Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of BlackRock Taxable Municipal Bond Trust:
Opinion on the Financial Statements and Financial Highlights
We have audited
the accompanying statement of assets and liabilities of BlackRock Taxable Municipal Bond Trust (the Fund), including the schedule of investments, as of July 31, 2020, the related statements of operations and cash flows for the year
then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and
financial highlights present fairly, in all material respects, the financial position of the Fund as of July 31, 2020, and the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the
two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of July 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
September 22, 2020
We have served as the auditor of one or more BlackRock investment companies since 1992.
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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Important Tax
Information (unaudited)
For the fiscal year ended July 31, 2020, the Trust hereby designates the following maximum amounts allowable as interest-related dividends eligible for exemption
from U.S. withholding tax for nonresident aliens and foreign corporations:
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Trust
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Interest-Related
Dividends
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BlackRock Taxable Municipal Bond Trust
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$
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80,493,119
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IMPORTANT TAX INFORMATION
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27
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Disclosure of Investment Advisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Board
Members) of BlackRock Taxable Municipal Bond Trust (the Fund) met on April 16, 2020 (the April Meeting) and May 20-21, 2020 (the May Meeting) to consider the
approval of the investment advisory agreement (the Advisory Agreement or the Agreement) between the Fund and BlackRock Advisors, LLC (the Manager or BlackRock), the Funds investment advisor.
Activities and Composition of the Board
On the date of the May Meeting, the
Board consisted of ten individuals, eight of whom were not interested persons of the Fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Board Members). The Board
Members are responsible for the oversight of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist
them in connection with their duties. The Co-Chairs of the Board are Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a
Compliance Committee, a Performance Oversight Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested
Board Member).
The Agreement
Consistent with the requirements of the
1940 Act, the Board considers the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each typically extending for two days, and additional in-person and
telephonic meetings throughout the year, as needed. While the Board also has a fifth one-day meeting to consider specific information surrounding the renewal of the Agreement, the Boards consideration
entails a year-long deliberative process whereby the Board and its committees assess BlackRocks services to the Fund. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to the Fund by
BlackRock, BlackRocks personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of the Funds service providers; risk management and
oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various
executive sessions outside of the presence of BlackRocks management.
During the year, the Board, acting directly and through its committees, considers
information that is relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Fund and its shareholders. BlackRock also furnished additional information to the Board in
response to specific questions from the Board. This additional information is discussed further in the section titled Board Considerations in Approving the Agreement. Among the matters the Board considered were: (a) investment
performance for one-year, three-year, five-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and other performance metrics, as applicable, as well as BlackRock
senior managements and portfolio managers analyses of the reasons for any outperformance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) leverage management, as applicable;
(c) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Fund for services; (d) Fund operating expenses and how BlackRock allocates expenses to the Fund; (e) the
resources devoted to risk oversight of, and compliance reports relating to, implementation of the Funds investment objective, policies and restrictions, and meeting regulatory requirements; (f) BlackRocks and the Funds
adherence to applicable compliance policies and procedures; (g) the nature, character and scope of non-investment management services provided by BlackRock and its affiliates and the estimated cost of
such services; (h) BlackRocks and other service providers internal controls and risk and compliance oversight mechanisms; (i) BlackRocks implementation of the proxy voting policies approved by the Board;
(j) execution quality of portfolio transactions; (k) BlackRocks implementation of the Funds valuation and liquidity procedures; (l) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust and institutional separate account product
channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Fund; (m) BlackRocks compensation methodology for its investment professionals and the incentives and
accountability it creates, along with investment professionals investments in the fund(s) they manage; (n) periodic updates on BlackRocks business; and (o) the Funds market discount/premium compared to peer funds.
Board Considerations in Approving the Agreement
The Approval
Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreement. The Independent Board Members are continuously engaged in a process with their independent legal counsel and BlackRock
to review the nature and scope of the information provided to the Board to better assist its deliberations. The materials provided in connection with the April Meeting included, among other things: (a) information independently compiled and
prepared by Broadridge Financial Solutions, Inc. (Broadridge), based on Lipper classifications, regarding the Funds fees and expenses as compared with a peer group of funds as determined by Broadridge (Expense Peers)
and the investment performance of the Fund as compared with a peer group of funds (Performance Peers); (b) information on the composition of the Expense Peers and Performance Peers and a description of Broadridges methodology;
(c) information on the estimated profits realized by BlackRock and its affiliates pursuant to the Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (d) a general
analysis provided by BlackRock concerning investment management fees received in connection with other types of investment products, such as institutional accounts, sub-advised mutual funds, closed-end funds, and open-end funds, under similar investment mandates, as applicable; (e) a review of non-management fees;
(f) the existence, impact and sharing of potential economies of scale, if any, with the Fund; (g) a summary of aggregate amounts paid by the Fund to BlackRock; and (h) various additional information requested by the Board as
appropriate regarding BlackRocks and the Funds operations.
At the April Meeting, the Board reviewed materials relating to its consideration of the
Agreement. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Boards year-long deliberative process, the Board presented BlackRock with questions and requests for additional information.
BlackRock responded to these questions and requests with additional written information in advance of the May Meeting. Topics covered included: (a) the methodology for measuring estimated fund profitability; (b) fund expenses and potential
fee waivers; (c) differences in services provided and management fees between closed-end funds and other product channels; and (d) BlackRocks option overwrite strategy.
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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Disclosure of Investment Advisory Agreement (continued)
At the May Meeting, the Board concluded its
assessment of, among other things: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund as compared to its Performance Peers and to other metrics, as applicable; (c) the
advisory fee and the estimated cost of the services and estimated profits realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Funds fees and expenses compared to its Expense Peers; (e) the
existence and sharing of potential economies of scale; (f) any fall-out benefits to BlackRock and its affiliates as a result of BlackRocks relationship with the Fund; and (g) other factors
deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock
or its affiliates relating to securities lending and cash management, and BlackRocks services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRocks personnel to engage in open,
candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of
services provided by BlackRock, including the investment advisory services, and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmarks, and performance metrics, as applicable. The Board met with BlackRocks senior management personnel responsible for investment activities, including the senior investment
officers. The Board also reviewed the materials provided by the Funds portfolio management team discussing the Funds performance, investment strategies and outlook.
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Funds portfolio
management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities;
and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRocks overall risk management program, including the continued efforts of BlackRock and its
affiliates to address cybersecurity risks and the role of BlackRocks Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRocks compensation structure with respect to the Funds portfolio management
team and BlackRocks ability to attract and retain high-quality talent and create performance incentives.
In addition to investment advisory services, the Board
considered the nature and quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder
and other services (in addition to any such services provided to the Fund by third-parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with
administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports;
(ii) preparing communications with analysts to support secondary market trading of the Fund; (iii) oversight of daily accounting and pricing; (iv) responsibility for periodic filings with regulators and stock exchanges;
(v) overseeing and coordinating the activities of third-party service providers including, among others, the Funds custodian, fund accountant, transfer agent, and auditor; (vi) organizing Board meetings and preparing the materials
for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing or managing administrative functions necessary for the operation of the Fund, such as tax reporting, expense management, fulfilling regulatory filing requirements, and
shareholder call center and other services. The Board reviewed the structure and duties of BlackRocks fund administration, shareholder services, and legal & compliance departments and considered BlackRocks policies and
procedures for assuring compliance with applicable laws and regulations.
B. The Investment Performance of the Fund and BlackRock: The Board, including the
Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of the
Funds performance as of December 31, 2019, as compared to its Performance Peers. The performance information is based on net asset value (NAV), and utilizes Lipper data. Lippers methodology calculates a funds total return
assuming distributions are reinvested on the ex-date at a funds ex-date NAV. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the
most desirable quartile position and fourth is the least desirable. In connection with its review, the Board received and reviewed information regarding the investment performance of the Fund as compared to its Performance Peers and a custom peer
group of funds as defined by BlackRock (Customized Peer Group) and a composite measuring a blend of total return and yield (Composite). The Board and its Performance Oversight Committee regularly review and meet with Fund
management to discuss the performance of the Fund throughout the year.
In evaluating performance, the Board focused particular attention on funds with less favorable
performance records. The Board also noted that while it found the data provided by Broadridge generally useful, it recognized the limitations of such data, including in particular, that notable differences may exist between a fund and its
Performance Peers (for example, the investment objectives and strategies). Further, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could
produce significantly different results. The Board also acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance, and that a single investment theme could have the ability to
disproportionately affect long-term performance.
The Board noted that for each of the one-, three- and five-year periods
reported, the Fund ranked in the first quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for the Fund, and that BlackRock has
explained its rationale for this belief to the Board.
C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services and Estimated
Profits Realized by BlackRock and its Affiliates from their Relationship with the Fund: The Board, including the Independent Board Members, reviewed the Funds contractual management fee rate compared with those of its Expense Peers. The
contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Funds total expense ratio, as well as its
actual management fee rate as a percentage of managed assets, which is the total assets of the Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of the Funds accrued liabilities (other than money
borrowed for investment purposes) to those of its Expense Peers. The total expense ratio represents a funds total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense
reimbursements or fee waivers, and the actual management fee rate gives effect to any
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DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT
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29
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Disclosure of Investment Advisory Agreement (continued)
management fee reimbursements or waivers.
The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and
sub-advised mutual funds (including mutual funds sponsored by third parties).
The Board received and reviewed statements
relating to BlackRocks financial condition. The Board reviewed BlackRocks profitability methodology and was also provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock
for services provided to the Fund. The Board reviewed BlackRocks estimated profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2019 compared to available aggregate estimated
profitability data provided for the prior two years. The Board reviewed BlackRocks estimated profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRocks
assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous
factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at
the individual fund level is difficult.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available.
The Board reviewed BlackRocks overall operating margin, in general, compared to that of certain other publicly traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the
contribution of technology at BlackRock, BlackRocks expense management, and the relative product mix.
The Board considered whether BlackRock has the financial
resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board. The Board further considered
factors including but not limited to BlackRocks commitment of time, assumption of risk, and liability profile in servicing the Fund, including in contrast to what is required of BlackRock with respect to other products with similar investment
mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional
separate account product channels, as applicable.
The Board noted that the Funds contractual management fee rate ranked in the first quartile, and that the
actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Expense Peers.
D. Economies of
Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Fund increase. The Board also considered the extent to which the Fund benefits from such
economies of scale in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to more fully participate in these economies of scale. The Board considered the Funds
asset levels and whether the current fee was appropriate.
Based on the Boards review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. Closed-end funds are typically priced at scale at a funds inception.
E. Other Factors Deemed Relevant by the Board
Members: The Board, including the Independent Board Members, also took into account other ancillary or fall-out benefits that BlackRock or its affiliates may derive from BlackRocks
respective relationships with the Fund, both tangible and intangible, such as BlackRocks ability to leverage its investment professionals who manage other portfolios and its risk management personnel, an increase in BlackRocks profile in
the investment advisory community, and the engagement of BlackRocks affiliates as service providers to the Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRocks overall
operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by
certain registered fund transactions to assist in managing all or a number of its other client accounts.
In connection with its consideration of the Agreement, the
Board also received information regarding BlackRocks brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund
shares in the secondary market if they believe that the Funds fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
The
Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included developing equity shelf programs; efforts
to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communication
efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRocks continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds.
BlackRocks support services included, among other things: sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year;
providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.
Conclusion
The Board, including the Independent Board Members, unanimously
approved the continuation of the Advisory Agreement between the Manager and the Fund for a one-year term ending June 30, 2021. Based upon its evaluation of all of the aforementioned factors in their
totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision
to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed
different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.
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30
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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Trust Investment Objectives, Policies and Risks
Recent Changes
The following information is a summary of certain changes since July 31, 2019. This information may not reflect all of the changes that have occurred since you
purchased the Trust.
During the Trusts most recent fiscal year, there were no material changes in the Trusts investment objectives or policies that
have not been approved by shareholders or in the principal risk factors associated with investment in the Trust.
Investment Objectives and Policies
BlackRock Taxable Municipal Bond Trust (BBN)
The Trusts primary
investment objective is to seek high current income, with a secondary objective of capital appreciation. There can be no assurance that the Trust will achieve its investment objectives. The Trusts investment objectives are not fundamental and
may be changed by its Board of Trustees (the Board).
The Trust seeks to achieve its investment objectives by investing primarily in a portfolio of
taxable municipal securities, including Build America Bonds (BABs), issued by state and local governments to finance capital projects such as public schools, roads, transportation infrastructure, bridges, ports and public buildings. The
Trust believes there could be an opportunity to capitalize on the market for BABs by investing in taxable municipal issues at attractive market yields relative to the yields on equivalently rated corporate bonds. BlackRock Advisors, LLC (the
Manager) will use its in-depth expertise in the municipal securities market to assemble the Trusts portfolio. As market conditions permit and based upon the Managers assessment of the
interest rate environment, the Trust may opportunistically hedge its duration in an attempt to protect against the risk of rising interest rates, although no assurance can be given that this strategy will be successful. The Manager will not manage
duration to a benchmark. Duration, in comparison to maturity (which is the date on which the issuer of a debt instrument is obligated to repay the principal amount), is a measure of the price volatility of a debt instrument as a result in changes in
market rates of interest, based on the weighted average timing of the instruments expected principal and interest payments. Duration differs from maturity in that it takes into account a securitys yield, coupon payments and its principal
payments in addition to the amount of time until the security finally matures. As the value of a security changes over time, so will its duration.
The Trust may
invest in taxable municipal securities and tax-exempt municipal securities, including municipal bonds and notes, certificates of participation, other securities issued to finance and refinance public projects,
and other related securities and derivative instruments creating exposure to municipal bonds, notes and securities. Under normal market conditions, the Trust will invest at least 80% of its Managed Assets in taxable municipal securities, which
include BABs. This investment policy may be changed by the Board upon 60 days prior notice to shareholders. The Trust may invest up to 20% of its Managed Assets in securities other than taxable municipal securities. Such other securities
include tax-exempt securities, U.S. Treasury securities, obligations of the U.S. Government, its agencies and instrumentalities and corporate bonds issued by issuers that have, in the
Managers view, typically been associated with or sold in the municipal market. 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). For the avoidance of doubt, assets attributable to money borrowed for investment purposes includes the portion of the Trusts assets in an issuer of tender
option bonds of which the Trust owns the TOBs Residual (as defined below).
Under normal market conditions, the Trust will invest at least 80% of its Managed Assets in
securities that at the time of investment are investment grade quality. Investment grade quality securities are securities rated within the four highest grades (Baa or BBB or better) by Moodys, S&P or Fitch or
securities that are unrated but judged to be of comparable quality by the Manager. The Trust may invest up to 20% of its Managed Assets in securities that at the time of investment are rated below investment grade quality by Moodys,
S&P or Fitch or that are unrated but judged to be of comparable quality by the Manager. Certain of the Trusts investments may be illiquid. 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).
BABs are taxable municipal securities issued by state and local governments. Municipal securities include, among other things, bonds, notes, leases and certificates of
participation. Municipal securities may be structured as callable or non-callable, may have payment forms that include fixed-coupon, variable rate and zero coupon, and may include capital appreciation bonds,
floating rate securities, inverse floating rate securities (including TOBs Residuals), inflation-linked securities and other derivative instruments that replicate investment exposure to such securities. BABs, as municipal securities, may be
structured in any of the foregoing ways and new versions of BABs may be offered in the future. The Trust may invest in any of these BABs or municipal securities, and may acquire them through investments in pooled vehicles, partnerships or other
investment companies. The Trust may also purchase BABs and other municipal securities representing a wide range of sectors and purposes.
The Trust may purchase
municipal securities that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the insurance
feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Trusts income. Insurance generally will be obtained from insurers with a claims-paying ability rated
Baa or BBB or better by Moodys, S&P or Fitch. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares. The Trust may purchase insured securities and may purchase
insurance for bonds in its portfolio.
The credit quality policies noted above apply only at the time a security is purchased, and the Trust is not required to
dispose of a security in the event that a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell such a security, the Manager may consider such factors as its assessment
of the credit quality of the issuer of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other rating agencies.
The Trust may implement various temporary defensive strategies at times when the Manager determines that conditions in the markets or the termination of
the Trust makes pursuing the Trusts basic investment strategy inconsistent with the best interests of its shareholders. These strategies may include investing all or a portion of the Trusts assets in U.S. Government obligations and
high-quality, short-term debt securities that may be either tax-exempt or taxable.
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TRUST INVESTMENT OBJECTIVES, POLICIES AND RISKS
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31
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Trust Investment Objectives, Policies and
Risks (continued)
The Trust may engage in various strategic transactions involving derivative instruments for hedging and risk management purposes or to enhance total return. Such
derivative 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.
The Trust originally sought to achieve its investment objectives by investing primarily in a portfolio of BABs, which are taxable municipal securities issued
pursuant to the American Recovery and Reinvestment Act of 2009. Given the uncertainty around the BABs program at the time of the Trusts launch in 2010, the Trusts initial public offering prospectus included a Contingent Review Provision.
For any 24-month period, if there were no new issuances of BABs or other analogous taxable municipal securities, the Board would undertake an evaluation of potential actions with respect to the Trust (the
Contingent Review Provision). Under the Contingent Review Provision, such potential action included changes to the Trusts non-fundamental investment policies to broaden its primary investment
focus to include taxable municipal securities generally. The BABs program expired on December 31, 2010 and was not renewed. Accordingly, there have been no new issuances of BABs since that date. Pursuant to the Contingent Review Provision, on
June 12, 2015, the Board approved a proposal to amend the Trusts 80% investment policy to include all taxable municipal securities, including BABs, and to change the name of the Trust, which changes became effective on August 25,
2015.
Leverage. The Trust may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be
achieved in all interest rate environments. The Trust currently leverages its assets through the use of residual interest municipal tender option bonds (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. The Trust may use combined economic leverage of up to 100% of its
net assets (50% of its Managed Assets), all or a portion of which may be effected through the use of TOBs Residuals.
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.
The Trust may borrow through a credit facility.
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.
Other Investment Policies. The Trust may invest up to 10% of its total assets in securities of other open- or closed-end
investment companies (including exchange traded funds) that invest primarily in securities of the types in which the Trust may invest directly. The Trust may invest in investment companies that are advised by the Manager or its affiliates to the
extent permitted by applicable law and/or pursuant to exemptive relief from the Securities and Exchange Commission.
During periods in which the Manager
determines that it is temporarily unable to follow the Trusts investment strategy or that it is impractical to do so, the Trust may deviate from its investment strategy and invest all or any portion of its assets in cash, cash equivalents or
short-term debt securities that may be either tax-exempt or taxable.
The Trust may invest up to 10% of its total assets in
preferred interests of other investment funds, including those which may pay dividends that are exempt from regular Federal income tax.
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 and BB or below by S&P or Fitch or in unrated securities determined by the Manager to be of comparable quality. These lower
grade securities 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.
Risk Factors
This section contains a discussion of the general risks of
investing in the Trust. The net asset value and market price of, and dividends paid on, the common shares will fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee
that the Trust will meet its investment objective or that the Trusts performance will be positive for any period of time.
Investment and Market Discount
Risk An investment in the Trusts common shares is subject to investment risk, including the possible loss of the entire amount that you invest. As with any stock, the price of the Trusts common shares will fluctuate with
market conditions and other factors. If shares are sold, the price received may be more or less than the original investment. Common shares are designed for long-term investors and the Trust should not be treated as a trading vehicle. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. This risk is separate and distinct from the risk that the Trusts net asset value could decrease as a result
of its investment activities. At any point in time an investment in the Trusts common shares may be worth less than the original amount invested, even after taking into account distributions paid by the Trust. During periods in which the Trust
may use leverage, the Trusts investment, market discount and certain other risks will be magnified.
Debt Securities Risk Debt securities,
such as bonds, involve interest rate risk, credit risk, extension risk, and prepayment risk, among other things.
Interest Rate Risk The market value of
bonds and other fixed-income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as
interest rates rise.
The Trust may be subject to a greater risk of rising interest rates due to the current period of historically low rates. For example, if
interest rates increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Trusts investments would be expected to decrease by 10%. The magnitude of these fluctuations in the market
price of bonds and other fixed-income securities is generally greater for those securities with longer maturities. Fluctuations in the market price of the Trusts investments will not affect interest income derived from instruments already
owned by the Trust, but will be reflected in the Trusts net asset value. The Trust may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Trust management.
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Trust Investment Objectives, Policies and
Risks (continued)
To the extent the Trust invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such
securities to changes in interest rates may increase (to the detriment of the Trust) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates
(and particularly sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Trust to the extent that it invests in floating rate debt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the full faith and credit of the U.S. Government is
guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate in value when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large scale, which may increase redemptions from funds
that hold large amounts of fixed-income securities. Heavy redemptions could cause the Trust to sell assets at inopportune times or at a loss or depressed value and could hurt the Trusts performance.
Credit Risk Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be able to make payments of interest and
principal when due. Changes in an issuers credit rating or the markets perception of an issuers creditworthiness may also affect the value of the Trusts investment in that issuer. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
Extension Risk When interest rates rise, certain obligations will be paid off by the
obligor more slowly than anticipated, causing the value of these obligations to fall.
Prepayment Risk When interest rates fall, certain obligations
will be paid off by the obligor more quickly than originally anticipated, and the Trust may have to invest the proceeds in securities with lower yields.
Build
America Bonds Risk. Build America Bonds involve similar risks as municipal bonds, including credit and market risk. In particular, should a Build America Bonds issuer fail to continue to meet the applicable
requirements imposed on the bonds as provided by the ARRA , it is possible that such issuer may not receive federal cash subsidy payments, impairing the issuers ability to make scheduled interest payments. The Build America Bond program
expired on December 31, 2010 and no further issuance is permitted unless Congress renews the program. As a result, the number of available Build America Bonds is limited, which may negatively affect the value of the Build America
Bonds. In addition, there can be no assurance that Build America Bonds will be actively traded. It is difficult to predict the extent to which a market for such bonds will continue, meaning that Build America Bonds may experience
greater illiquidity than other municipal obligations. The Build America Bonds outstanding as of December 31, 2010 will continue to be eligible for the federal interest rate subsidy, which continues for the life of the Build
America Bonds; however, no bonds issued following expiration of the Build America Bond program will be eligible for the U.S. federal tax subsidy.
Municipal
Securities Risks Municipal securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative
changes which could affect the market for and value of municipal securities. These risks include:
General Obligation Bonds Risks Timely payments depend
on the issuers credit quality, ability to raise tax revenues and ability to maintain an adequate tax base.
Revenue Bonds Risks These payments
depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another source.
Private Activity Bonds Risks
Municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer
does not pledge its faith, credit and taxing power for repayment. The Trusts investments may consist of private activity bonds that may subject certain shareholders to an alternative minimum tax.
Moral Obligation Bonds Risks Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is
unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
Municipal Notes
Risks Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Trust may lose money.
Municipal Lease Obligations Risks In a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer
does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
Tax-Exempt Status Risk The Trust and its investment manager will rely on the opinion of issuers bond counsel and, in the case of derivative securities, sponsors counsel, on the tax-exempt status of interest on municipal bonds and payments under derivative securities. Neither the Trust nor its investment manager will independently review the bases for those tax opinions, which may
ultimately be determined to be incorrect and subject the Trust and its shareholders to substantial tax liabilities.
Reinvestment
Risk. Reinvestment risk is the risk that income from the Trusts portfolio will decline if and when the Trust invests the proceeds from matured, traded or called municipal securities at market interest rates that are
below the portfolios current earnings rate. A decline in income could affect the common shares market price or your overall returns.
Insurance
Risk Insurance guarantees that interest payments on a municipal security will be made on time and that the principal will be repaid when the security matures. However, insurance does not protect against losses caused by
declines in a municipal securitys value. The Trust cannot be certain that any insurance company will make the payments it guarantees. If a municipal securitys insurer fails to fulfill its obligations or loses its credit rating, the value
of the security could drop.
Junk Bonds Risk Although junk bonds generally pay higher rates of interest than investment grade bonds, junk bonds
are high risk investments that are considered speculative and may cause income and principal losses for the Trust.
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TRUST INVESTMENT OBJECTIVES, POLICIES AND RISKS
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Trust Investment Objectives, Policies and
Risks (continued)
Zero Coupon Securities Risk 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.
When-Issued and Delayed Delivery
Securities and Forward Commitments Risk When-issued and delayed delivery securities and forward commitments involve the risk that the security the Trust buys will lose value prior to its delivery. There also is the risk that the
security will not be issued or that the other party to the transaction will not meet its obligation. If this occurs, the Trust may lose both the investment opportunity for the assets it set aside to pay for the security and any gain in the
securitys price.
Indexed and Inverse Securities Risk Indexed and inverse securities provide a potential return based on a particular index
of value or interest rates. The Trusts return on these securities will be subject to risk with respect to the value of the particular index. These securities are subject to leverage risk and correlation risk. Certain indexed and inverse
securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Trusts investment in such instruments may decline significantly in value if interest rates or index levels move in a way Trust
management does not anticipate.
U.S. Government Obligations Risk Certain securities in which the Trust may invest, including securities issued
by certain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.
Economic Sector and Geographic Risk. The Trust, as a fundamental policy, may not invest 25% or more of the value of its Managed Assets in
any one industry. However, 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. As such, the Trust may invest 25% of more of its Managed Assets in municipal securities of issuers in the same state (or U.S. Territory) or in the same economic sector. If the Trust does so, this may make it more susceptible to adverse
economic, political or regulatory occurrences affecting a particular state or economic sector.
Repurchase Agreements and Purchase and Sale Contracts Risk
If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the Trust may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the
seller fails to repurchase the security in either situation and the market value of the security declines, the Trust may lose money.
Leverage Risk
The Trust utilizes leverage for investment purposes by entering into reverse repurchase agreements and derivative instruments with leverage embedded in then, such as TOB Residuals. 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 use of leverage creates an opportunity for
increased common share net investment income dividends, but also creates risks for the holders of common shares. The Trust cannot assure you that the use of leverage will result in a higher yield on the common shares. Any leveraging strategy the
Trust employs may not be successful.
Leverage involves risks and special considerations for common shareholders, including:
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the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a
comparable portfolio without leverage;
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the risk that fluctuations in interest rates or dividend rates on any leverage that the Trust must pay will reduce the
return to the common shareholders;
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the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the
common shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the common shares;
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leverage may increase operating costs, which may reduce total return.
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Any decline in the net asset value of the Trusts investments will be borne entirely by the holders of common shares. Therefore, if the market value of the
Trusts portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if the Trust were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in
the market price for the common shares.
Tender Option Bonds Risk The Trusts participation in tender option bond transactions may reduce
the Trusts returns and/or increase volatility. Investments in tender option bond transactions expose the Trust to counterparty risk and leverage risk. An investment in a tender option bond transaction typically will involve greater risk than
an investment in a municipal fixed rate security, including the risk of loss of principal. Distributions on TOB Residuals will bear an inverse relationship to short-term municipal security interest rates. Distributions on TOB Residuals paid to the
Trust will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. TOB Residuals generally will underperform the market for fixed rate municipal
securities in a rising interest rate environment. The Trust may invest special purpose trusts formed for the purpose of holding municipal bonds contributed by one or more funds (TOB Trusts) on either a
non-recourse or recourse basis. If the Trust invests in a TOB Trust on a recourse basis, it could suffer losses in excess of the value of its TOB Residuals.
Reverse Repurchase Agreements Risk Reverse repurchase agreements involve the sale of securities held by the Trust with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party may fail to return the securities in a timely manner or at all. The Trust could lose money if it is unable to recover
the securities and the value of the collateral held by the Trust, including the value of the investments made with cash collateral, is less than the value of the securities. These events could also trigger adverse tax consequences for the Trust. In
addition, reverse repurchase agreements involve the risk that the interest income earned in the investment of the proceeds will be less than the interest expense.
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Trust Investment Objectives, Policies and
Risks (continued)
Illiquid Investments Risk The Trust may invest without limitation in illiquid or less liquid investments or investments in which no secondary market
is readily available or which are otherwise illiquid, including private placement securities. The Trust may not be able to readily dispose of such investments at prices that approximate those at which the Trust could sell such investments if they
were more widely traded and, as a result of such illiquidity, the Trust may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of
investments, thereby adversely affecting the Trusts net asset value and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage-related securities markets in particular, have in recent
years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some
investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities are often of below investment grade quality, frequently are unrated and
present many of the same risks as investing in below investment grade public debt securities.
Investment Companies and ETFs Risk Subject to the
limitations set forth in the Investment Company Act of 1940, as amended (the 1940 Act), or as otherwise limited by the SEC, the Trust may acquire shares in other investment companies and in exchange-traded Trusts (ETFs), some
of which may be affiliated investment companies. The market value of the shares of other investment companies and ETFs may differ from their net asset value. As an investor in investment companies and ETFs, the Trust would bear its ratable share of
that entitys expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and administration fees and other expenses (to the extent not offset by the Manager through waivers). As a result,
shareholders will be absorbing duplicate levels of fees with respect to investments in other investment companies and ETFs (to the extent not offset by the Manager through waivers).
The securities of other investment companies and ETFs in which the Trust may invest may be leveraged. As a result, the Trust may be indirectly exposed to leverage
through an investment in such securities. An investment in securities of other investment companies and ETFs that use leverage may expose the Trust to higher volatility in the market value of such securities and the possibility that the Trusts
long-term returns on such securities (and, indirectly, the long-term returns of shares of the Trust) will be diminished.
As with other investments, investments in
other investment companies, including ETFs, are subject to market and selection risk. To the extent the Trust is held by an affiliated Trust, the ability of the Trust itself to hold other investment companies may be limited.
Derivatives Risk The Trusts use of derivatives may increase its costs, reduce the Trusts returns and/or increase volatility. Derivatives
involve significant risks, including:
Volatility Risk Volatility is defined as the characteristic of a security, an index or a market to fluctuate
significantly in price within a short time period. A risk of the Trusts use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.
Counterparty Risk Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its
contractual obligation.
Market and Illiquidity Risk The possible lack of a liquid secondary market for derivatives and the resulting inability of the
Trust to sell or otherwise close a derivatives position could expose the Trust to losses and could make derivatives more difficult for the Trust to value accurately.
Valuation Risk Valuation may be more difficult in times of market turmoil since many investors and market makers may be reluctant to purchase complex
instruments or quote prices for them.
Hedging Risk Hedges are sometimes subject to imperfect matching between the derivative and the underlying
security, and there can be no assurance that the Trusts hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.
Tax Risk Certain aspects of the tax treatment of derivative instruments, including swap agreements and commodity-linked derivative instruments, are
currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an underlying asset and may adversely affect the timing,
character and amount of income the Trust realizes from its investments.
Regulatory Risk Derivative contracts, including, without limitation, swaps,
currency forwards and non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) in the United States and under
comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collect margin from the
Trust with respect to such derivatives. Specifically, regulations are now in effect that require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with
trading of OTC swaps with the Trust. Shares of investment companies (other than certain money market funds) may not be posted as collateral under these regulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certain of their affiliates to include in
certain financial contracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as the Trust, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict
transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. The implementation of these requirements with respect to derivatives, as well as regulations
under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to the Trust of trading in these instruments and, as a result, may affect returns to investors in the Trust.
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TRUST INVESTMENT OBJECTIVES, POLICIES AND RISKS
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Trust Investment Objectives, Policies and
Risks (continued)
In November 2019, the SEC proposed new regulations governing the use of derivatives by registered investment companies. If adopted as proposed, new Rule 18f-4 would impose limits on the amount of derivatives a fund could enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as
senior securities so that a failure to comply with the proposed limits would result in a statutory violation and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive
derivatives risk management program and appoint a derivatives risk manager.
Market Risk and Selection Risk Market risk is the risk that one or
more markets in which the Trust invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset may decline due to changes in general market conditions,
economic trends or events that are not specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of countries, region, market, industry, group of industries,
sector or asset class. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues like pandemics or epidemics, recessions, or other events could have a significant impact on the
Trust and its investments. Selection risk is the risk that the securities selected by Trust management will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment
strategies. This means you may lose money.
A recent outbreak of an infectious coronavirus has developed into a global pandemic that has resulted in numerous
disruptions in the market and has had significant economic impact leaving general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies of many nations,
individual companies and the market in general ways that cannot necessarily be foreseen at the present time.
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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Automatic Dividend Reinvestment Plan
Pursuant to the Trusts Dividend Reinvestment Plan (the Reinvestment Plan), Common
Shareholders are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A. (the Reinvestment Plan Agent) in the Trusts Common Shares
pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street name or other
nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After the Trust
declares a dividend or determines to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares for the participants accounts, depending upon the following circumstances, either (i) through receipt of
unissued but authorized shares from the Trust (newly issued shares) or (ii) by purchase of outstanding shares on the open market or on the Trusts primary exchange (open-market purchases). If, on the dividend
payment date, the net asset value per share (NAV) is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to as a market premium), the Reinvestment Plan Agent
will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be credited to each participants account will be determined by dividing the dollar amount of the dividend by
the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the
dividend payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often referred to as a market discount), the Reinvestment Plan Agent will invest the dividend amount in shares
acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period,
the Reinvestment Plan Agent will invest any un-invested portion in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued
shares will substitute for the dividend payment date.
You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting
the Reinvestment Plan Agent, at the address set forth below.
Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any
time without penalty by notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable
date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other
distribution.
The Reinvestment Plan Agents fees for the handling of the reinvestment of distributions will be paid by the Trust. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agents open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not
relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.
The Trust reserves the right to amend or
terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, the Trust reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants
that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission fee. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at
computershare.com/blackrock, or in writing to Computershare, P.O. Box 505000, Louisville, KY 40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at
Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.
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AUTOMATIC DIVIDEND REINVESTMENT PLAN
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