term municipal obligations, Moodys uses one of two other short-term rating scales, the Municipal Investment Grade (MIG) and Variable Municipal Investment Grade (VMIG) scales discussed below. Moodys uses the MIG scale for U.S. municipal cash flow notes, bond anticipation notes and certain other short-term obligations, which
typically mature in three years or less. Under certain circumstances, Moodys uses the MIG scale for bond anticipation notes with maturities of up to five years. MIG Scale MIG 1 MIG 2 MIG 3 SG A-5
Description of Moodys Demand Obligation Ratings In the case of variable rate demand obligations (VRDOs), a two-component rating is
assigned. The components are a long-term rating and a short-term demand obligation rating. The long-term rating addresses the issuers ability to meet scheduled principal and interest payments. The short-term demand obligation rating addresses
the ability of the issuer or the liquidity provider to make payments associated with the purchase-price-upon-demand feature (demand feature) of the VRDO. The short-term demand obligation rating uses the VMIG scale. VMIG ratings with
liquidity support use as an input the short-term Counterparty Risk Assessment of the support provider, or the long-term rating of the underlying obligor in the absence of third party liquidity support. Transitions of VMIG ratings of demand
obligations with conditional liquidity support differ from transitions on the Prime scale to reflect the risk that external liquidity support will terminate if the issuers long-term rating drops below investment grade. Moodys typically assigns the VMIG short-term demand obligation rating if the frequency of the demand feature is less than every three
years. If the frequency of the demand feature is less than three years but the purchase price is payable only with remarketing proceeds, the short-term demand obligation rating is NR. VMIG Scale VMIG 1 VMIG 2 VMIG 3 SG Description of Fitch Ratings (Fitchs) Credit Ratings Scales Fitch Ratings publishes opinions on a variety of scales. The most common of these are credit ratings, but the agency also publishes ratings,
scores and other relative opinions relating to financial or operational strength. For example, Fitch also provides specialized ratings of servicers of residential and commercial mortgages, asset managers and funds. In each case, users should refer
to the definitions of each individual scale for guidance on the dimensions of risk covered in each assessment. Fitchs credit
ratings relating to issuers are an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings relating to
securities and obligations of an issuer can include a recovery expectation. Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The
agencys credit ratings cover the global spectrum of corporate, sovereign financial, bank, insurance, and public finance entities (including supranational and sub-national entities) and the securities or
other obligations they issue, as well as structured finance securities backed by receivables or other financial assets. The terms
investment grade and speculative grade have established themselves over time as shorthand to describe the categories AAA to BBB (investment grade) and BB to D (speculative
grade). The terms investment grade and speculative grade are market conventions and do not imply any recommendation or endorsement of a specific security for investment purposes. Investment grade categories indicate relatively low to moderate credit
risk, while ratings in the speculative categories either signal a higher level of credit risk or that a default has already occurred. A-6
For the convenience of investors, Fitch may also include issues relating to a rated issuer that
are not and have not been rated on its web page. Such issues are also denoted as NR. Credit ratings express risk in relative
rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. For information about the historical performance of ratings please refer to Fitchs Ratings Transition and
Default studies which detail the historical default rates and their meaning. The European Securities and Markets Authority also maintains a central repository of historical default rates. Fitchs credit ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a
market value loss on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the
ability of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked
bonds). In the default components of ratings assigned to individual obligations or instruments, the agency typically rates to the
likelihood of non-payment or default in accordance with the terms of that instruments documentation. In limited cases, Fitch may include additional considerations (i.e. rate to a higher or lower
standard than that implied in the obligations documentation). The primary credit rating scales can be used to provide a rating of
privately issued obligations or certain note issuance programs or for private ratings. In this case the rating is not published, but only provided to the issuer or its agents in the form of a rating letter. The primary credit rating scales may also be used to provide ratings for a more narrow scope, including interest strips and return of
principal or in other forms of opinions such as credit opinions or rating assessment services. Credit opinions are either a notch- or category-specific view using the primary rating scale and omit one or more characteristics of a full rating or meet
them to a different standard. Credit opinions will be indicated using a lower case letter symbol combined with either an * (e.g. bbb+*) or (cat) suffix to denote the opinion status. Credit opinions will be point-in-time typically but may be monitored if the analytical group believes information will be sufficiently available. Rating assessment services are a notch-specific view
using the primary rating scale of how an existing or potential rating may be changed by a given set of hypothetical circumstances. While credit opinions and rating assessment services are point-in-time and are not monitored, they may have a directional watch or outlook assigned, which can signify the trajectory of the credit profile. Description of Fitchs Long-Term Credit Ratings Scale Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns,
insurance companies and certain sectors within public finance, are generally assigned Issuer Default Ratings (IDRs). IDRs are also assigned to certain entities or enterprises in global infrastructure, project finance and public finance. IDRs opine
on an entitys relative vulnerability to default (including by way of a distressed debt exchange) on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts. In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather
than a prediction of a specific percentage likelihood of default. A-7
AAA AA A BBB BB B CCC CC C a. theissuer has entered into a grace or cure period following non-payment of a material financial obligation; b. theissuer has entered into a temporary negotiated waiver or
standstill agreement following a payment default on a material financial obligation; c. theformal announcement by the issuer or their agent of a
distressed debt exchange; d. aclosed financing vehicle where payment capacity is irrevocably
impaired such that it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment default is imminent. RD a. anuncured payment default or distressed debt exchange on a
bond, loan or other material financial obligation, but b. hasnot entered into bankruptcy filings, administration,
receivership, liquidation, or other formal winding-up procedure, and c. hasnot otherwise ceased operating. This would include: i. theselective payment default on a specific class or
currency of debt; ii. theuncured expiry of any applicable grace period, cure period or
default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation; A-8
iii. theextension of multiple waivers or forbearance periods upon a
payment default on one or more material financial obligations, either in series or in parallel; ordinary execution of a distressed debt exchange on one or more material financial obligations. D Notes: The modifiers + or - may be appended to a rating to denote relative
status within major rating categories. Description of Fitchs Short-Term Credit Ratings Assigned to Issuers and Obligations A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to
the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-term deposit ratings may be adjusted for loss severity. Short-term deposit ratings may be adjusted for loss severity. Short-Term
Ratings are assigned to obligations whose initial maturity is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations and up to 36 months for obligations
in U.S. public finance markets. F1 F2 F3 B C RD D Specific Limitations Relating to Credit Rating Scales The following specific limitations relate to issuer default scales, ratings assigned to corporate finance obligations, ratings assigned to
public finance obligations, ratings assigned to structured finance transactions, ratings assigned to global infrastructure and project finance transactions, ratings assigned for banks (Viability Ratings, Support Ratings, Support Floors), derivative
counterparty ratings and insurer financial strength ratings. A-9
The ratings do not predict a specific percentage of default likelihood or failure likelihood over any given time
period. The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that
this value may change. The ratings do not opine on the liquidity of the issuers securities or stock. The ratings do not opine on the possible loss severity on an obligation should an issuer (or an obligation with
respect to structured finance transactions) default, except in the following cases: Ratings assigned to individual obligations of issuers in corporate finance, banks,
non-bank financial institutions, insurance and covered bonds. In limited circumstances for U.S. public finance obligations where Chapter 9 of the Bankruptcy Code provides
reliably superior prospects for ultimate recovery to local government obligations that benefit from a statutory lien on revenues or during the pendency of a bankruptcy proceeding under the Code if there is sufficient visibility on potential recovery
prospects. The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.
The ratings do not opine on any quality related to an issuers business, operational or financial profile
other than the agencys opinion on its relative vulnerability to default or in the case of bank Viability Ratings on its relative vulnerability to failure. For the avoidance of doubt, not all defaults will be considered a default for rating
purposes. Typically, a default relates to a liability payable to an unaffiliated, outside investor. The ratings do not opine on any quality related to a transactions profile other than the agencys
opinion on the relative vulnerability to default of an issuer and/or of each rated tranche or security. The ratings do not predict a specific percentage of extraordinary support likelihood over any given period.
In the case of bank Support Ratings and Support Rating Floors, the ratings do not opine on any quality related to
an issuers business, operational or financial profile other than the agencys opinion on its relative likelihood of receiving external extraordinary support. The ratings do not opine on the suitability of any security for investment or any other purposes
The above list is not exhaustive and is provided for the readers convenience. A-10
Closed-End Fund Proxy Voting Policy August 1, 2021
Effective Date: August 1, 2021 Applies to the following types of Funds registered under the 1940 Act: ☐ Open-End Mutual Funds (including money market funds) ☐ Money Market Funds Only ☐ iShares and BlackRock
ETFs ☒ Closed-End Funds ☐ Other Objective and Scope Set forth below is the Closed-End Fund Proxy Voting Policy. Policy / Document Requirements and Statements The
Boards of Trustees/Directors (the Directors) of the closed-end funds advised by BlackRock Advisors, LLC (BlackRock) (the Funds) have the responsibility for the oversight of
voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to delegate that responsibility to BlackRock as part of BlackRocks authority to manage,
acquire and dispose of account assets, all as contemplated by the Funds respective investment management agreements. BlackRock has adopted
guidelines and procedures (together and as from time to time amended, the BlackRock Proxy Voting Guidelines) governing proxy voting by accounts managed by BlackRock. BlackRock will cast votes on behalf of each of the Funds on specific proxy issues in respect of securities held by each such Fund in accordance with the
BlackRock Proxy Voting Guidelines; provided, however, that in the case of underlying closed-end funds (including business development companies and other similarly-situated asset pools) held by the Funds that
have, or are proposing to adopt, a classified board structure, BlackRock will typically (a) vote in favor of proposals to adopt classification and against proposals to eliminate classification, and (b) not vote against directors as a
result of their adoption of a classified board structure. BlackRock will report on an annual basis to the Directors on (1) a summary of all proxy
votes that BlackRock has made on behalf of the Funds in the preceding year together with a representation that all votes were in accordance with the BlackRock Proxy Voting Guidelines (as modified pursuant to the immediately preceding paragraph), and
(2) any changes to the BlackRock Proxy Voting Guidelines that have not previously been reported. B-1
BlackRock Investment Stewardship Global Principles Effective as of January 2022
B-2
Capital structure, mergers, asset sales, and other special
transactions General corporate governance matters and shareholder
protections BlackRocks oversight of its investment stewardship
activities The purpose of this document is to provide an
overarching explanation of BlackRocks approach globally to our responsibilities as a shareholder on behalf of our clients, our expectations of companies, and our commitments to clients in terms of our own governance and transparency. B-3
BlackRocks purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual
clients, across a full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as
individuals around the world. As part of our fiduciary duty to our clients, we have determined that it is generally in the best long-term interest of our clients to promote sound corporate governance as an informed, engaged shareholder. At
BlackRock, this is the responsibility of the Investment Stewardship team. Philosophy on investment stewardship Companies are responsible for ensuring they have appropriate governance structures to serve the interests of shareholders and other key stakeholders. We
believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders best
interests to create sustainable value. Shareholders should have the right to vote to elect, remove, and nominate directors, approve the appointment of the auditor, and amend the corporate charter or by-laws.
Shareholders should be able to vote on key board decisions that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and
pre-emptive rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information. In addition,
shareholder voting rights should be proportionate to their economic ownershipthe principle of one share, one vote helps achieve this balance. Consistent with these shareholder rights, we believe BlackRock has a responsibility to monitor and provide feedback to companies in our role as stewards of
our clients investments. Investment stewardship is how we use our voice as an investor to promote sound corporate governance and business practices to help maximize long-term shareholder value for our clients, the vast majority of whom are
investing for long-term goals such as retirement. BlackRock Investment Stewardship (BIS) does this through engagement with management teams and/or board members on material business issues, including but not limited to environmental,
social, and governance (ESG) matters and, for those clients who have given us authority, through voting proxies in their best long-term economic interests. We also participate in the public dialogue to help shape global norms and
industry standards with the goal of supporting a policy framework consistent with our clients interests as long-term shareholders. BlackRock
looks to companies to provide timely, accurate, and comprehensive disclosure on all material governance and business matters, including ESG-related issues. This transparency allows shareholders to
appropriately understand and assess how relevant risks and opportunities are being effectively identified and managed. Where company reporting and disclosure is inadequate or we believe the approach taken may be inconsistent with sustainable,
long-term value creation, we will engage with a company and/or vote in a manner that encourages progress. BlackRock views engagement as an important
activity; engagement provides us with the opportunity to improve our understanding of the business and risks and opportunities that are material to the companies in which our clients invest, including those related to ESG. Engagement also informs
our voting decisions. As long-term investors on behalf of clients, we seek to have regular and continuing dialogue with executives and board directors to advance sound governance and sustainable business practices, as well as to understand the
effectiveness of the companys management and oversight of material issues. Engagement is an important mechanism for providing feedback on company practices and disclosures, particularly where we believe they could be enhanced. Similarly, it
provides us an opportunity to hear directly from company boards and management on how they believe their actions are aligned with sustainable, long-term value creation. We primarily engage through direct dialogue, but may use other tools such as
written correspondence, to share our perspectives. B-4
We generally vote in support of management and boards that demonstrate an approach consistent with creating
sustainable, long-term value. If we have concerns about a companys approach, we may choose to explain our expectations to the companys board and management. Following our engagement, we may signal through our voting that we have
outstanding concerns, generally by voting against the re-election of directors we view as having responsibility for an issue. We apply our regional proxy voting guidelines to achieve the outcome we believe is
most aligned with our clients long-term economic interests. We recognize that accepted standards and norms of corporate governance can differ between markets. However, we believe there are certain fundamental
elements of governance practice that are intrinsic globally to a companys ability to create long-term value. This set of global themes are set out in this overarching set of principles (the Principles), which are anchored in
transparency and accountability. At a minimum, we believe companies should observe the accepted corporate governance standards in their domestic market and ask that, if they do not, they explain how their approach better supports sustainable
long-term value creation. These Principles cover seven key themes: Boards and directors Auditors and audit-related issues Capital structure, mergers, asset sales, and other special transactions Compensation and benefits Environmental and social issues General corporate governance matters and shareholder protections Shareholder proposals Our regional and market-specific voting guidelines explain how these Principles inform our voting decisions in relation to specific ballot items for
shareholder meetings. Our primary focus is on the performance of the board of directors. The performance of the board is critical to the economic success of the company and the
protection of shareholders interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction and operation of the company. For this reason, BIS sees engaging with and the
election of directors as one of our most important and impactful responsibilities. We support boards whose approach is consistent with creating
sustainable, long-term value. This includes the effective management of strategic, operational, financial, and material ESG factors and the consideration of key stakeholder interests. The board should establish and maintain a framework of robust and
effective governance mechanisms to support its oversight of the companys strategic aims. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and
B-5
opportunities and the fulfillment of the companys purpose. Disclosure of material issues that affect the companys long-term strategy and value creation, including material ESG
factors, is essential for shareholders to be able to appropriately understand and assess how risks are effectively identified, managed and mitigated. Where a company has not adequately disclosed and demonstrated it has fulfilled these responsibilities, we will consider voting against the re-election of directors whom we consider having particular responsibility for the issue. We assess director performance on a
case-by-case basis and in light of each companys circumstances, taking into consideration our assessment of their governance, business practices that support
sustainable, long-term value creation, and performance. In serving the interests of shareholders, the responsibility of the board of directors includes, but is not limited to, the following: ● Establishing an appropriate corporate governance structure ● Supporting and overseeing management in setting long-term strategic goals and applicable measures of
value-creation and milestones that will demonstrate progress, and taking steps to address anticipated or actual obstacles to success ● Providing oversight on the identification and management of material, business operational, and
sustainability-related risks ● Overseeing the financial resilience of the company, the integrity of financial
statements, and the robustness of a companys Enterprise Risk Management1 framework ● Making decisions on matters that require independent evaluation, which may include mergers, acquisitions and
dispositions, activist situations or other similar cases ● Establishing appropriate executive compensation
structures ● Addressing business issues, including environmental and social risks and opportunities, when
they have the potential to materially impact the companys long-term value There should be clear definitions of the role of the board, the
committees of the board, and senior management. Set out below are ways in which boards and directors can demonstrate a commitment to acting in the best long-term economic interests of all shareholders. We will seek to engage with the appropriate directors where we have concerns about the performance of the company, board, or individual directors and may
signal outstanding concerns in our voting. Regular accountability BlackRock believes that directors should stand for re-election on a regular basis, ideally annually. In our
experience, annual re-elections allow shareholders to reaffirm their support for board members or hold them accountable for their decisions in a timely manner. When board members are not re-elected annually, we believe it is good practice for boards to have a rotation policy to ensure that, through a board cycle, all directors have had their appointment
re-confirmed, with a proportion of directors being put forward for re-election at each annual general meeting. Enterprise risk management is a process, effected by the entitys board of directors, management, and
other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of
objectives. (Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management Integrated Framework, September 2004, New York, NY). B-6
Effective board composition Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect the evolution of the companys
strategy and the market environment. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the groups thinking and in a manner that supports both continuity and appropriate succession
planning. We consider the average overall tenure of the board, where we are seeking a balance between the knowledge and experience of longer-serving members and the fresh perspectives of newer members. We expect companies to keep under regular
review the effectiveness of their board (including its size), and assess directors nominated for election or re-election in the context of the composition of the board as a whole. This assessment should
consider a number of factors, including the potential need to address gaps in skills, experience, diversity, and independence. When nominating new
directors to the board, we ask that there is sufficient information on the individual candidates so that shareholders can assess the suitability of each individual nominee and the overall board composition. These disclosures should give an
understanding of how the collective experience and expertise of the board aligns with the companys long-term strategy and business model. We are
interested in diversity in the board room as a means to promoting diversity of thought and avoiding group think. We ask boards to disclose how diversity is considered in board composition, including demographic characteristics such as
gender, race/ethnicity and age; as well as professional characteristics, such as a directors industry experience, specialist areas of expertise and geographic location. We assess a boards diversity in the context of a companys
domicile, business model and strategy. Self-identified board demographic diversity can usefully be disclosed in aggregate, consistent with local law. We believe boards should aspire to meaningful diversity of membership, at least consistent with
local regulatory requirements and best practices, while recognizing that building a strong, diverse board can take time. This position is based on our
view that diversity of perspective and thought in the board room, in the management team and throughout the company leads to better long term economic outcomes for companies. Academic research already reveals correlations between
specific dimensions of diversity and effects on decision-making processes and outcomes.2 In our experience, greater diversity in the board room contributes to more robust discussions and more
innovative and resilient decisions. Over time, greater diversity in the board room can also promote greater diversity and resilience in the leadership team, and the workforce more broadly. That diversity can enable companies to develop businesses
that more closely reflect and resonate with the customers and communities they serve. We expect there to be a sufficient number of independent
directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management. Common impediments to independence may include but are not limited
to: ● Current or recent employment at the company or a subsidiary ● Being, or representing, a shareholder with a substantial shareholding in the company ● Interlocking directorships For example, the role of gender diversity on team cohesion and participative communication is explored by:
Post, C., 2015, When is female leadership an advantage? Coordination requirements, team cohesion, and team interaction norms, Journal of Organizational Behavior, 36, 1153-1175. http://dx.doi.org/10.1002/job.2031. B-7
● Having any other interest, business, or other relationship which
could, or could reasonably be perceived to, materially interfere with a directors ability to act in the best interests of the company and its shareholders. BlackRock believes that boards are most effective at overseeing and advising management when there is a senior independent board leader. This director may
chair the board, or, where the chair is also the CEO (or is otherwise not independent), be designated as a lead independent director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping
the agenda, ensuring adequate information is provided to the board, and encouraging independent participation in board deliberations. The lead independent director or another appropriate director should be available to shareholders in those
situations where an independent director is best placed to explain and contextualize a companys approach. There are matters for which the board
has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock believes that objective oversight of such matters is best achieved when the board forms committees comprised entirely of independent
directors. In many markets, these committees of the board specialize in audit, director nominations, and compensation matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one involving a related party,
or to investigate a significant adverse event. Sufficient capacity As the role and expectations of a director are increasingly demanding, directors must be able to commit an appropriate amount of time to board and committee
matters. It is important that directors have the capacity to meet all of their responsibilitiesincluding when there are unforeseen events and therefore, they should not take on an excessive number of roles that would impair their
ability to fulfill their duties. Auditors and audit-related issues BlackRock recognizes the critical importance of financial statements, which should provide a true and fair picture of a companys financial condition.
Accordingly, the assumptions made by management and reviewed by the auditor in preparing the financial statements should be reasonable and justified. The accuracy of financial statements, inclusive of financial and non-financial information, is of paramount
importance to BlackRock. Investors increasingly recognize that a broader range of risks and opportunities have the potential to materially impact financial performance. Over time, we expect increased scrutiny of the assumptions underlying financial
reports, particularly those that pertain to the impact of the transition to a low carbon economy on a companys business model and asset mix. In
this context, audit committees, or equivalent, play a vital role in a companys financial reporting system by providing independent oversight of the accounts, material financial and non-financial
information, internal control frameworks, and in the absence of a dedicated risk committee, Enterprise Risk Management systems. BlackRock believes that effective audit committee oversight strengthens the quality and reliability of a companys
financial statements and provides an important level of reassurance to shareholders. We hold members of the audit committee or equivalent responsible
for overseeing the management of the audit function. Audit committees or equivalent should have clearly articulated charters that set out their responsibilities and have a rotation plan in place that allows for a periodic refreshment of the
committee membership to introduce fresh perspectives to audit oversight. We take particular note of critical accounting matters, cases involving
significant financial restatements, or ad hoc notifications of material financial weakness. In this respect, audit committees should provide timely disclosure on the remediation of Key and Critical Audit Matters identified either by the external
auditor or Internal Audit function. B-8
The integrity of financial statements depends on the auditor being free of any impediments to being an
effective check on management. To that end, we believe it is important that auditors are, and are seen to be, independent. Where an audit firm provides services to the company in addition to the audit, the fees earned should be disclosed and
explained. Audit committees should have in place a procedure for assessing annually the independence of the auditor and the quality of the external audit process. Comprehensive disclosure provides investors with a sense of the companys long-term operational risk management practices and, more broadly, the
quality of the boards oversight. The audit committee or equivalent, or a dedicated risk committee, should periodically review the companys risk assessment and risk management policies and the significant risks and exposures identified by
management, the internal auditors or the independent accountants, and managements steps to address them. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk. Capital structure, mergers, asset sales, and other special transactions The capital structure of a company is critical to shareholders as it impacts the value of their investment and the priority of their interest in the company
relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests. Effective voting rights are basic rights of share ownership. We believe strongly in one vote for one share as a guiding principle that supports effective
corporate governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting power should match economic exposure. In principle, we disagree with the creation of a share class with equivalent economic exposure and preferential, differentiated voting rights. In our view,
this structure violates the fundamental corporate governance principle of proportionality and results in a concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying any potential conflicts of
interest. However, we recognize that in certain markets, at least for a period of time, companies may have a valid argument for listing dual classes of shares with differentiated voting rights. We believe that such companies should review these
share class structures on a regular basis or as company circumstances change. Additionally, they should seek shareholder approval of their capital structure on a periodic basis via a management proposal at the companys shareholder meeting. The
proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders. In assessing mergers, asset sales, or other special transactions, BlackRocks primary consideration is the long-term economic interests of our clients
as shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it can enhance long-term shareholder value. We would
prefer that proposed transactions have the unanimous support of the board and have been negotiated at arms length. We may seek reassurance from the board that executives and/or board members financial interests in a given
transaction have not adversely affected their ability to place shareholders interests before their own. Where the transaction involves related parties, we would expect the recommendation to support it to come from the independent directors,
and ideally, the terms also have been assessed through an independent appraisal process. In addition, it is good practice that it be approved by a separate vote of the non-conflicted parties. B-9
BlackRock believes that shareholders have a right to dispose of company shares in the open market without
unnecessary restriction. In our view, corporate mechanisms designed to limit shareholders ability to sell their shares are contrary to basic property rights. Such mechanisms can serve to protect and entrench interests other than those of the
shareholders. We believe that shareholders are broadly capable of making decisions in their own best interests. We expect any so-called shareholder rights plans proposed by a board to be subject to
shareholder approval upon introduction and periodically thereafter. BlackRock expects a companys board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately. There
should be a clear link between variable pay and operational and financial performance. Performance metrics should be stretching and aligned with a companys strategy and business model. BIS does not have a position on the use of ESG-related criteria, but believes that where companies choose to include them, they should be as rigorous as other financial or operational targets. Long-term incentive plans should vest over timeframes aligned
with the delivery of long-term shareholder value. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their employment. Finally, pension contributions
and other deferred compensation arrangements should be reasonable in light of market practice. We are not supportive of
one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee or its equivalent, we expect disclosure relating to how and why the
discretion was used, and how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when the
rationale for increases in total compensation at a company is solely based on peer benchmarking rather than a rigorous measure of outperformance. We encourage companies to clearly explain how compensation outcomes have rewarded outperformance
against peer firms. We believe consideration should be given to building claw back provisions into incentive plans such that executives would be
required to forgo rewards when they are not justified by actual performance and/or when compensation was based on faulty financial reporting or deceptive business practices. We also favor recoupment from any senior executive whose behavior caused
material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal investigation, even if such actions did not ultimately result in a material restatement of past results. Non-executive directors should be compensated in a manner that is commensurate with the time and effort expended in
fulfilling their professional responsibilities. Additionally, these compensation arrangements should not risk compromising directors independence or aligning their interests too closely with those of the management, whom they are charged with
overseeing. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We may vote
against members of the compensation committee or equivalent board members for poor compensation practices or structures. Environmental and social issues We believe that well-managed companies will deal effectively with material environmental and social (E&S) factors relevant to their
businesses. Governance is the core structure by which boards can oversee the creation of sustainable, long-term value. Appropriate risk oversight of E&S considerations stems from this construct. Robust disclosure is essential for investors to effectively evaluate companies strategy and business practices related to material E&S risks and
opportunities. Given the increased understanding of material sustainability risks and opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies reporting, where necessary,
and will express any concerns through our voting where a companys actions or disclosures are inadequate. B-10
BlackRock encourages companies to use the framework developed by the Task Force on Climate-related
Financial Disclosures (TCFD) to disclose their approach to ensuring they have a sustainable business model and to supplement that disclosure with industry-specific metrics such as those identified by the Sustainability Accounting Standards Board
(SASB).3 While the TCFD framework was developed to support climate-related risk disclosure, the four pillars of the TCFD Governance, Strategy, Risk Management, and Metrics and Targets
are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of sustainability-related risks and opportunities. SASBs industry-specific guidance (as identified in its materiality map) is beneficial
in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability that are considered to be financially material and decision-useful within their industry. We recognize that some companies may report using
different standards, which may be required by regulation, or one of a number of private standards. In such cases, we ask that companies highlight the metrics that are industry- or company-specific. Companies may also adopt or refer to guidance on sustainable and responsible business conduct issued by supranational organizations such as the United
Nations or the Organization for Economic Cooperation and Development. Further, industry-specific initiatives on managing specific operational risks may be useful. Companies should disclose any global standards adopted, the industry initiatives in
which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business practices. Climate risk BlackRock believes that climate change
has become a defining factor in companies long-term prospects. We ask every company to help its investors understand how it may be impacted by climate-related risk and opportunities, and how these factors are considered within their strategy
in a manner consistent with the companys business model and sector. Specifically, we ask companies to articulate how their business model is aligned to a scenario in which global warming is limited to well below 2°C, moving towards global
net zero emissions by 2050. In Stewardship, we understand that climate change can be very challenging for many companies, as they seek to drive
long-term value by mitigating risks and capturing opportunities. A growing number of companies, financial institutions, as well as governments, have committed to advancing net zero. There is growing consensus that companies can benefit from the more
favorable macro-economic environment under an orderly, timely and just transition to net zero.4 Many companies are asking what their role should be in contributing to a just transition in
ensuring a reliable energy supply and protecting the most vulnerable from energy price shocks and economic dislocation. They are also seeking more clarity as to the public policy path that will help align greenhouse gas reduction actions with
commitments. The International Financial Reporting Standards (IFRS) Foundation announced in November 2021 the
formation of an International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors information needs. The IFRS Foundation plans to
complete consolidation of the Climate Disclosure Standards Board (CDSBan initiative of CDP) and the Value Reporting Foundation (VRFwhich houses the Integrated Reporting Framework and the SASB Standards) by June 2022.
For example, BlackRocks Capital Markets Assumptions anticipate 25 points of cumulative economic gains
over a 20-year period in an orderly transition as compared to the alternative. This better macro environment will support better economic growth, financial stability, job growth, productivity, as well as
ecosystem stability and health outcomes. B-11
In this context, we ask companies to disclose a business plan for how they intend to deliver long-term
financial performance through the transition to global net zero, consistent with their business model and sector. We encourage companies to demonstrate that their plans are resilient under likely decarbonization pathways, and the global aspiration
to limit warming to 1.5°C.5 We also encourage companies to disclose how considerations related to having a reliable energy supply and just transition affect their plans. We look to companies to set short-, medium- and long-term science-based targets, where available for their sector, for greenhouse gas reductions and to
demonstrate how their targets are consistent with the long-term economic interests of their shareholders. Companies have an opportunity to use and contribute to the development of alternative energy sources and
low-carbon transition technologies that will be essential to reaching net zero. We also recognize that some continued investment is required to maintain a reliable, affordable supply of fossil fuels during the
transition. We ask companies to disclose how their capital allocation across alternatives, transition technologies, and fossil fuel production is consistent with their strategy and their emissions reduction targets. Key stakeholder interests We believe that, to
advance long-term shareholders interests, companies should consider the interests of their key stakeholders. It is for each company to determine its key stakeholders based on what is material to its business, but they are likely to include
employees, business partners (such as suppliers and distributors), clients and consumers, government, and the communities in which they operate. Considering the interests of key stakeholders recognizes the collective nature of long-term value creation and the extent to which each companys
prospects for growth are tied to its ability to foster strong sustainable relationships with and support from those stakeholders. Companies should articulate how they address adverse impacts that could arise from their business practices and affect
critical business relationships with their stakeholders. We expect companies to implement, to the extent appropriate, monitoring processes (often referred to as due diligence) to identify and mitigate potential adverse impacts and grievance
mechanisms to remediate any actual adverse material impacts. The maintenance of trust within these relationships can be equated with a companys long-term success. To ensure transparency and accountability, companies should disclose how they have identified their key stakeholders and considered their interests in
business decision-making, demonstrating the applicable governance, strategy, risk management, and metrics and targets. This approach should be overseen by the board, which is well positioned to ensure that the approach taken is informed by and
aligns with the companys strategy and purpose. General corporate governance matters and shareholder protections
BlackRock believes that shareholders have a right to material and timely information on the financial performance and viability of the companies in
which they invest. In addition, companies should publish information on the governance structures in place and the rights of shareholders to influence these structures. The reporting and disclosure provided by companies help shareholders assess
whether their economic interests have been protected and the quality of the boards oversight of management. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms,
to submit proposals to the shareholders meeting, and to call special meetings of shareholders. The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets are not
equally equipped to transition their business and reduce emissions at the same ratethose in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace. Government policy
and regional targets may be reflective of these realities. B-12
Corporate Form We believe it is the responsibility of the board to determine the corporate form that is most appropriate given the companys purpose and business
model.6 Companies proposing to change their corporate form to a public benefit corporation or similar entity should put it to a shareholder vote if not already required to do so under applicable
law. Supporting documentation from companies or shareholder proponents proposing to alter the corporate form should clearly articulate how the interests of shareholders and different stakeholders would be impacted as well as the accountability and
voting mechanisms that would be available to shareholders. As a fiduciary on behalf of clients, we generally support management proposals if our analysis indicates that shareholders interests are adequately protected. Relevant shareholder
proposals are evaluated on a case-by-case basis. In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be
voted on by shareholders at a companys annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance
reforms, capital management, and improvements in the management or disclosure of E&S risks. BlackRock is subject to certain requirements under
antitrust law in the United States that place restrictions and limitations on how BlackRock can interact with the companies in which we invest on behalf of our clients, including our ability to submit shareholder proposals. As noted above, we can
vote on proposals put forth by others. When assessing shareholder proposals, we evaluate each proposal on its merit, with a singular focus on its
implications for long-term value creation. We consider the business and economic relevance of the issue raised, as well as its materiality and the urgency with which we believe it should be addressed. We take into consideration the legal effect of
the proposal, as shareholder proposals may be advisory or legally binding depending on the jurisdiction. We would not support proposals that we believe would result in over-reaching into the basic business decisions of the issuer. Where a proposal is focused on a material business risk that we agree needs to be addressed and the intended outcome is consistent with long-term value
creation, we will look to the board and management to demonstrate that the company has met the intent of the request made in the shareholder proposal. Where our analysis and/or engagement indicate an opportunity for improvement in the companys
approach to the issue, we may support shareholder proposals that are reasonable and not unduly constraining on management. Alternatively, or in addition, we may vote against the re-election of one or more
directors if, in our assessment, the board has not responded sufficiently or with an appropriate sense of urgency. We may also support a proposal if management is on track, but we believe that voting in favor might accelerate progress. Corporate form refers to the legal structure by which a business is organized. B-13
BlackRocks oversight of its investment stewardship activities Oversight We hold ourselves to a very high standard
in our investment stewardship activities, including proxy voting. To meet this standard, BIS is comprised of BlackRock employees who do not have other responsibilities other than their roles in BIS. BIS is considered an investment function. BlackRock maintains three regional advisory committees (Stewardship Advisory Committees) for(a) the Americas; (b) Europe, the Middle East
and Africa (EMEA); and (c) Asia-Pacific, generally consisting of senior BlackRock investment professionals and/or senior employees with practical boardroom experience. The regional Stewardship Advisory Committees review and advise
on amendments to BIS proxy voting guidelines covering markets within each respective region (Guidelines). The advisory committees do not determine voting decisions, which are the responsibility of BIS. In addition to the regional Stewardship Advisory Committees, the Investment Stewardship Global Oversight Committee (Global Committee) is a
risk-focused committee, comprised of senior representatives from various BlackRock investment teams, a senior legal representative, the Global Head of Investment Stewardship(Global Head), and other senior executives with relevant
experience and team oversight. The Global Oversight Committee does not determine voting decisions, which are the responsibility of BIS. The Global Head
has primary oversight of the activities of BIS, including voting in accordance with the Guidelines, which require the application of professional judgment and consideration of each companys unique circumstances. The Global Committee reviews
and approves amendments to these Principles. The Global Committee also reviews and approves amendments to the regional Guidelines, as proposed by the regional Stewardship Advisory Committees. In addition, the Global Committee receives and reviews periodic reports regarding the votes cast by BIS, as well as updates on material process issues,
procedural changes, and other risk oversight considerations. The Global Committee reviews these reports in an oversight capacity as informed by the BIS corporate governance engagement program and the Guidelines. BIS carries out engagement with companies, monitors and executes proxy votes, and conducts vote operations (including maintaining records of votes cast) in
a manner consistent with the relevant Guidelines. BIS also conducts research on corporate governance issues and participates in industry discussions to contribute to and keep abreast of important developments in the corporate governance field. BIS
may utilize third parties for certain of the foregoing activities and performs oversight of those third parties. BIS may raise complicated or particularly controversial matters for internal discussion with the relevant investment teams and
governance specialists for discussion and guidance prior to making a voting decision. We carefully consider proxies submitted to funds and other fiduciary account(s) (Fund or Funds) for which we have voting authority.
BlackRock votes(or refrains from voting) proxies for each Fund for which we have voting authority based on our evaluation of the best long-term economic interests of our clients as shareholders, in the exercise of our independent business judgment,
and without regard to the relationship of the issuer of the proxy (or any shareholder proponent or dissident shareholder) to the Fund, the Funds affiliates(if any), BlackRock or BlackRocks affiliates, or BlackRock employees(see
Conflicts management policies and procedures, below). B-14
When exercising voting rights, BlackRock will normally vote on specific proxy issues in accordance with the
Guidelines for the relevant market. The Guidelines are reviewed annually and are amended consistent with changes in the local market practice, as developments in corporate governance occur, or as otherwise deemed advisable by the applicable
Stewardship Advisory Committees. BIS analysts may, in the exercise of their professional judgment, conclude that the Guidelines do not cover the specific matter upon which a proxy vote is required or that an exception to the Guidelines would be in
the best long-term economic interests of BlackRocks clients. In the uncommon circumstance of there being a vote with respect to fixed income
securities or the securities of privately held issuers, the decision generally will be made by a Funds portfolio managers and/or BIS based on their assessment of the particular transactions or other matters at issue. In certain markets, proxy voting involves logistical issues which can affect BlackRocks ability to vote such proxies, as well as the desirability of
voting such proxies. These issues include, but are not limited to: (i) untimely notice of shareholder meetings; (ii) restrictions on a foreigners ability to exercise votes; (iii) requirements to vote proxies in person; (iv)
share-blocking(requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); (v) potential difficulties in translating
the proxy; (vi) regulatory constraints; and (vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as
share-blocking or overly burdensome administrative requirements. As a consequence, BlackRock votes proxies in these situations on a
best-efforts basis. In addition, BIS may determine that it is generally in the best interests of BlackRocks clients not to vote proxies (or not to vote our full allocation) if the costs (including but not limited to opportunity
costs associated with share-blocking constraints) associated with exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal. Portfolio managers have full discretion to vote the shares in the Funds they manage based on their analysis of the economic impact of a particular ballot
item on their investors. Portfolio managers may, from time to time, reach differing views on how best to maximize economic value with respect to a particular investment. Therefore, portfolio managers may, and sometimes do, vote shares in the Funds
under their management differently from BIS or from one another. However, because BlackRocks clients are mostly long-term investors with long-term economic goals, ballots are frequently cast in a uniform manner. Conflicts management policies and procedures BIS maintains policies and procedures that seek to prevent undue influence on BlackRocks proxy voting activity. Such influence might stem from any
relationship between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRocks affiliates, a Fund or a Funds affiliates, or BlackRock employees. The following are examples of sources of
perceived or potential conflicts of interest: BlackRock clients who may be issuers of securities or proponents of shareholder resolutions
BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder
resolutions BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock
Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock
B-15
Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock
BlackRock, Inc. board members who serve as senior executives or directors of public companies held in Funds
managed by BlackRock BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to,
the following: Adopted the Guidelines which are designed to advance our clients interests in the companies in which
BlackRock invests on their behalf. Established a reporting structure that separates BIS from employees with sales, vendor management, or business
partnership roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRocks relationship with such parties.
Clients or business partners are not given special treatment or differentiated access to BIS. BIS prioritizes engagements based on factors including, but not limited to, our need for additional information to make a voting decision or our view on
the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BIS may engage directly with BlackRock clients, business partners and/or third parties, and/or
with employees with sales, vendor management, or business partnership roles, in discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to otherwise ensure that proxy-related client
service levels are met. Determined to engage, in certain instances, an independent fiduciary to vote proxies as a further safeguard to
avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent fiduciary provides BlackRocks proxy voting agent with instructions,
in accordance with the Guidelines, as to how to vote such proxies, and BlackRocks proxy voting agent votes the proxy in accordance with the independent fiduciarys determination. BlackRock uses an independent fiduciary to vote proxies of
BlackRock, Inc. and companies affiliated with BlackRock, Inc. BlackRock may also use an independent fiduciary to vote proxies of: public companies that include BlackRock employees on their boards of directors, public companies of which a BlackRock, Inc. board member serves as a senior executive or a member of the
board of directors, public companies that are the subject of certain transactions involving BlackRock Funds,
public companies that are joint venture partners with BlackRock, and public companies when legal or regulatory requirements compel BlackRock to use an independent fiduciary.
In selecting an independent fiduciary, we assess several characteristics, including but not limited to: independence, an ability to
analyze proxy issues and vote in the best economic interest of our clients, reputation for reliability and integrity, and operational capacity to accurately deliver the assigned votes in a timely manner. We may engage more than one independent
fiduciary, in part to mitigate potential or perceived conflicts of interest at an independent fiduciary. The Global Committee appoints and reviews the performance of the independent fiduciaries, generally on an annual basis. B-16
When so authorized, BlackRock acts as a securities lending agent on behalf of Funds. Securities lending is a well-regulated practice that contributes to
capital market efficiency. It also enables funds to generate additional returns for a fund, while allowing fund providers to keep fund expenses lower. With regard to the relationship between securities lending and proxy voting, BlackRocks approach is informed by our fiduciary responsibility to act in
our clients best interests. In most cases, BlackRock anticipates that the potential long-term value to the Fund of voting shares would be less than the potential revenue the loan may provide the Fund. However, in certain instances, BlackRock
may determine, in its independent business judgment as a fiduciary, that the value of voting outweighs the securities lending revenue loss to clients and would therefore recall shares to be voted in those instances. The decision to recall securities on loan as part of BlackRocks securities lending program in order to vote is based on an evaluation of various
factors that include, but are not limited to, assessing potential securities lending revenue alongside the potential long-term value to clients of voting those securities (based on the information available at the time of recall consideration).7 BIS works with colleagues in the Securities Lending and Risk and Quantitative Analysis teams to evaluate the costs and benefits to clients of recalling shares on loan. Periodically, BlackRock reviews our process for determining whether to recall securities on loan in order to vote and may modify it as necessary. The
issue-specific Guidelines published for each region/country in which we vote are intended to summarize BlackRocks general philosophy and approach to issues that may commonly arise in the proxy voting context in each market where we invest. The
Guidelines are not intended to be exhaustive. BIS applies the Guidelines on a case-by-case basis, in the context of the individual circumstances of each company and the
specific issue under review. As such, the Guidelines do not indicate how BIS will vote in every instance. Rather, they reflect our view about corporate governance issues generally, and provide insight into how we typically approach issues that
commonly arise on corporate ballots. Reporting and vote transparency We are committed to transparency in the stewardship work we do on behalf of clients. We inform clients about our engagement and voting policies and
activities through direct communication and through disclosure on our website. Each year we publish an annual report that provides a global overview of our investment stewardship engagement and voting activities. Additionally, we make public our
market-specific voting guidelines for the benefit of clients and companies with whom we engage. We also publish commentaries to share our perspective on market developments and emerging key themes. Recalling securities on loan can be impacted by the timing of record dates. In the United States, for example,
the record date of a shareholder meeting typically falls before the proxy statements are released. Accordingly, it is not practicable to evaluate a proxy statement, determine that a vote has a material impact on a fund and recall any shares on loan
in advance of the record date for the annual meeting. As a result, managers must weigh independent business judgement as a fiduciary, the benefit to a funds shareholders of recalling loaned shares in advance of an estimated record date without
knowing whether there will be a vote o n matters which have a material impact on the fund (thereby forgoing potential securities lending revenue for the funds shareholders) or leaving shares on loan to potentially earn revenue for the fund
(thereby forgoing the opportunity to vote). B-17
At a more granular level, we publish quarterly our vote record for each company that held a shareholder meeting
during the period, showing how we voted on each proposal and explaining any votes against management proposals or on shareholder proposals. For shareholder meetings where a vote might be high profile or of significant interest to clients, we may
publish a vote bulletin after the meeting, disclosing and explaining our vote on key proposals. We also publish a quarterly list of all companies with which we engaged and the key topics addressed in the engagement meeting. In this way, we help inform our clients about the work we do on their behalf in promoting the governance and business models that support long-term
sustainable value creation. BlackRock Investment Stewardship Proxy voting guidelines for U.S. securities Effective as of
January 2022 B-18
Mergers, acquisitions, asset sales, and other special
transactions B-19
These guidelines should be read in conjunction with the BlackRock Investment Stewardship Global Principles.
We
believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients investments. BlackRock Investment Stewardship (BIS) does this through engagement with management teams
and/or board members on material business issues, including environmental, social, and governance (ESG) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of their
assets. The following issue-specific proxy voting guidelines(the Guidelines) are intended to summarize BIS regional philosophy and
approach to engagement and voting on ESG factors, as well as our expectations of directors, for U.S. securities. These Guidelines are not intended to limit the analysis of individual issues at specific companies or provide a guide to how BIS will
engage and/or vote in every instance. They are applied with discretion, taking into consideration the range of issues and facts specific to the company, as well as individual ballot items at annual and special meetings. These
guidelines are divided into eight key themes, which group together the issues that frequently appear on the agenda of annual and extraordinary meetings of shareholders: Boards and directors Auditors and audit-related issues Capital structure Mergers, acquisitions, asset sales, and other special transactions Executive compensation Environmental and social issues General corporate governance matters Shareholder protections The effective performance of the board is critical to the economic success of the company and the protection of shareholders interests. As part of
their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction, operations, and risk management of the company. For this reason, BIS sees engagement with and the election of directors as one of our
most critical responsibilities. Disclosure of material issues that affect the companys long-term strategy and value creation, including material
ESG factors, is essential for shareholders to appropriately understand and assess how effectively the board is identifying, managing, and mitigating risks. B-20
Where we conclude that a board has failed to address or disclose one or more material issues within a specified
timeframe, we may hold directors accountable or take other appropriate action in the context of our voting decisions. Director elections Where a board has not adequately demonstrated, through actions and company disclosures, how material issues are appropriately identified, managed, and
overseen, we will consider voting against the re-election of those directors responsible for the oversight of such issues, as indicated below. Independence We expect a majority of the directors
on the board to be independent. In addition, all members of key committees, including audit, compensation, and nominating/governance committees, should be independent. Our view of independence may vary from listing standards. Common impediments to independence may include: Employment as a senior executive by the company or a subsidiary within the past five years
An equity ownership in the company in excess of 20% Having any other interest, business, or relationship (professional or personal) which could, or could
reasonably be perceived to, materially interfere with the directors ability to act in the best interests of the company We may
vote against directors serving on key committees who we do not consider to be independent, including at controlled companies. Oversight We expect the board to exercise appropriate oversight of management and the business activities of the company. Where we believe a board has failed to
exercise sufficient oversight, we may vote against the responsible committees and/or individual directors. The following illustrates common circumstances: With regard to material ESG risk factors, or where the company has failed to provide shareholders with adequate
disclosure to conclude appropriate strategic consideration is given to these factors by the board, we may vote against directors of the responsible committee, or the most relevant director With regard to accounting practices or audit oversight, e.g., where the board has failed to facilitate quality,
independent auditing. If substantial accounting irregularities suggest insufficient oversight, we will consider voting against the current audit committee, and any other members of the board who may be responsible During a period in which executive compensation appears excessive relative to the performance of the company
and compensation paid by peers, we may vote against the members of the compensation committee Where a company has proposed an equity compensation plan that is not aligned with shareholders interests,
we may vote against the members of the compensation committee Where the board is not comprised of a majority of independent directors (this may not apply in the case of a
controlled company), we may vote against the chair of the nominating/governance committee, or where no chair exists, the nominating/governance committee member with the longest tenure B-21
Where it appears the director has acted (at the company or at other companies) in a manner that compromises
their ability to represent the best long-term economic interests of shareholders, we may vote against that individual Where a director has a multi-year pattern of poor attendance at combined board and applicable committee
meetings, or a director has poor attendance in a single year with no disclosed rationale, we may vote against that individual. Excluding exigent circumstances, BIS generally considers attendance at less than 75% of the combined board and applicable
committee meetings to be poor attendance Where a director serves on an excessive number of boards, which may limit their capacity to focus on each
boards needs, we may vote against that individual. The following identifies the maximum number of boards on which a director may serve, before BIS considers them to be over-committed: B-22
Director A Director B9 Responsiveness to shareholders We expect a board to be engaged and responsive to its shareholders, including acknowledging voting outcomes for director elections, compensation,
shareholder proposals, and other ballot items. Where we believe a board has not substantially addressed shareholder concerns, we may vote against the responsible committees and/or individual directors. The following illustrates common circumstances:
The independent chair or lead independent director, members of the nominating/governance committee, and/or the
longest tenured director(s), where we observe a lack of board responsiveness to shareholders, evidence of board entrenchment, and/or failure to plan for adequate board member succession The chair of the nominating/governance committee, or where no chair exists, the nominating/governance committee
member with the longest tenure, where board member(s) at the most recent election of directors have received against votes from more than 25% of shares voted, and the board has not taken appropriate action to respond to shareholder concerns. This
may not apply in cases where BIS did not support the initial against vote The independent chair or lead independent director and/or members of the nominating/governance committee, where
a board fails to consider shareholder proposals that receive substantial support, and the proposals, in our view, have a material impact on the business, shareholder rights, or the potential for long-term value creation Shareholder rights We expect a board to act with
integrity and to uphold governance best practices. Where we believe a board has not acted in the best interests of its shareholders, we may vote against the appropriate committees and/or individual directors. The following illustrates common
circumstances: The independent chair or lead independent director and members of the nominating/governance committee, where a
board implements or renews a poison pill without shareholder approval The independent chair or lead independent director and members of the nominating/governance committee, where a
board amends the charter/articles/bylaws and where the effect may be to entrench directors or to significantly reduce shareholder rights In addition to the company under review. Including fund managers whose full-time employment involves responsibility for the investment and oversight of
fund vehicles, and those who have employment as professional investors and provide oversight for those holdings. B-23
Members of the compensation committee where the company has repriced options without shareholder approval
If a board maintains a classified structure, it is possible that the director(s) with whom we have a particular concern may not be
subject to election in the year that the concern arises. In such situations, if we have a concern regarding the actions of a committee and the responsible member(s), we will generally register our concern by voting against all available members of
the relevant committee. Board composition and effectiveness We encourage boards to periodically refresh their membership to ensure relevant skills and experience within the boardroom. To this end, regular performance
reviews and skills assessments should be conducted by the nominating/governance committee or the lead independent director. When nominating new directors to the board, we ask that there is sufficient information on the individual candidates so that
shareholders can assess the suitability of each individual nominee and the overall board composition. Where boards find that age limits or term limits are the most efficient and objective mechanism for ensuring periodic board refreshment, we
generally defer to the boards determination in setting such limits. BIS will also consider the average board tenure to evaluate processes for board renewal. We may oppose boards that appear to have an insufficient mix of short-, medium-, and
long-tenured directors. Furthermore, we expect boards to be comprised of a diverse selection of individuals who bring their personal and professional
experiences to bear in order to create a constructive debate of a variety of views and opinions in the boardroom. We are interested in diversity in the board room as a means to promoting diversity of thought and avoiding groupthink. We
ask boards to disclose how diversity is considered in board composition, including demographic factors such as gender, race, ethnicity, and age; as well as professional characteristics, such as a directors industry experience, specialist areas
of expertise, and geographic location. We assess a boards diversity in the context of a companys domicile, business model, and strategy. We believe boards should aspire to 30% diversity of membership and encourage companies to have at
least two directors on their board who identify as female and at least one who identifies as a member of an underrepresented group.10 We ask that boards disclose: The aspects of diversity that the company believes are relevant to its business and how the diversity
characteristics of the board, in aggregate, are aligned with a companys long-term strategy and business model The process by which candidates are identified and selected, including whether professional firms or other
resources outside of incumbent directors networks have been engaged to identify and/or assess candidates, and whether a diverse slate of nominees is considered for all available board nominations The process by which boards evaluate themselves and any significant outcomes of the evaluation process, without
divulging inappropriate and/or sensitive details Including, but not limited to, individuals who identify as Black or African American, Hispanic or Latinx ,
Asian, Native American or Alaska Native, or Native Hawaiian or Pacific Islander; individuals who identify as LGBTQ+; individuals who identify as underrepresented based on national, Indigenous, religious, or cultural identity; individuals with
disabilities; and veterans. B-24
This position is based on our view that diversity of perspective and thought in the boardroom, in the
management team, and throughout the company leads to better long-term economic outcomes for companies. Academic research already reveals correlations between specific dimensions of diversity and effects on decision-making processes and
outcomes.11 In our experience, greater diversity in the boardroom contributes to more robust discussions and more innovative and resilient decisions. Over time, it can also promote greater
diversity and resilience in the leadership team and workforce more broadly, enabling companies to develop businesses that more closely reflect and resonate with the customers and communities they serve. To the extent that, based on our assessment of corporate disclosures, a company has not adequately accounted for diversity in its board composition within a
reasonable timeframe, we may vote against members of the nominating/governance committee for an apparent lack of commitment to board effectiveness. We recognize that building high-quality, diverse boards can take time. We will look to the largest
companies (e.g., S&P 500) for continued leadership. Our publicly available commentary provides more information on our approach to board diversity. Board size We typically defer to the board in
setting the appropriate size and believe directors are generally in the best position to assess the optimal board size to ensure effectiveness. However, we may oppose boards that appear too small to allow for the necessary range of skills and
experience or too large to function efficiently. CEO and management succession planning There should be a robust CEO and senior management succession plan in place at the board level that is reviewed and updated on a regular basis. We expect
succession planning to cover scenarios over both the long-term, consistent with the strategic direction of the company and identified leadership needs over time, as well as the short-term, in the event of an unanticipated executive departure. We
encourage the company to explain its executive succession planning process, including where accountability lies within the boardroom for this task, without prematurely divulging sensitive information commonly associated with this exercise. Classified board of directors/staggered terms We
believe that directors should be re-elected annually; classification of the board generally limits shareholders rights to regularly evaluate a boards performance and select directors. While we will
typically support proposals requesting board de-classification, we may make exceptions, should the board articulate an appropriate strategic rationale for a classified board structure. This may include when a
company needs consistency and stability during a time of transition, e.g., newly public companies or companies undergoing a strategic restructuring. A classified board structure may also be justified at
non-operating companies, e.g., closed-end funds or business development companies (BDC),12 in certain
circumstances. We would, however, expect boards with a classified structure to periodically review the rationale for such structure and consider when annual elections might be more appropriate. For example, the role of gender diversity on team cohesion and participative communication is explored by Post,
C., 2015, When is female leadership an advantage? Coordination requirements, team cohesion, and team interaction norms, Journal of Organizational Behavior, 36, 1153-1175. A BDC is a special investment vehicle under the Investment Company Act of 1940 that is designed to facilitate
capital formation for small and middle-market companies. B-25
Without a voting mechanism to immediately address concerns about a specific director, we may choose to vote
against the directors up for election at the time (see Shareholder rights for additional detail). Contested director elections The details of contested elections, or proxy contests, are assessed on a
case-by-case basis. We evaluate a number of factors, which may include: the qualifications of the dissident and management candidates; the validity of the concerns
identified by the dissident; the viability of both the dissidents and managements plans; the ownership stake and holding period of the dissident; the likelihood that the dissidents solutions will produce the desired change; and
whether the dissident represents the best option for enhancing long-term shareholder value. Cumulative voting We believe that a majority vote standard is in the best long-term interests of shareholders. It ensures director accountability through the requirement to
be elected by more than half of the votes cast. As such, we will generally oppose proposals requesting the adoption of cumulative voting, which may disproportionately aggregate votes on certain issues or director candidates. Director compensation and equity programs We
believe that compensation for directors should be structured to attract and retain directors, while also aligning their interests with those of shareholders. We believe director compensation packages that are based on the companys long-term
value creation and include some form of long-term equity compensation are more likely to meet this goal. In addition, we expect directors to build meaningful share ownership over time. Majority vote requirements BIS believes that
directors should generally be elected by a majority of the shares voted and will normally support proposals seeking to introduce bylaws requiring a majority vote standard for director elections. Majority vote standards assist in ensuring that
directors who are not broadly supported by shareholders are not elected to serve as their representatives. Some companies with a plurality voting standard have adopted a resignation policy for directors who do not receive support from at least a
majority of votes cast. Where we believe that the company already has a sufficiently robust majority voting process in place, we may not support a shareholder proposal seeking an alternative mechanism. We note that majority voting may not be appropriate in all circumstances, for example, in the context of a contested election, or for majority-controlled
companies. Risk oversight Companies should
have an established process for identifying, monitoring, and managing business and material ESG risks. Independent directors should have access to relevant management information and outside advice, as appropriate, to ensure they can properly
oversee risk. We encourage companies to provide transparency around risk management, mitigation, and reporting to the board. We are particularly interested in understanding how risk oversight processes evolve in response to changes in corporate
strategy and/or shifts in the business and related risk environment. Comprehensive disclosure provides investors with a sense of the companys long-term risk management practices and, more broadly, the quality of the boards oversight. In
the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk. B-26
Separation of chair and CEO We believe that independent leadership is important in the boardroom. There are two commonly accepted structures for independent board leadership: 1) an
independent chair; or 2) a lead independent director when the roles of chair and CEO are combined. In the absence of a significant governance concern,
we defer to boards to designate the most appropriate leadership structure to ensure adequate balance and independence.13 In the event that the board chooses a combined chair/CEO model, we generally support the designation of a lead independent director if they have the power
to: 1) provide formal input into board meeting agendas; 2) call meetings of the independent directors; and 3) preside at meetings of independent directors. Furthermore, while we anticipate that most directors will be elected annually, we believe an
element of continuity is important for this role to provide appropriate leadership balance to the chair/CEO. The following table illustrates examples
of responsibilities under each board leadership model: Auditors and audit-related issues BIS recognizes the critical importance of financial statements to provide a complete and accurate portrayal of a companys financial condition.
Consistent with our approach to voting on directors, we seek to hold the audit committee of the board responsible for overseeing the management of the audit function at a company. We may vote against the audit committee members where the board has
failed to facilitate quality, independent auditing. We look to public disclosures for insight into the scope of the audit committee responsibilities, including an overview of audit committee processes, issues on the audit committee agenda, and key
decisions To this end, we do not view shareholder proposals asking for the separation of chair and CEO to be a proxy for
other concerns we may have at the company for which a vote against directors would be more appropriate. Rather, support for such a proposal might arise in the case of overarching and sustained governance concerns such as lack of independence or
failure to oversee a material risk over consecutive years. B-27
taken by the audit committee. We take particular note of cases involving significant financial restatements or material weakness disclosures, and we expect timely disclosure and remediation of
accounting irregularities. The integrity of financial statements depends on the auditor effectively fulfilling its role. To that end, we favor an
independent auditor. In addition, to the extent that an auditor fails to reasonably identify and address issues that eventually lead to a significant financial restatement, or the audit firm has violated standards of practice, we may also vote
against ratification. From time to time, shareholder proposals may be presented to promote auditor independence or the rotation of audit firms. We may
support these proposals when they are consistent with our views as described above. Equal voting rights BIS believes that shareholders
should be entitled to voting rights in proportion to their economic interests. We believe that companies that look to add or that already have dual or multiple class share structures should review these structures on a regular basis, or as company
circumstances change. Companies with multiple share classes should receive shareholder approval of their capital structure on a periodic basis via a management proposal on the companys proxy. The proposal should give unaffiliated shareholders
the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders. Blank check preferred stock We frequently oppose
proposals requesting authorization of a class of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (blank check preferred stock) because they may serve as a transfer of authority from
shareholders to the board and as a possible entrenchment device. We generally view the boards discretion to establish voting rights on a when-issued basis as a potential anti-takeover device, as it affords the board the ability to place a
block of stock with an investor sympathetic to management, thereby foiling a takeover bid without a shareholder vote. Nonetheless, we may support the
proposal where the company: Appears to have a legitimate financing motive for requesting blank check authority Has committed publicly that blank check preferred shares will not be used for anti-takeover purposes
Has a history of using blank check preferred stock for financings Has blank check preferred stock previously outstanding such that an increase would not necessarily provide
further anti-takeover protection but may provide greater financing flexibility Increase in authorized common shares BIS will evaluate requests to increase authorized shares on a case-by-case
basis, in conjunction with industry-specific norms and potential dilution, as well as a companys history with respect to the use of its common shares. B-28
Increase or issuance of preferred stock We generally support proposals to increase or issue preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights
of such stock and where the terms of the preferred stock appear reasonable. Stock splits We generally support stock splits that are not likely to negatively affect the ability to trade shares or the economic value of a share. We generally
support reverse stock splits that are designed to avoid delisting or to facilitate trading in the stock, where the reverse split will not have a negative impact on share value (e.g., one class is reduced while others remain at pre-split levels). In the event of a proposal for a reverse split that would not proportionately reduce the companys authorized stock, we apply the same analysis we would use for a proposal to increase
authorized stock. Mergers, acquisitions, asset sales, and other special transactions In assessing mergers, acquisitions, asset sales, or other special transactions including business combinations involving Special Purpose Acquisition
Companies(SPACs) BIS primary consideration is the long-term economic interests of our clients as shareholders. We expect boards proposing a transaction to clearly explain the economic and strategic rationale behind it. We
will review a proposed transaction to determine the degree to which it enhances long-term shareholder value. While mergers, acquisitions, asset sales, business combinations, and other special transaction proposals vary widely in scope and substance,
we closely examine certain salient features in our analyses, such as: The degree to which the proposed transaction represents a premium to the companys trading price. We
consider the share price over multiple time periods prior to the date of the merger announcement. We may consider comparable transaction analyses provided by the parties financial advisors and our own valuation assessments. For companies
facing insolvency or bankruptcy, a premium may not apply There should be clear strategic, operational, and/or financial rationale for the combination
Unanimous board approval and arms-length negotiations are
preferred. We will consider whether the transaction involves a dissenting board or does not appear to be the result of an arms-length bidding process. We may also consider whether executive and/or board
members financial interests appear likely to affect their ability to place shareholders interests before their own We prefer transaction proposals that include the fairness opinion of a reputable financial advisor assessing
the value of the transaction to shareholders in comparison to recent similar transactions Poison pill plans Where a poison pill is put to a shareholder vote by management, our policy is to examine these plans individually. Although we have historically opposed
most plans, we may support plans that include a reasonable qualifying offer clause. Such clauses typically require shareholder ratification of the pill and stipulate a sunset provision whereby the pill expires unless it is renewed. These
clauses also tend to specify that an all-cash bid for all shares that includes a fairness opinion and evidence of financing does not trigger the B-29
pill, but forces either a special meeting at which the offer is put to a shareholder vote or requires the board to seek the written consent of shareholders, where shareholders could rescind the
pill at their discretion. We may also support a pill where it is the only effective method for protecting tax or other economic benefits that may be associated with limiting the ownership changes of individual shareholders. We generally vote in favor of shareholder proposals to rescind poison pills. Reimbursement of expense for successful shareholder campaigns We generally do not support shareholder proposals seeking the reimbursement of proxy contest expenses, even in situations where we support the shareholder
campaign. We believe that introducing the possibility of such reimbursement may incentivize disruptive and unnecessary shareholder campaigns. BIS expects a companys board of directors to put in place a compensation structure that incentivizes and rewards
executives appropriately and is aligned with shareholder interests, particularly the generation of sustainable long-term value. We expect the
compensation committee to carefully consider the specific circumstances of the company and the key individuals the board is focused on incentivizing. We encourage companies to ensure that their compensation plans incorporate appropriate and rigorous
performance metrics consistent with corporate strategy and market practice. Performance-based compensation should include metrics that are relevant to the business and stated strategy or risk mitigation efforts. Goals, and the processes used to set
these goals, should be clearly articulated and appropriately rigorous. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee, or
equivalent board members, accountable for poor compensation practices or structures. BIS believes that there should be a clear link between variable
pay and company performance that drives value creation for our clients as shareholders. We are generally not supportive of one-off or special bonuses unrelated to company or individual performance. Where
discretion has been used by the compensation committee, we expect disclosure relating to how and why the discretion was used and further, how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help calibrate competitive pay; however, we are concerned when the
rationale for increases in total compensation is solely based on peer benchmarking, rather than absolute outperformance. We support incentive plans
that foster the sustainable achievement of results both financial and non-financial, including ESG consistent with the companys strategic initiatives. The vesting and holding timeframes
associated with incentive plans should facilitate a focus on long-term value creation. Compensation committees should guard against contractual
arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practices. Our publicly
available commentary provides more information on our approach to executive compensation. Say on Pay advisory resolutions B-30
In cases where there is a Say on Pay vote, BIS will respond to the proposal as informed by our
evaluation of compensation practices at that particular company and in a manner that appropriately addresses the specific question posed to shareholders. Where we conclude that a company has failed to align pay with performance, we will vote against
the management compensation proposal and relevant compensation committee members. Frequency of Say on Pay advisory resolutions BIS will generally support annual advisory votes on executive compensation. We believe shareholders should have the opportunity to express feedback on
annual incentive programs and changes to long-term compensation before multiple cycles are issued. Clawback proposals We generally favor recoupment from any senior executive whose compensation was based on faulty financial reporting or deceptive business practices. We also
favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal proceeding, even if such actions did not ultimately result in a material
restatement of past results. This includes, but is not limited to, settlement agreements arising from such behavior and paid for directly by the company. We typically support shareholder proposals on these matters unless the company already has a
robust clawback policy that sufficiently addresses our concerns. Employee stock purchase plans We believe employee stock purchase plans (ESPP) are an important part of a companys overall human capital management strategy and can
provide performance incentives to help align employees interests with those of shareholders. The most common form of ESPP qualifies for favorable tax treatment under Section 423 of the Internal Revenue Code. We will typically support
qualified ESPP proposals. Equity compensation plans BIS supports equity plans that align the economic interests of directors, managers, and other employees with those of shareholders. We believe that boards
should establish policies prohibiting the use of equity awards in a manner that could disrupt the intended alignment with shareholder interests(e.g., the use of stock as collateral for a loan; the use of stock in a margin account; the use of stock
in hedging or derivative transactions). We may support shareholder proposals requesting the establishment of such policies. Our evaluation of equity
compensation plans is based on a companys executive pay and performance relative to peers and whether the plan plays a significant role in a pay-for-performance
disconnect. We generally oppose plans that contain evergreen provisions, which allow for the unlimited increase of shares reserved without requiring further shareholder approval after a reasonable time period. We also generally oppose
plans that allow for repricing without shareholder approval. We may also oppose plans that provide for the acceleration of vesting of equity awards even in situations where an actual change of control may not occur. We encourage companies to
structure their change of control provisions to require the termination of the covered employee before acceleration or special payments are triggered (commonly referred to as double trigger change of control provisions). B-31
Golden parachutes We generally view golden parachutes as encouragement to management to consider transactions that might be beneficial to shareholders. However, a large
potential pay-out under a golden parachute arrangement also presents the risk of motivating a management team to support a sub-optimal sale price for a company. When determining whether to support or oppose an advisory vote on a golden parachute plan, BIS may consider several factors, including: Whether we believe that the triggering event is in the best interests of shareholders Whether management attempted to maximize shareholder value in the triggering event The percentage of total premium or transaction value that will be transferred to the management team, rather
than shareholders, as a result of the golden parachute payment Whether excessively large excise tax gross-up payments are part of the pay-out Whether the pay package that serves as the basis for calculating the golden parachute payment was reasonable in
light of performance and peers Whether the golden parachute payment will have the effect of rewarding a management team that has failed to
effectively manage the company It may be difficult to anticipate the results of a plan until after it has been triggered; as a
result, BIS may vote against a golden parachute proposal even if the golden parachute plan under review was approved by shareholders when it was implemented. We may support shareholder proposals requesting that implementation of such arrangements require shareholder approval. Option exchanges We believe that there may be
legitimate instances where underwater options create an overhang on a companys capital structure and a repricing or option exchange may be warranted. We will evaluate these instances on a case-by-case basis. BIS may support a request to reprice or exchange underwater options under the following circumstances: The company has experienced significant stock price decline as a result of macroeconomic trends, not individual
company performance Directors and executive officers are excluded; the exchange is value neutral or value creative to shareholders;
tax, accounting, and other technical considerations have been fully contemplated There is clear evidence that absent repricing, the company will suffer serious employee incentive or retention
and recruiting problems BIS may also support a request to exchange underwater options in other circumstances, if we determine that
the exchange is in the best interests of shareholders. B-32
Supplemental executive retirement plans BIS may support shareholder proposals requesting to put extraordinary benefits contained in supplemental executive retirement plans(SERP) to a
shareholder vote unless the companys executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans. Environmental and social issues We believe that well-managed companies deal effectively with material ESG factors relevant to their businesses. Governance is the core means by which boards
can oversee the creation of sustainable long-term value. Appropriate risk oversight of environmental and social(E&S) considerations stems from this construct. Robust disclosure is essential for investors to effectively gauge the impact of companies business practices and strategic planning related to E&S
risks and opportunities. When a companys reporting is inadequate, investors, including BlackRock, will increasingly conclude that the company is not appropriately managing risk. Given the increased understanding of material sustainability
risks and opportunities, and the need for better information to assess them, BIS will advocate for continued improvement in companies reporting and will express concerns through our voting where disclosures or the business practices underlying
them are inadequate. BIS encourages companies to disclose their approach to maintaining a sustainable business model. We believe that reporting aligned
with the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD), supported by industry-specific metrics such as those identified by the Sustainability Accounting Standards Board (SASB), can
provide a comprehensive picture of a companys sustainability approach and performance. While the TCFD framework was developed to support climate-related risk disclosure, the four pillars of the TCFD Governance, Strategy, Risk
Management, and Metrics and Targets are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of sustainability-related risks and opportunities. SASBs industry-specific guidance (as identified
in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability that are considered to be financially material and decision-useful within their industry.
We recognize that some companies may report using different standards, which may be required by regulation, or one of a number of private standards. In such cases, we ask that companies highlight the metrics that are industry- or company-specific.
Accordingly, we ask companies to: Disclose the identification, assessment, management, and oversight of sustainability-related risks in
accordance with the four pillars of TCFD Publish investor-relevant, industry-specific, material metrics and rigorous targets, aligned with SASB or
comparable sustainability reporting standards Companies should also disclose any supranational standards adopted, the industry
initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business conduct. B-33
Climate risk BlackRock believes that climate change has become a defining factor in companies long-term prospects. We ask every company to help its investors
understand how it may be impacted by climate-related risk and opportunities, and how these factors are considered within strategy in a manner consistent with the companys business model and sector. Specifically, we ask companies to articulate
how their business model is aligned to a scenario in which global warming is limited to well below 2°C, moving towards global net zero emissions by 2050. BIS understands that climate change can be very challenging for many companies, as they seek to drive long-term value by mitigating risks and capturing
opportunities. A growing number of companies, financial institutions, as well as governments, have committed to advancing net zero. There is growing consensus that companies can benefit from the more favorable macro-economic environment under an
orderly, timely, and just transition to net zero.14 Many companies are asking what their role should be in contributing to a just transition in ensuring a reliable energy supply and
protecting the most vulnerable from energy price shocks and economic dislocation. They are also seeking more clarity as to the public policy path that will help align greenhouse gas reduction actions with commitments. In this context, we ask companies to disclose a business plan for how they intend to deliver long-term financial performance through the transition to
global net zero, consistent with their business model and sector. We encourage companies to demonstrate that their plans are resilient under likely decarbonization pathways, and the global aspiration to limit warming to 1.5°C.15 We also encourage companies to disclose how considerations related to having a reliable energy supply and just transition affect their plans. We look to companies to set short-, medium-, and long-term science-based targets, where available for their sector, for greenhouse gas reductions and to
demonstrate how their targets are consistent with the long-term economic interests of their shareholders. Companies have an opportunity to use and contribute to the development of alternative energy sources and
low-carbon transition technologies that will be essential to reaching net zero. We also recognize that some continued investment is required to maintain a reliable, affordable supply of fossil fuels during the
transition. We ask companies to disclose how their capital allocation across alternatives, transition technologies, and fossil fuel production is consistent with their strategy and their emissions reduction targets. In determining how to vote, we will continue to assess whether a companys disclosures are aligned with the TCFD and provide short-, medium-, and
long-term reduction targets for Scope 1 and 2 emissions. We may signal concerns about a companys plans or disclosures in our voting on director elections, particularly at companies facing material climate risks. We may support shareholder
proposals that ask companies to disclose climate plans aligned with our expectations. Our publicly available commentary provides more information on our approach to climate risk. For example, BlackRocks Capital Markets Assumptions anticipate 25 points of cumulative economic gains
over a 20-year period in an orderly transition as compared to the alternative. This better macro environment will support better economic growth, financial stability, job growth, productivity, as well as
ecosystem stability and health outcomes. The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets are not
equally equipped to transition their business and reduce emissions at the same ratethose in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace. Government policy
and regional targets may be reflective of these realities. B-34
Key stakeholder interests We believe that in order to deliver long-term value for shareholders, companies should also consider the interests of their key stakeholders. While
stakeholder groups may vary across industries, they are likely to include employees; business partners (such as suppliers and distributors); clients and consumers; government and regulators; and the communities in which a company operates. Companies
that build strong relationships with their key stakeholders are more likely to meet their own strategic objectives, while poor relationships may create adverse impacts that expose a company to legal, regulatory, operational, and reputational risks
and jeopardize their social license to operate. We expect companies to effectively oversee and mitigate these risks with appropriate due diligence processes and board oversight. Our publicly available commentaries provide more information on our
approach. Human capital management A
companys approach to human capital management (HCM) is a critical factor in fostering an inclusive, diverse, and engaged workforce, which contributes to business continuity, innovation, and long-term value creation. Consequently,
we expect companies to demonstrate a robust approach to HCM and provide shareholders with disclosures to understand how their approach aligns with their stated strategy and business model. We believe that clear and consistent disclosures on these matters are critical for investors to make an informed assessment of a companys HCM
practices. We expect companies to disclose the steps they are taking to advance diversity, equity, and inclusion; job categories and workforce demographics; and their responses to the U.S. Equal Employment Opportunity Commissions EEO-1 Survey. Where we believe a companys disclosures or practices fall short relative to the market or peers, or we are unable to ascertain the board and managements effectiveness in overseeing related
risks and opportunities, we may vote against members of the appropriate committee or support relevant shareholder proposals. Our publicly available commentary provides more information on our approach to HCM. Corporate political activities Companies may engage
in certain political activities, within legal and regulatory limits, in order to support public policy matters material to the companies long-term strategies. These activities can also create risks, including: the potential for allegations of
corruption; certain reputational risks; and risks that arise from the complex legal, regulatory, and compliance considerations associated with corporate political spending and lobbying activity. Companies that engage in political activities should
develop and maintain robust processes to guide these activities and mitigate risks, including board oversight. When presented with shareholder
proposals requesting increased disclosure on corporate political activities, BIS will evaluate publicly available information to consider how a companys lobbying and political activities may impact the company. We will also evaluate whether
there is general consistency between a companys stated positions on policy matters material to its strategy and the material positions taken by significant industry groups of which it is a member. We may decide to support a shareholder
proposal requesting additional disclosures if we identify a material inconsistency or feel that further transparency may clarify how the companys political activities support its long-term strategy. Our publicly available commentary provides
more information on our approach to corporate political activities. B-35
General corporate governance matters Adjourn meeting to solicit additional votes We
generally support such proposals unless the agenda contains items that we judge to be detrimental to shareholders best long-term economic interests. Bundled proposals We believe that shareholders
should have the opportunity to review substantial governance changes individually without having to accept bundled proposals. Where several measures are grouped into one proposal, BIS may reject certain positive changes when linked with proposals
that generally contradict or impede the rights and economic interests of shareholders. Exclusive forum provisions BIS generally supports proposals to seek exclusive forum for certain shareholder litigation. In cases where a board unilaterally adopts exclusive forum
provisions that we consider unfavorable to the interests of shareholders, we will vote against the independent chair or lead independent director and members of the nominating/governance committee. Multi-jurisdictional companies Where a company is
listed on multiple exchanges or incorporated in a country different from its primary listing, we will seek to apply the most relevant market guideline(s) to our analysis of the companys governance structure and specific proposals on the
shareholder meeting agenda. In doing so, we typically consider the governance standards of the companys primary listing, the market standards by which the company governs itself, and the market context of each specific proposal on the agenda.
If the relevant standards are silent on the issue under consideration, we will use our professional judgment as to what voting outcome would best protect the long-term economic interests of investors. We expect companies to disclose the rationale
for their selection of primary listing, country of incorporation, and choice of governance structures, particularly where there is conflict between relevant market governance practices. Other business We oppose voting on matters where we
are not given the opportunity to review and understand those measures and carry out an appropriate level of shareholder oversight. Reincorporation
Proposals to reincorporate from one state or country to another are most frequently motivated by considerations of anti-takeover protections, legal
advantages, and/or cost savings. We will evaluate, on a case-by-case basis, the economic and strategic rationale behind the companys proposal to reincorporate. In
all instances, we will evaluate the changes to shareholder protections under the new charter/articles/bylaws to assess whether the move increases or decreases shareholder protections. Where we find that shareholder protections are diminished, we may support reincorporation if we determine that the overall benefits outweigh the diminished
rights. IPO governance We expect boards to
consider and disclose how the corporate governance structures adopted upon initial public offering (IPO) are in shareholders best long-term interests. We also expect boards to conduct a regular
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review of corporate governance and control structures, such that boards might evolve foundational corporate governance structures as company circumstances change, without undue costs and
disruption to shareholders. In our letter on unequal voting structures, we articulate our view that one vote for one share is the preferred structure for publicly-traded companies. We also recognize the potential benefits of dual class
shares to newly public companies as they establish themselves; however, we believe that these structures should have a specific and limited duration. We will generally engage new companies on topics such as classified boards and supermajority vote
provisions to amend bylaws, as we believe that such arrangements may not be in the best interest of shareholders in the long-term. We will typically
apply a one-year grace period for the application of certain director-related guidelines (including, but not limited to, responsibilities on other public company boards and board composition concerns), during
which we expect boards to take steps to bring corporate governance standards in line with our expectations. Further, if a company qualifies as an
emerging growth company (an EGC) under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), we will give consideration to the NYSE and NASDAQ governance exemptions granted under the JOBS Act for the duration such a
company is categorized as an EGC. We expect an EGC to have a totally independent audit committee by the first anniversary of its IPO, with our standard approach to voting on auditors and audit-related issues applicable in full for an EGC on the
first anniversary of its IPO. Corporate form Proposals to change a corporations form, including those to convert to a public benefit corporation (PBC) structure, should clearly
articulate how the interests of shareholders and different stakeholders would be augmented or adversely affected, as well as the accountability and voting mechanisms that would be available to shareholders. We generally support management proposals
if our analysis indicates that shareholders interests are adequately protected. Corporate form shareholder proposals are evaluated on a case-by-case basis. Amendment to charter/articles/bylaws We believe
that shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms and amendments to the charter/articles/bylaws. We may vote against certain directors where changes to governing documents
are not put to a shareholder vote within a reasonable period of time, particularly if those changes have the potential to impact shareholder rights (see Director elections). In cases where a boards unilateral adoption of changes to
the charter/articles/bylaws promotes cost and operational efficiency benefits for the company and its shareholders, we may support such action if it does not have a negative effect on shareholder rights or the companys corporate governance
structure. When voting on a management or shareholder proposal to make changes to the charter/articles/bylaws, we will consider in part the
companys and/or proponents publicly stated rationale for the changes; the companys governance profile and history; relevant jurisdictional laws; and situational or contextual circumstances which may have motivated the proposed
changes, among other factors. We will typically support amendments to the charter/articles/bylaws where the benefits to shareholders outweigh the costs of failing to make such changes. B-37
Proxy access We believe that long-term shareholders should have the opportunity, when necessary and under reasonable conditions, to nominate directors on the
companys proxy card. In our view, securing the right of shareholders to nominate directors without engaging in a control contest can enhance
shareholders ability to meaningfully participate in the director election process, encourage board attention to shareholder interests, and provide shareholders an effective means of directing that attention where it is lacking. Proxy access
mechanisms should provide shareholders with a reasonable opportunity to use this right without stipulating overly restrictive or onerous parameters for use, and also provide assurances that the mechanism will not be subject to abuse by short-term
investors, investors without a substantial investment in the company, or investors seeking to take control of the board. In general, we support
market-standardized proxy access proposals, which allow a shareholder (or group of up to 20 shareholders) holding three percent of a companys outstanding shares for at least three years the right to nominate the greater of up to two directors
or 20% of the board. Where a standardized proxy access provision exists, we will generally oppose shareholder proposals requesting outlier thresholds. Right to act by written consent In exceptional
circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. We therefore believe that shareholders should have the
right to solicit votes by written consent provided that: 1) there are reasonable requirements to initiate the consent solicitation process (in order to avoid the waste of corporate resources in addressing narrowly supported interests); and 2)
shareholders receive a minimum of 50% of outstanding shares to effectuate the action by written consent. We may oppose shareholder proposals requesting the right to act by written consent in cases where the proposal is structured for the benefit of
a dominant shareholder to the exclusion of others, or if the proposal is written to discourage the board from incorporating appropriate mechanisms to avoid the waste of corporate resources when establishing a right to act by written consent.
Additionally, we may oppose shareholder proposals requesting the right to act by written consent if the company already provides a shareholder right to call a special meeting that we believe offers shareholders a reasonable opportunity to raise
issues of substantial importance without having to wait for management to schedule a meeting. Right to call a special meeting In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without
having to wait for management to schedule a meeting. Accordingly, shareholders should have the right to call a special meeting in cases where a reasonably high proportion of shareholders(typically a minimum of 15% but no higher than 25%) are
required to agree to such a meeting before it is called. However, we may oppose this right in cases where the proposal is structured for the benefit of a dominant shareholder, or where a lower threshold may lead to an ineffective use of corporate
resources. We generally believe that a right to act via written consent is not a sufficient alternative to the right to call a special meeting. Simple majority voting We generally favor a simple
majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders ability to protect their economic interests is
improved. Nonetheless, in situations where there is a substantial or dominant shareholder, supermajority voting may be protective of minority shareholder interests and we may support supermajority voting requirements in those situations. B-38
Virtual meetings Shareholders should have the opportunity to participate in the annual and special meetings for the companies in which they are invested, as these meetings
facilitate an opportunity for shareholders to provide feedback and hear from the board and management. While these meetings have traditionally been conducted in-person, virtual meetings are an increasingly
viable way for companies to utilize technology to facilitate shareholder accessibility, inclusiveness, and cost efficiencies. We expect shareholders to have a meaningful opportunity to participate in the meeting and interact with the board and
management in these virtual settings; companies should facilitate open dialogue and allow shareholders to voice concerns and provide feedback without undue censorship. Relevant shareholder proposals are assessed on a
case-by-case basis. B-39
PART C Other Information Financial Statements And Exhibits The agreements included or incorporated by reference as exhibits to this Registration Statement contain representations and warranties by each of the parties
to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable
agreement; (iii) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other
date or dates as may be specified in the agreement. The Registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary
statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Registration Statement not misleading. C-1
C-2
C-3
Marketing Arrangements The information contained under the section entitled Plan of Distribution in the Prospectus is incorporated by reference, and any information
concerning any underwriters will be contained in the accompanying Prospectus Supplement, if any. Other Expenses Of Issuance And Distribution The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement: Registration fee NYSE listing fee Accounting fees and expenses Legal fees and expenses FINRA fee Total Estimate is based on the aggregate estimated expenses to be incurred during a three year shelf
offering period. Persons Controlled By Or Under Common Control With The Registrant None. Number Of Holders Of Shares As of January 31, 2022: Title Of Class Common Shares of Beneficial Interest Indemnification Article V of the Registrants Agreement and Declaration of Trust provides as follows: 5.1 No Personal Liability of Shareholders, Trustees, etc. No Shareholder of the Trust shall be subject in such
capacity to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust. Shareholders shall have the same limitation of personal liability as is extended to stockholders of a
private corporation for profit incorporated under the Delaware General Corporation Law. No Trustee or officer of the Trust shall be subject in such capacity to any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust, save only liability to the Trust or its Shareholders arising from bad faith, willful misfeasance, gross negligence (negligence in the case of those Trustees or officers who
are directors, officers or employees of the Trusts investment advisor (Affiliated Indemnitees)) or reckless disregard for his duty to such Person; and, subject to the foregoing exception, all such Persons shall look solely to the
Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee or officer, as such, of the Trust, is made a party to any suit or proceeding to enforce any
C-4
such liability, subject to the foregoing exception, he shall not, on account thereof, be held to any personal liability. Any repeal or modification of this Section 5.1 shall not adversely
affect any right or protection of a Trustee or officer of the Trust existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. 5.2 Mandatory Indemnification. (a) The Trust hereby agrees to indemnify each person who at any time serves
as a Trustee or officer of the Trust (each such person being an indemnitee) against any liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees
reasonably incurred by such indemnitee in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which he may be or may have been
involved as a party or otherwise or with which he may be or may have been threatened, while acting in any capacity set forth in this Article V by reason of his having acted in any such capacity, except with respect to any matter as to which he shall
not have acted in good faith in the reasonable belief that his action was in the best interest of the Trust or, in the case of any criminal proceeding, as to which he shall have had reasonable cause to believe that the conduct was unlawful,
provided, however, that no indemnitee shall be indemnified hereunder against any liability to any person or any expense of such indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross negligence
(negligence in the case of Affiliated Indemnitees), or (iv) reckless disregard of the duties involved in the conduct of his position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to herein as
disabling conduct). Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be mandatory only if the prosecution of such action,
suit or other proceeding by such indemnitee (1) was authorized by a majority of the Trustees or (2) was instituted by the indemnitee to enforce his or her rights to indemnification hereunder in a case in which the indemnitee is found to be
entitled to such indemnification. The rights to indemnification set forth in this Declaration shall continue as to a person who has ceased to be a Trustee or officer of the Trust and shall inure to the benefit of his or her heirs, executors and
personal and legal representatives. No amendment or restatement of this Declaration or repeal of any of its provisions shall limit or eliminate any of the benefits provided to any person who at any time is or was a Trustee or officer of the Trust or
otherwise entitled to indemnification hereunder in respect of any act or omission that occurred prior to such amendment, restatement or repeal. (b) Notwithstanding the foregoing, no indemnification shall be made hereunder unless there has been a determination (i) by a final
decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification hereunder was brought that such indemnitee is entitled to indemnification hereunder or, (ii) in the absence of
such a decision, by (1) a majority vote of a quorum of those Trustees who are neither interested persons of the Trust (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (Disinterested Non-Party Trustees), that the indemnitee is entitled to indemnification hereunder, or (2) if such quorum is not obtainable or even if obtainable, if such majority so directs, independent legal counsel in
a written opinion concludes that the indemnitee should be entitled to indemnification hereunder. All determinations to make advance payments in connection with the expense of defending any proceeding shall be authorized and made in accordance with
the immediately succeeding paragraph (c) below. (c) The Trust shall make advance payments in connection with the expenses of
defending any action with respect to which indemnification might be sought hereunder if the Trust receives a written affirmation by the indemnitee of the indemnitees good faith belief that the standards of conduct necessary for indemnification
have been met and a written undertaking to reimburse the Trust unless it is subsequently determined that the indemnitee is entitled to such indemnification and if a majority of the Trustees determine that the applicable standards of conduct
necessary for indemnification appear to have been met. In addition, at least one of the following conditions must be met: (i) the indemnitee shall provide adequate security for his undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or(iii) a majority of a quorum of the Disinterested Non-Party Trustees, or if a majority vote of such quorum so direct, independent legal counsel in a written
opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the indemnitee ultimately will be found entitled to indemnification. (d) The rights accruing to any indemnitee under these provisions shall not exclude any other right which any person may have or hereafter
acquire under this Declaration, the By-Laws of the Trust, any statute, agreement, vote of stockholders or Trustees who are disinterested persons (as defined in Section 2(a)(19) of the 1940
Act) or any other right to which he or she may be lawfully entitled. C-5
(e) Subject to any limitations provided by the 1940 Act and this Declaration, the Trust shall
have the power and authority to indemnify and provide for the advance payment of expenses to employees, agents and other Persons providing services to the Trust or serving in any capacity at the request of the Trust to the full extent corporations
organized under the Delaware General Corporation Law may indemnify or provide for the advance payment of expenses for such Persons, provided that such indemnification has been approved by a majority of the Trustees. 5.3 No Bond Required of Trustees. No Trustee shall, as such, be obligated to give any bond or other security
for the performance of any of his duties hereunder. 5.4 No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other person dealing with the Trustees or with any officer, employee or agent of the Trust shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application of money or property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee or agent. Every obligation, contract, undertaking,
instrument, certificate, Share, other security of the Trust, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively taken to have been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officers, employees or agents of the Trust. Every written obligation, contract, undertaking, instrument, certificate, Share, other security of the Trust made or issued by the Trustees or by any
officers, employees or agents of the Trust in their capacity as such, shall contain an appropriate recital to the effect that the Shareholders, Trustees, officers, employees or agents of the Trust shall not personally be bound by or liable
thereunder, nor shall resort be had to their private property for the satisfaction of any obligation or claim thereunder, and appropriate references shall be made therein to this Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose personal liability on any of the Trustees, Shareholders, officers, employees or agents of the Trust. The Trustees may maintain insurance for the protection of the Trust
Property, its Shareholders, Trustees, officers, employees and agents in such amount as the Trustees shall deem adequate to cover possible tort liability, and such other insurance as the Trustees in their sole judgment shall deem advisable or is
required by the 1940 Act. 5.5 Reliance on Experts, etc. Each Trustee and officer or employee of the Trust
shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of the Trusts officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by
the Trustees, officers or employees of the Trust, regardless of whether such counsel or expert may also be a Trustee. Registrant has also entered into an
agreement with Trustees and officers of the Registrant entitled to indemnification under the Agreement and Declaration of Trust pursuant to which the Registrant has agreed to advance expenses and costs incurred by the indemnitee in connection with
any matter in respect of which indemnification might be sought pursuant to the Agreement and Declaration of Trust to the maximum extent permitted by law. Reference is also made to: Sections 10 and 11 of the Registrants Investment Management Agreement, a form of which is filed as Exhibit
(g)(1) of this Registration Statement. Additionally, the Registrant and the other funds in the BlackRock Fixed-Income Complex jointly
maintain, at their own expense, E&O/D&O insurance policies for the benefit of its Trustees, officers and certain affiliated persons. The Registrant pays a pro rata portion of the premium on such insurance policies. 5.6 Indemnification of Shareholders. If any Shareholder or former Shareholder shall be held personally liable
solely by reason of its being or having been a Shareholder and not because of its acts or omissions or for some other reason, the Shareholder or former Shareholder (or its heirs, executors, administrators or other legal representatives or
C-6
in the case of any entity, its general successor) shall be entitled out of the assets belonging to the Trust to be held harmless from and indemnified to the maximum extent permitted by law
against all loss and expense arising from such liability. The Trust shall, upon request by such Shareholder, assume the defense of any claim made against such Shareholder for any act or obligation of the Trust and satisfy any judgment thereon from
the assets of the Trust. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to Trustees,
officers and controlling persons of the Trust, pursuant to the foregoing provisions or otherwise, the Trust has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. Business And Other Connections Of Investment Advisor BlackRock Advisors, LLC, a limited liability company organized under the laws of Delaware (the Advisor), acts as investment adviser to the
Registrant. The Registrant is fulfilling the requirement of this Item 31 to provide a list of the officers and directors of the Advisor, together with information as to any other business, profession, vocation or employment of a substantial nature
engaged in by the Advisor or those officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV of the Advisor filed with the commission pursuant to the Investment Advisers Act of 1940
(Commission File No. 801-47710). Location Of Accounts And Records Omitted pursuant to the Instruction of Item 32 of Form N-2. Management Services Not Applicable Undertakings Not applicable. Not applicable. The securities being registered will be offered on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933. Accordingly, the Registrant undertakes: to file, during and period in which offers or sales are being made, a post-effective amendment to this
Registration Statement: (1) to include any prospectus required by Section 10(a)(3) of the Securities Act of
1933; C-7
(2) to reflect in the prospectus any facts or events after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee
table in the effective registration statement. (3) to include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. that for the purpose of determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; to remove from registration by means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering; and that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(1) if the Registrant is relying on Rule 430B [17 CFR 230.430B]: (A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the registration statement; and (B) Each prospectus required to be filed pursuant
to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information required by
Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of
sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective date; or C-8
(2) if the Registrant is subject to Rule 430C [17 CFR 230.430C]: Each prospectus filed pursuant
to Rule 424(b) under the Securities Act of 1933 as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. that for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any
purchaser in the initial distribution of securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this Registration Statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such
securities to the purchaser: (1) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act of 1933; (2) free writing prospectus relating to
the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; (3) the portion of any other free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act of
1933 relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and (4) any other communication that is an offer in the offering made by
the undersigned Registrant to the purchaser. If applicable: For the purposes of determining any liability under the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) under the Securities Act of 1933 shall be deemed to be part of the
Registration Statement as of the time it was declared effective. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference into the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C-9
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery
within two business days of receipt of a written or oral request, any prospectus or Statement of Additional Information constituting Part B of this Registration Statement. C-10
SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Trust has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York, on the 15th day of March, 2022. /s/ John M. Perlowski Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities indicated and on the 15th day of March, 2022. C-11
C-12
EXHIBIT INDEX Description
Record Date
Subscription Period
Final Date Rights Will Trade
Expiration Date*
Issuance Date
Confirmation Date
*
(1)
(2)
[●]%
[●]%
$[●] per share for open-market
purchases of common shares(2)
$[●](2)
[●]%
[●]%
[●]%
[●]%
[●]%
[●]%
(1)
(2)
(3)
(4)
(5)
(6)
1 Year
3 Years
5 Years
10 Years
$
[
●]
$
[
●]
$
[
●]
$
[
●]
*
[●]
[●]
[●]
[●]]
[●]
[●]
[●]
[●]]
(1)
(2)
(3)
(4)
Page
S-3
S-3
S-5
S-11
S-14
S-20
S-29
S-33
S-41
S-42
S-43
S-50
S-51
S-51
S-51
S-52
A-1
B-1
1.
2.
3.
4.
5.
6.
A.
B.
C.
Paid to the Advisor
Waived by the Advisor
$
6,315,786
$
(8,993
)
$
6,193,177
$
(7,436
)
$
6,091,474
$
(46,199
)
Year of Birth1,2
Position(s)
Held
(Length of
Service)
During Past Five Years
Number
of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
Company
and Other
Investment
Company
Directorships
Held During
Past Five
Years
Trustee
2021)
Vice Chairman, Kioxia, Inc. since 2019; Chief Financial Officer, Xilinx, Inc. from 2016 to 2019; Corporate Controller, Xilinx, Inc. from 2008 to 2016.
73 RICs
consisting
of 102
Portfolios
None
1
2
The Board benefits from Lorenzo A. Floress many years of business, leadership and financial experience in his roles at various public and private companies. In particular, Mr. Floress service as Chief Financial
Officer and Corporate Controller of Xilinx, Inc. and Vice Chairman of Kioxia, Inc. and his long experience in the technology industry allow him to provide insight to into financial, business and technology trends. Mr. Floress knowledge of
financial and accounting matters qualifies him to serve as a member of the Audit Committee. Mr. Floress independence from the Trust and the Advisor enhances his service as a member of the Performance Oversight Committee.
Audit
Committee
Meetings
Governance
Committee
Meetings
Compliance
Committee
Meetings
Performance
Oversight
Committee
Meetings
Executive
Committee
Meetings
4
4
4
1
Dollar Range of Equity
Securities in the Trust*
Aggregate Dollar Range of Equity
Securities in Supervised Funds*
None
Over $ 100,000
$1-$10,000
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
$1-$10,000
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
None
Over $ 100,000
*
Compensation
from the
Trust
Estimated Annual
Benefits upon
Retirement
Aggregate Compensation from the
BlackRock-Advised Funds(2)(3)
$4,593
None
$445,000
$5,157
None
$495,000
$4,537
None
$440,000
$4,437
None
$478,750
$0
None
$167,988
$0
None
$216,875
$0
None
$218,981
$4,284
None
$432,500
$4,029
None
$443,750
$4,086
None
$441,250
$5,123
None
$500,000
None
None
None
None
None
None
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(ii) Number of Other Accounts Managed
and Assets by Account Type
(iii) Number of Other Accounts and
Assets for Which Advisory Fee is
Performance-Based
Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
Other
Registered
Investment
Companies
Other Pooled
Investment
Vehicles
Other
Accounts
25
0
0
0
0
0
$26.75 Billion
$0
$0
$0
$0
$0
22
0
0
0
0
0
$32.11 Billion
$0
$0
$0
$0
$0
A combination of market-based indices (e.g., Standard & Poors Municipal Bond Index), certain customized indices and certain fund industry peer groups.
Dollar Range of Equity
Securities of the Trust
Beneficially Owned
None
None
Aggregate Brokerage
Commissions Paid
Commissions Paid to Affiliates
$
295.81
$
0
$
7,281.44
$
0
$
5,784.92
$
0
Providing Research Services
$0
AAA
An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial commitments on the obligation is extremely strong.
AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitments on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet
its financial commitments on the obligation is still strong.
BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligors capacity to meet its financial commitments
on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.
BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead
to the obligors inadequate capacity to meet its financial commitments on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitments on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitments on the obligation.
CCC
An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
CC
An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred but S&P expects default to be a virtual certainty, regardless of the
anticipated time to default.
C
An obligation rated C is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated higher.
D
An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an
obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days.
The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is
lowered to D if it is subject to a distressed debt restructuring.
A short-term obligation rated A-1 is rated in the highest category by S&P. The obligors capacity to meet its financial commitments on the obligation is strong. Within
this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitments on these obligations is extremely strong.
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligors capacity to meet its financial commitments on the obligation is satisfactory.
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an
obligors capacity to meet its financial commitments on the obligation.
A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties that could lead to the obligors inadequate capacity to meet its financial commitments.
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the
obligation.
A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on
an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The
D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is
lowered to D if it is subject to a distressed debt restructuring.
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
Speculative capacity to pay principal and interest.
D is assigned upon failure to pay the note when due, completion of a distressed exchange offer, or the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions.
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
Obligations rated B are considered speculative and are subject to high credit risk.
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price
upon demand.
This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have a sufficiently strong short-term rating or may lack the structural or
legal protections necessary to ensure the timely payment of purchase price upon demand.
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable
events.
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business
or economic conditions than is the case for higher ratings.
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are
more likely to impair this capacity.
Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists
that supports the servicing of financial commitments.
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is
vulnerable to deterioration in the business and economic environment.
Substantial credit risk. Default is a real possibility.
Very high levels of credit risk. Default of some kind appears probable.
Near default. A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired. Conditions that are indicative of a C category
rating for an issuer include:
Restricted default. RD ratings indicate an issuer that in Fitchs opinion has experienced:
Default. D ratings indicate an issuer that in Fitchs opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up
procedure or that has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will
generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.
In all cases, the assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings and may differ from the definition of default
under the terms of an issuers financial obligations or local commercial practice.
Highest Short-Term Credit Quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature.
Good Short-Term Credit Quality. Good intrinsic capacity for timely payment of financial commitments.
Fair Short-Term Credit Quality. The intrinsic capacity for timely payment of financial commitments is adequate.
Speculative Short-Term Credit Quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
High Short-Term Default Risk. Default is a real possibility.
Restricted Default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only.
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
B-4
B-4
B-5
B-5
B-8
B-9
B-10
B-10
B-12
B-13
B-14
B-14
B-15
B-17
B-17
B-17
●
●
●
●
●
●
●
1
2
3
4
5
6
●
●
●
●
●
●
●
●
●
o
o
o
o
o
7
B-20
B-20
B-20
B-27
B-28
B-29
B-30
B-33
B-36
B-37
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
Public Company Executive
# Outside Public Boards8
Total # of Public Boards
✓
1
2
3
4
●
●
●
●
●
8
9
●
●
●
●
10
11
12
Combined Chair/CEO Model
Separate Chair Model
Chair/CEO
Lead Independent Director
Chair
Authority to call full meetings of the board of directors
Attends full meetings of the board of directors
Authority to call full meetings of the board of directors
Board Meetings
Authority to call meetings of independent directors
Briefs CEO on issues arising from executive sessions
Agenda
Primary responsibility for shaping board agendas, consulting with the lead independent director
Collaborates with chair/CEO to set board agenda and board information
Primary responsibility for shaping board agendas, in conjunction with CEO
Board Communications
Communicates with all directors on key issues and concerns outside of full board meetings
Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession
planning
Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession
planning
13
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
14
15
Item 25.
Item 26.
Item 27.
$
12,718
2,500
4,000
21,080
70,000
$
110,298
(1)
(1)
Item 28.
Item 29.
Number Of Record Holders
62
Item 30.
Item 31.
Item 32.
Item 33.
Item 34.
(1)
(2)
(3)
(a)
(b)
(c)
(d)
(e)
(4)
(a)
(b)
(5)
(6)
(7)
BLACKROCK MUNICIPAL INCOME TRUST
By:
John M. Perlowski
President and Chief Executive Officer
Exhibit
Number
(l)
Opinion and Consent of Counsel
(n)
Independent Registered Public Accounting Firm Consent
(s)(3)
Calculation of Filing Fee Tables
Exhibit (l)
MORRIS, NICHOLS, ARSHT & TUNNELL LLP
1201 NORTH MARKET STREET
P.O. BOX 1347
WILMINGTON, DELAWARE 19899-1347
(302) 658-9200
(302) 658-3989 FAX
March 14, 2022
BlackRock Municipal Income Trust
100 Bellevue Parkway
Wilmington, Delaware 19809
Re: BlackRock Municipal Income Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel to BlackRock Municipal Income Trust, a Delaware statutory trust (the Trust), in connection with certain matters of Delaware law relating to the issuance of up to 10,000,000 Shares of the Trust to be offered pursuant to the Registration Statement (as defined below) (the Offered Shares). Capitalized terms used herein and not otherwise herein defined are used as defined in the Amended and Restated Agreement and Declaration of Trust of the Trust dated as of May 31, 2001 (the Governing Instrument).
In rendering this opinion, we have examined and relied on copies of the following documents, each in the form provided to us: the Trusts Registration Statement on Form N-2 (Registration No. 811-10339) to be filed on or about the date hereof with the Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended (the Securities Act), and under the Investment Company Act of 1940, as amended (the Investment Company Act) (the Registration Statement), including the Prospectus of the Trust included in the Registration Statement (the Prospectus); the Certificate of Trust of the Trust as filed in the Office of the Secretary of State of the State of Delaware (the State Office) on March 30, 2001 (the Trust Certificate); the Governing Instrument; the Agreement and Declaration of Trust of the Trust dated as of March 30, 2001 (the Initial Governing Instrument); resolutions of the Board of Trustees of the Trust prepared for adoption at a meeting held on June 8 and 9, 2021 (the Resolutions); the Amended and Restated Bylaws of the Trust effective as of October 28, 2010, as amended by Amendment No. 1 thereto dated as of November 19, 2020 (as so amended, the Bylaws and, together with the Governing Instrument, the Registration Statement (including the Prospectus), the Trust Certificate, the Placement Agent Agreement (as defined below), and the Resolutions, the Governing Documents); and an Officers Certificate of the Trust dated on or about the date hereof. In such examinations, we have assumed the genuineness of all signatures, the conformity to original documents of all documents submitted to us as copies or drafts of
BlackRock Municipal Income Trust
March 14, 2022
Page 2
documents to be executed, and the legal capacity of natural persons to complete the execution of documents. We have further assumed for purposes of this opinion: (i) the due formation or organization, valid existence and good standing of each entity (other than the Trust) that is a signatory to any of the documents reviewed by us under the laws of the jurisdiction of its respective formation or organization; (ii) the due adoption, authorization, execution and delivery by, or on behalf of, each of the parties thereto (other than the Trust) of the above-referenced agreements, instruments, certificates and other documents; (iii) the payment of consideration for the Shares (including the Offered Shares), and the application of such consideration, as provided in the Initial Governing Instrument and the Governing Documents, as applicable, and compliance with all other terms, conditions and restrictions set forth in the Initial Governing Instrument and the Governing Documents, as applicable, in connection with the issuance of the Shares (including the Offered Shares); (iv) that the Trust became, prior to or within 180 days following the first issuance of beneficial interests therein, a registered investment company under the Investment Company Act; (v) that the activities of the Trust have been and will be conducted in accordance with the terms of the Governing Instrument and the Delaware Statutory Trust Act, 12 Del. C. §§ 3801 et seq. (the Delaware Act); (vi) that appropriate notation of the names and addresses of, the number of Shares held by, and the consideration paid by, Shareholders will be maintained in the appropriate registers and other books and records of the Trust in connection with the issuance or transfer of Shares; (vii) the taking of all appropriate action by the Trustees to designate the series and classes of the Shares and the rights and preferences attributable thereto as contemplated by the Governing Instrument; (viii) that the Shares referenced in the Prospectus are the Offered Shares; (ix) that prior to the issuance of the Offered Shares, in accordance with the resolutions, the Trust will enter into a placement agent agreement with BlackRock Investments, LLC acting as principal underwriter and placement agent (the Placement Agent Agreement), setting forth the terms and conditions under which the Offered Shares will be issued; and (x) that each of the documents examined by us is in full force and effect, expresses the entire understanding of the parties thereto with respect to the subject matter thereof and has not been amended, supplemented or otherwise modified, except as herein referenced. We have not reviewed any documents other than those identified above in connection with this opinion, and we have assumed that there are no documents, facts or circumstances that are contrary to, or inconsistent with the opinions expressed herein. No opinion is expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. Further, we express no opinion on the sufficiency or accuracy of any registration or offering documentation relating to the Trust or the Shares. As to any facts material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to matters of Delaware law, it is our opinion that the Offered Shares, when issued and delivered in accordance with the terms, conditions, requirements and procedures set forth in the Governing Documents, will constitute legally issued and fully paid, and non-assessable Shares (except to the extent that under Section 3.8 of the Governing Instrument, the Trustees have the power to cause each Shareholder to pay directly, in advance or arrears, for charges of distribution, of the custodian, transfer, Shareholder servicing or similar agent, a pro rata amount as defined from time to time
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BlackRock Municipal Income Trust
March 14, 2022
Page 3
by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends or distributions owed such Shareholder and/or by reducing the number of shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder).
We hereby consent to the filing of a copy of this opinion with the Commission as an exhibit to the Registration Statement. In giving this consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder. This opinion speaks only as of the date hereof and is based on our understandings and assumptions as to present facts, and on the application of Delaware law as the same exist on the date hereof, and we undertake no obligation to update or supplement this opinion after the date hereof for the benefit of any person or entity (including any Shareholder or any person or entity granted reliance in the following sentence) with respect to any facts or circumstances that may hereafter come to our attention or any changes in facts or law that may hereafter occur or take effect. This opinion is intended solely for the benefit of the Trust and the Shareholders in connection with the matters contemplated hereby and may not be relied upon by any other person or entity, or for any other purpose, without our prior written consent; provided, that in the event that Willkie Farr & Gallagher LLP delivers its opinion to the Trust on or about the date hereof, which opinion addresses any matters of Delaware law addressed herein, it may rely on this opinion in connection therewith.
Sincerely, |
MORRIS, NICHOLS, ARSHT & TUNNELL LLP |
/s/ Louis G. Hering |
Louis G. Hering |
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Exhibit (n)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement No. 333-259605 on Form N-2 of our report dated June 22, 2021, relating to the financial statements and financial highlights of BlackRock Municipal Income Trust (the Trust), appearing in the Annual Report on Form N-CSR of the Trust for the year ended April 30, 2021, and to the references to us under the headings Financial Highlights and Independent Registered Public Accounting Firm in the Prospectus and Independent Registered Public Accounting Firm and Financial Statements in the Statement of Additional Information, which are part of such Registration Statement.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 14, 2022
Exhibit (s)(3)
Calculation of Filing Fee Tables
FORM N-2/A
(Form Type)
BLACKROCK MUNICIPAL INCOME TRUST
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities
Total Offering Amounts | $132,800,000 | $12,326.96(2) | ||||||||||||||
Total Fees Previously Paid | $109.10(4) | |||||||||||||||
Total Fee Offsets | | |||||||||||||||
Net Fee Due | $12,217.86 |
(1) | The Registrant is relying on Rule 457(c) under the Securities Act of 1933 to calculate the registration fee. The Maximum Aggregate Offering Price is estimated solely for the purpose of determining the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 based on the average of the high and low sales prices of the shares of common shares of beneficial interest on March 10, 2022, as reported on the New York Stock Exchange. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this Registration Statement. |
(2) | Amount represents $109.10 previously paid to register $1,000,000 of common shares of beneficial interest, plus $12,217.86 to register the additional $131,800,000 of common shares of beneficial interest registered hereby. |
(3) | No separate consideration will be received by the Registrant. Any shares issued pursuant to an offering of rights to purchase shares of common shares of beneficial interest, including any shares issued pursuant to an over-subscription privilege or a secondary over-subscription privilege, will be shares registered under this Registration Statement. |
(4) | The Registrant previously paid $109.10 to register $1,000,000 of common shares of beneficial interest under the Registrants Registration Statement on Form N-2 (File No. 333-259605), filed with the Securities and Exchange Commission on September 17, 2021. Effective October 1, 2021, the filing fee rate was reduced from $109.10 to $92.70 per million dollars of the proposed maximum aggregate offering price of the securities to be registered. |
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