MARCH 31, 2021 2021 Annual Report BlackRock Allocation Target Shares • BATS: Series A Portfolio • BATS: Series C Portfolio • BATS: Series E Portfolio • BATS: Series M Portfolio • BATS: Series P Portfolio • BATS: Series S Portfolio Not FDIC Insured • May Lose Value • No Bank Guarantee
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MARCH 31, 2021
2021 Annual Report
BlackRock Allocation Target Shares
• BATS: Series A Portfolio• BATS: Series C Portfolio• BATS: Series E Portfolio• BATS: Series M Portfolio• BATS: Series P Portfolio• BATS: Series S Portfolio
Not FDIC Insured • May Lose Value • No Bank Guarantee
Dear Shareholder,
The 12-month reporting period as of March 31, 2021 reflected a remarkable period of disruption andadaptation, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. Asthe period began, the response to the virus’s spread was well underway, and countries around the worldinstituted economically disruptive countermeasures. Stay-at-home orders and closures of non-essentialbusinesses became widespread, many workers were laid off, and unemployment claims spiked, causing aglobal recession and a sharp fall in equity prices.
As April 2020 began, stocks were near their lowest point since the beginning of the pandemic. However, asteady recovery began, as businesses started re-opening and governments learned to adapt to life with thevirus. Equity prices continued to rise throughout the summer, fed by strong fiscal and monetary support andimproving economic indicators. Many equity indices neared or surpassed all-time highs late in the reportingperiod following the implementation of mass vaccination campaigns and passage of an additional $1.9 trillionof fiscal stimulus. In the United States, both large- and small-capitalization stocks posted a significant advance.International equities also gained, as both developed countries and emerging markets reboundedsubstantially.
The 10-year U.S. Treasury yield (which is inversely related to bond prices) was near all-time lows as the periodbegan, reflecting a reduced investor appetite for risk. However, inflation concerns from a rapidly expandingeconomy raised yields late in the reporting period, leading to a negative overall return for most U.S. Treasuries.In the corporate bond market, support from the U.S. Federal Reserve (the “Fed”) assuaged credit concernsand led to positive returns for corporate bonds, particularly high-yield corporates, which gained substantially.
The Fed remained committed to accommodative monetary policy by maintaining near zero interest rates andby announcing that inflation could exceed its 2% target for a sustained period without triggering a rate increase.To stabilize credit markets, the Fed also continued purchasing significant quantities of bonds, as did otherinfluential central banks around the world, including the European Central Bank and the Bank of Japan.
Looking ahead, while coronavirus-related disruptions have clearly hindered worldwide economic growth, webelieve that the global expansion will continue to accelerate as vaccination efforts ramp up and pent-upconsumer demand leads to higher spending. In early 2021, President Biden signed one of the largesteconomic rescue packages in U.S. history, which should provide a solid tailwind for economic growth. In ourview, inflation is likely to increase somewhat as the expansion continues, but moderate inflation is less likely tobe followed by interest rate hikes that could threaten the economic expansion due to the change in Fed policy.
Overall, we favor a positive stance toward risk, with an overweight in equities. We see U.S. and Asian equitiesoutside of Japan benefiting from structural growth trends in technology, while emerging markets should beparticularly helped by a vaccine-led economic expansion. While we are neutral overall on credit, rising inflationshould provide tailwinds for inflation-protected bonds, and global high-yield and Asian bonds also presentattractive opportunities. We believe that international diversification and a focus on sustainability can helpprovide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shifttoward sustainable investments.
In this environment, our view is that investors need to think globally, extend their scope across a broad array ofasset classes, and be nimble as market conditions change. We encourage you to talk with your financialadvisor and visit blackrock.com for further insight about investing in today’s markets.
Sincerely,
Rob KapitoPresident, BlackRock Advisors, LLC
Total Returns as of March 31, 2021
6-Month 12-Month
U.S. large cap equities(S&P 500� Index)
19.07% 56.35%
U.S. small cap equities(Russell 2000� Index)
48.05 94.85
International equities(MSCI Europe, Australasia,Far East Index)
U.S. high yield bonds(Bloomberg Barclays U.S.Corporate High Yield 2%Issuer Capped Index)
7.35 23.65
Past performance is not an indication of future results. Indexperformance is shown for illustrative purposes only. Youcannot invest directly in an index.
The Markets in Review
Rob KapitoPresident, BlackRock Advisors, LLC
2 T H I S P A G E I S N O T P A R T O F Y O U R F U N D R E P O R T
Page
The Markets in Review ........................................................................................................................................................... 2Annual Report:Fund Summary .................................................................................................................................................................. 4About Fund Performance ......................................................................................................................................................... 22Disclosure of Expenses .......................................................................................................................................................... 22The Benefits and Risks of Leveraging ............................................................................................................................................. 22Derivative Financial Instruments .................................................................................................................................................. 23Financial Statements:
Schedules of Investments ..................................................................................................................................................... 24Statements of Assets and Liabilities ............................................................................................................................................ 102Statements of Operations ...................................................................................................................................................... 105Statements of Changes in Net Assets .......................................................................................................................................... 107
Financial Highlights .............................................................................................................................................................. 110Notes to Financial Statements .................................................................................................................................................... 116Report of Independent Registered Public Accounting Firm ......................................................................................................................... 130Important Tax Information ........................................................................................................................................................ 131Statement Regarding Liquidity Risk Management Program ......................................................................................................................... 132Trustee and Officer Information ................................................................................................................................................... 133Additional Information ............................................................................................................................................................ 137Glossary of Terms Used in this Report ............................................................................................................................................ 139
Table of Contents
3
Investment Objective
BATS: Series A Portfolio’s (the “Fund”) investment objective is to seek a high level of current income consistent with capital preservation.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021, the Fund outperformed its broad-based benchmark, the Bloomberg Barclays U.S. Universal Index, as well as its “ReferenceBenchmark” consisting of 50% Bloomberg Barclays U.S. Asset-Backed Securities Index and 50% Bloomberg Barclays Non-Agency Investment Grade CMBS Index. Sharesof the Fund can be purchased or held only by or on behalf of (i) certain separately managed account clients; (ii) collective trust funds managed by BlackRock Institutional TrustCompany, N.A., an affiliate of the investment adviser; and (iii) mutual funds advised by BlackRock Advisors, LLC or its affiliates. Comparisons of the Fund’s performance versusits Reference Benchmark index will differ from comparisons of the benchmark against the performance of the separately managed accounts.
What factors influenced performance?The largest contributor to the Fund’s performance relative to the benchmark was an overweight allocation to securitized assets, most notably non-agency residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). Within non-agency RMBS, exposure to subprime securities led positive contributions.More broadly, strong fundamentals continued to support a recovery for non-agency RMBS from the COVID-19-related spread widening seen in March 2020. Robust housingdata and a renewed demand for single-family homes alongside historically low interest rates created a strong technical environment for RMBS. CMBS prices were boostedfollowing positive news surrounding vaccines and fiscal stimulus, with the rebound from pandemic-driven spread widening dispersed across property types and individualnames. Spreads tightened within asset-backed securities (“ABS”) as well, especially for some of the larger sub-sectors such as prime autos and credit cards. With regard tocollateralized loan obligations (“CLOs”), spreads tightened most notably across the higher-rated portion of the capital stack.
While allocations to non-agency RMBS, CMBS, ABS and CLOs all contributed positively to performance over the 12 months, some securitized subsectors detracted modestly,including auto ABS and prime non-agency RMBS.
The Fund’s cash position was increased in the wake of the disruption in financial markets when COVID-19 concerns crested, as the investment adviser sought to maintainliquidity and preserve capital. The cash position did not have any material impact on the Fund’s return for the period.
Describe recent portfolio activity.Over the period, the Fund’s allocation to ABS was increased while allocations to non-agency RMBS, CMBS and CLOs were decreased.
Describe portfolio positioning at period end.The Fund ended the period with an underweight duration (and corresponding interest rate sensitivity) relative to the benchmark. The Fund was positioned underweight in ABSand CMBS relative to the benchmark, and had out-of-benchmark exposures to non-agency RMBS and CLOs.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series A Portfolio
4 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
TOTAL RETURN BASED ON A $10,000 INVESTMENT
$13,322
$12,257$11,931
9,500
10,000
10,500
11,000
11,500
12,000
12,500
13,000
$13,500
Mar 21Mar 20Mar 19Mar 18Mar 17Mar 16
BATS: Series A Portfolio(a) Bloomberg Barclays U.S. Universal Index(b)
Reference Benchmark(c)
The Fund commenced operations on September 21, 2015.(a) The Fund will primarily invest its assets in fixed-income securities, such as ABS, CMBS and RMBS issued or guaranteed by the U.S. Government, various agencies of the
U.S. Government or various instrumentalities that have been established or sponsored by the U.S. Government, CMBS and RMBS issued by banks and other financial institutions,collateralized mortgage obligations, loans backed by commercial or residential real estate, derivatives and repurchase agreements and reverse repurchase agreements.
(b) An unmanaged, market value weighted index of fixed-income securities issued in U.S. dollars, including U.S. government and investment grade debt, non-investment grade debt, ABSand mortgage-backed securities, Eurobonds, 144A securities and emerging market debt with maturities of at least one year.
(c) A customized weighted index comprised of the returns of the Bloomberg Barclays U.S. Asset-Backed Securities Index (50%)/Bloomberg Barclays Non-Agency Investment Grade CMBSIndex (50%). The Bloomberg Barclays U.S. Asset-Backed Securities Index is composed of debt securities backed by credit card, auto and home equity loans that are rated investmentgrade or higher by Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”) or Fitch Ratings, Inc. (“Fitch”). Issues must have at least one year to maturity and an outstandingpar value of at least $50 million. The Bloomberg Barclays Non-Agency Investment Grade CMBS Index measures the market of conduit and fusion CMBS deals with a minimum currentdeal size of $300 million that are rated investment grade or higher using the middle rating of Moody’s, S&P, and Fitch after dropping the highest and lowest available ratings. Securitiesmust have a remaining average life of at least one year and must be fixed-rate, weighted average coupon (“WAC”), or capped WAC securities.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.(b) The Fund commenced operations on September 21, 2015.
Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund. Extraordinaryexpenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series A Portfolio
(a) Total investments exclude short-term securities.(b) Amount is less than 1%.(c) For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are
independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings arecredit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings aresubject to change.
(d) The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis ofsectors, individual investments and/or issuers. Using this approach, the investment adviser has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligationsto be of similar credit quality as investments rated AAA/Aaa.
Fund Summary as of March 31, 2021 (continued) BATS: Series A Portfolio
6 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Investment Objective
BATS: Series C Portfolio’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021, the Fund outperformed its benchmark, the Bloomberg Barclays U.S. Credit Index. Shares of the Fund can be purchased orheld only by or on behalf of certain separately managed account clients. Comparisons of the Fund’s performance versus its benchmark index will differ from comparisons ofthe benchmark against the performance of the separately managed accounts.
What factors influenced performance?The Fund’s overweight positions in technology, independent energy and capital securities made the largest contributions to Fund performance. (Capital securities are dividend-paying securities that combine some features of both corporate bonds and preferred stocks, while generally providing higher yields to compensate for being less senior in theissuers’ capital structures.) An allocation to fallen angels (investment-grade bonds that were downgraded to high yield) also contributed to the Fund’s relative outperformance.
Conversely, underweight positions in emerging-market issues that are included in the index detracted from results. Underweights in food/beverage and diversifiedmanufacturing issuers also detracted.
Describe recent portfolio activity.Early in the period, the Fund’s investment adviser sought to take advantage of wider yield spreads and large new-issue concessions to increase its position in corporate bonds.The investment adviser initially accomplished this by allocating toward higher-quality and defensive sectors. As these sectors recovered, the investment adviser rotated theportfolio in favor of the more cyclical areas of the market. Later in the period, it reduced risk as valuations normalized. However, the investment adviser continued to favorsectors—including energy and autos—that it believed would benefit from reopening of the economy following the COVID-19 pandemic. The investment adviser also adjustedduration (interest-rate sensitivity) in a tactical fashion throughout the period.
Describe portfolio positioning at period end.The Fund’s leading overweight positions were in the banking, midstream energy, independent energy and technology sectors, while its largest underweights were in integratedenergy, pharmaceuticals and sovereign issuers. The Fund’s duration was below that of the benchmark at period end.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series C Portfolio
BATS: Series C Portfolio(a) Bloomberg Barclays U.S. Credit Index(b)
(a) The Fund will primarily invest its assets in investment grade fixed-income securities, such as corporate bonds, notes and debentures, ABS, CMBS and RMBS, obligations of non-U.S. governments and supranational organizations which are chartered to promote economic development, collateralized mortgage obligations, U.S. Treasury and agency securities,cash equivalent investments, when-issued and delayed delivery securities, derivatives, repurchase agreements and reverse repurchase agreements.
(b) An unmanaged index that includes publicly issued U.S. corporate and non-corporate securities which include foreign agencies, sovereigns, supranationals and local authorities thatmeet the specified maturity, liquidity, and quality requirements.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund. Extraordinaryexpenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series C Portfolio
8 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
(a) Total investments exclude short-term securities.(b) Amount is less than 1%.(c) For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are
independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings arecredit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings aresubject to change.
(d) The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis ofsectors, individual investments and/or issuers. Using this approach, the investment adviser has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligationsto be of similar credit quality as investments rated AAA/Aaa.
Fund Summary as of March 31, 2021 (continued) BATS: Series C Portfolio
F U N D S U M M A R Y 9
Investment Objective
BATS: Series E Portfolio’s (the “Fund”) investment objective is to seek to maximize Federal tax-free yield with a secondary goal of total return.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021, the Fund outperformed its broad-based benchmark, the S&P� Municipal Bond Index and its customized “ReferenceBenchmark,” consisting of 50% S&P� Municipal High-Yield Index, 25% S&P� Municipal Bond A Rating Band Index (using the returns of only those A rated bonds that havematurities greater than five years) and 25% S&P� Municipal Bond BBB Rating Band Index (using the returns of only those BBB rated bonds that have maturities greater thanfive years). Shares of the Fund can be purchased or held only by or on behalf of certain separately managed account clients. Comparisons of the Fund’s performance versusits benchmark index will differ from comparisons of the benchmark against the performance of the separately managed accounts.
What factors influenced performance?Duration and yield curve positioning both helped Fund performance during the period. The portfolio was long in duration relative to the benchmark, which helped performancegiven that yields fell. (Duration is a measure of interest-rate sensitivity; prices rise as yields decline). With respect to yield curve positioning, the Fund benefited from itsconcentrations in longer-dated maturities.
Holdings in the lower-rated segment of the investment-grade category, which included A and BBB rated securities, also helped Fund performance. Returns were particularlystrong in the transportation and state tax-backed sectors, both of which entered the period at depressed levels due to the disruptions caused by COVID-19 in the first quarterof 2020. Positions in various Puerto Rico securities also made strong contributions.
The Fund’s use of leverage—which boosted income and amplified the effect of rising prices—further aided results. The Fund also actively sought to manage interest rate riskusing U.S. Treasury futures. Since Treasury yields rose, as prices fell, this strategy contributed to results.
The Fund positioning in the BB and CCC-C rated categories was a slight detractor, as was its underweight in intermediate maturities.
Describe recent portfolio activity.At the beginning of the reporting period, the market was dislocated due to COVID-19 and the associated lockdowns. As a result, yield spreads were well above average andliquidity conditions were unfavorable. The investment adviser used these unusual circumstances as an opportunity to increase the Fund’s weighting in non-investment gradesecurities.
During times in which the Fund faced redemptions, the investment adviser raised cash primarily through the sale of higher-quality, more liquid securities. The investmentadviser also sought to manage the Fund’s capital gains by harvesting losses via sales of higher-cost, lower-yielding positions.
At the sector level, the Fund increased its allocations to charter school, tax-backed and corporate issues, and it reduced its weightings in health care, utilities and tobacco.
Describe portfolio positioning at period end.The Fund’s duration (interest-rate sensitivity) was above that of the index. The Fund remained overweight in longer-term bonds, specifically the 20+ year maturity range, andit was underweight in short- and intermediate-term debt. The transportation and education sectors were its largest overweight positions, and the tax-backed local and schooldistrict sectors were its most notable underweights.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series E Portfolio
10 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
TOTAL RETURN BASED ON A $10,000 INVESTMENT
$15,775
$14,637
$12,771
9,000
10,000
11,000
12,000
13,000
14,000
15,000
$16,000
Mar 21Mar 20Mar 19Mar 18Mar 17Mar 16Mar 15
BATS: Series E Portfolio(a) S&P® Municipal Bond Index(b)
Reference Benchmark(c)
The Fund commenced operations on August 4, 2014.(a) The Fund will invest in investment grade and non-investment grade municipal bonds. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25%
of the duration of the Reference Benchmark.(b) The S&P� Municipal Bond Index is composed of bonds held by managed municipal bond fund customers of Standard & Poor’s Securities Pricing, Inc. that are priced daily. Bonds in the
S&P� Municipal Bond Index must have an outstanding par value of at least $2 million and a remaining maturity of not less than one month.(c) A customized weighted index comprised of the returns of the S&P� Municipal High-Yield Index (50%)/S&P� Municipal Bond A Rating Band Index (25%) using the returns of only those
A rated bonds that have maturities greater than 5 years/S&P� Municipal Bond BBB Rating Band Index (25%) using the returns of only those BBB rated bonds that have the maturitiesgreater than 5 years.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.(b) The Fund commenced operations on August 4, 2014.(c) The benchmark value used to calculate since inception return is from the close of July 31, 2014. By using this value, the benchmark is using 2 extra days of performance (August 1,
2014 and August 4, 2014) compared to the Fund.Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio of 0.04%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the
one-half year period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund.Extraordinary expenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
(c) For shares of the Fund, expenses are equal to the annualized expense ratio of 0.00%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect theone-half year period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund.Extraordinary expenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series E Portfolio
(a) Total investments exclude short-term securities.(b) For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are
independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings arecredit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings aresubject to change.
Fund Summary as of March 31, 2021 (continued) BATS: Series E Portfolio
12 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Investment Objective
BATS: Series M Portfolio’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021, the Fund outperformed its benchmark, the Bloomberg Barclays MBS Index. Shares of the Fund can be purchased or held onlyby or on behalf of certain separately managed account clients. Comparisons of the Fund’s performance versus its benchmark index will differ from comparisons of thebenchmark against the performance of the separately managed accounts.
What factors influenced performance?The largest contributors to the Fund’s performance relative to the benchmark included allocations to out-of-benchmark securitized sectors, specifically commercial mortgage-backed securities (“CMBS”) and agency collateralized mortgage obligations (“CMOs”). The Fund’s active benchmark strategy, which houses relative value decisions betweenspecified pools and to-be-announced securities (“TBAs”) versus the index, also contributed positively. Relative value trades within the agency mortgage-backed security(“MBS”) market were also additive. Lastly, the Fund’s stance with respect to portfolio duration (and corresponding interest rate sensitivity) contributed to performance, alongwith yield curve positioning as the U.S. Treasury yield curve steepened in the first quarter of 2021.
There were no material detractors from the Fund’s performance relative to the benchmark.
Describe recent portfolio activity.The Fund’s allocation to CMBS was increased primarily in AAA conduit paper and single-asset/single-borrower (“SASB”) transactions. The allocation to fixed rate CMOs wasmodestly reduced over the period. Within agency MBS, the allocation to TBAs was increased relative to that of specified pools as the TBA market has benefited from strongdomestic bank demand and Fed purchases of mortgages. Within the coupon stack, the Fund underweighted the lowest coupons based on valuation.
The Fund’s cash position was elevated in the wake of the disruption in financial markets when COVID-19 concerns crested and at other times during the period as theinvestment adviser sought to maintain liquidity and preserve capital. The Fund’s cash position did not have a material impact on the Fund’s return for the period.
Describe portfolio positioning at period end.At period end, the Fund was overweight in agency MBS versus the benchmark, with exposures favoring higher coupons relative to lower coupons and TBAs over specifiedpools. The Fund closed the period with an increased allocation to CMBS, favoring conduit and SASB issues. Finally, the Fund was slightly underweight duration versus thebenchmark.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series M Portfolio
BATS: Series M Portfolio(a) Bloomberg Barclays MBS Index(b)
(a) The Fund will primarily invest its assets in investment grade CMBS and RMBS, ABS, collateralized mortgage obligations, U.S. Treasury and agency securities, cash equivalentinstruments, when-issued and delayed delivery securities, derivatives and dollar rolls.
(b) An unmanaged index that includes the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae and Freddie Mac that meet the maturity and liquidity criteria.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund. Extraordinaryexpenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series M Portfolio
14 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
(a) Total investments exclude short-term securities ,TBA sale commitments and options written.(b) Amount is less than 1%.(c) For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are
independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings arecredit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings aresubject to change.
(d) Total investments exclude short-term securities, options purchased, options written and TBA sale commitments.(e) The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of
sectors, individual investments and/or issuers. Using this approach, the investment adviser has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligationsto be of similar credit quality as investments rated AAA/Aaa.
Fund Summary as of March 31, 2021 (continued) BATS: Series M Portfolio
F U N D S U M M A R Y 15
Investment Objective
BATS: Series P Portfolio’s (the “Fund”) investment objective is to seek to provide a duration that is the inverse of its benchmark.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021 the Fund outperformed the Bloomberg Barclays U.S. Treasury 7-10 Year Bond Index and the Bloomberg BarclaysU.S. Bellwether 10 Year Swap Index. Shares of the Fund can be purchased or held only by or on behalf of certain separately managed account clients. Comparisons of theFund’s performance versus its benchmark index will differ from comparisons of the benchmark against the performance of the separately managed accounts.
What factors influenced performance?The use and cost of derivatives will result in a negative contribution to returns when interest rates fall; however, the Fund’s strategy is designed to offset these costs by holdingshares of BATS: Series S Portfolio (“Series S Portfolio”), a short-term proprietary fund. The use of derivatives is necessary to achieve the Fund’s objective and should thereforebe evaluated in a portfolio context and not as a standalone strategy. Given that yields rose, the Fund’s use of derivatives to facilitate an inverse exposure to the 7- to 10-yearpart of the U.S. Treasury yield curve contributed positively to the Fund’s results.
The Fund’s position in the Series S Portfolio—which was helped by its allocations to investment grade corporate bonds, commercial mortgage-backed securities (CMBS),mortgage-backed securities and asset backed securities (ABS)—also contributed to performance.
The Fund held cash as collateral in conjunction with its investments in U.S. Treasury futures and interest rate swaps. The cash position had no material impact on Fundperformance during the period.
Describe recent portfolio activity.The Fund actively managed interest rate risk on the 7- to 10-year part of the yield curve by using derivatives as described above. The Fund maintained its allocation to Series SPortfolio in order to offset the cost of the derivatives. Since this is an overlay strategy designed to manage interest-rate risk, the portfolio’s positioning is relatively static.
Describe portfolio positioning at period end.The Fund held positions in U.S. Treasury futures and interest rate swaps, and it had an out-of-benchmark allocation to Series S Portfolio.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series P Portfolio
16 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
TOTAL RETURN BASED ON A $10,000 INVESTMENT
$8,938
$12,320$12,467
8,000
9,000
10,000
11,000
12,000
13,000
$14,000
Mar 21Mar 20Mar 19Mar 18Mar 17Mar 16Mar 15Mar 14Mar 13
BATS: Series P Portfolio(a)
Bloomberg Barclays U.S. Treasury 7-10 Year Bond Index(b)
Bloomberg Barclays U.S. Bellwether 10 Year Swap Index(c)
The Fund commenced operations on March 20, 2013.(a) The Fund may invest in a portfolio of securities and other financial instruments, including derivative instruments, in an attempt to provide returns that are the inverse of its benchmark
index.(b) An unmanaged index that includes all publicly issued, U.S. Treasury securities that have a remaining maturity of between 7 and 10 years, are non-convertible, are denominated in
U.S. dollars, are rated Baa3 (or better) by Moody’s or BBB- (or better) by S&P, are fixed rate, and have more than $250 million par outstanding.(c) Provides total returns for swaps with varying maturities. For example, the 10-year swap index measures the total return of investing in 10-year par swaps over time.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.(b) The Fund commenced operations on March 20, 2013.
Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year
period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund. Extraordinaryexpenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series P Portfolio
Fund Summary as of March 31, 2021 (continued) BATS: Series P Portfolio
18 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Investment Objective
BATS: Series S Portfolio’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management.
Portfolio Management Commentary
How did the Fund perform?For the 12-month period ended March 31, 2021, the Fund outperformed its benchmark, the ICE BofA 1-3 Year U.S. Treasury Index. Shares of the Fund can be purchased orheld only by or on behalf of certain separately managed account clients. Comparisons of the Fund’s performance versus its benchmark index will differ from comparisons ofthe benchmark against the performance of the separately managed accounts.
What factors influenced performance?The Fund’s allocations to investment-grade corporate bonds, commercial mortgage-backed securities (CMBS), mortgage-backed securities (MBS), high yield corporates andasset-backed securities (ABS) were the primary contributors to performance. Its allocation to emerging-market sovereign debt was a minor detractor.
As part of its investment strategy, the Fund used interest rate derivatives to manage the portfolio’s duration and yield curve positioning. The use of derivatives contributed toresults.
At period end, the Fund had an elevated cash balance that was committed for pending transactions. The cash balance had no material impact on Fund performance.
Describe recent portfolio activity.After the coronavirus-induced sell-off of early 2020, the management team added to the Fund’s weighting in corporate bonds. This shift was based on the team’s view that yieldspreads would tighten, partially as a result of the U.S. Federal Reserve’s support via its launch of credit facilities. As valuations started to look rich in late 2020, managementreduced the position in corporates and rotated some of the proceeds into U.S. Treasuries and callable U.S. agency bonds. It believed the latter category offered attractiveincome in a low-yield environment.
Similarly, the Fund initially had a higher allocation to ABS and CMBS in the first half of the period, but management reduced the weightings in these areas as spreads tighteneddue to increased demand and muted supply. In the second half of the reporting period, it added to collateralized loan obligations (CLOs) on the belief that the securities offeredattractive income relative to corporate bonds.
Describe portfolio positioning at period end.The Fund’s duration was below that of the benchmark. (Duration is a measure of interest-rate sensitivity.) This aspect of its positioning reflected management’s view that thecombination of additional fiscal stimulus, the COVID-19 vaccine rollout and rising inflation expectations could lead to higher yields and a steeper yield curve. The Fund finishedthe period with out-of-benchmark allocations to ABS, CMBS, agency MBS and investment-grade corporates.
The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.These views are not intended to be a forecast of future events and are no guarantee of future results.
Fund Summary as of March 31, 2021 BATS: Series S Portfolio
BATS: Series S Portfolio(a) ICE BofA 1-3 Year U.S. Treasury Index(b)
(a) The Fund will primarily invest its assets in investment grade fixed-income securities, such as CMBS and RMBS, obligations of non-U.S. governments and supranational organizations,which are chartered to promote economic development, obligations of domestic and non-U.S. corporations, ABS, collateralized mortgage obligations, U.S. Treasury and agencysecurities, cash equivalent investments, when-issued and delayed delivery securities, derivatives, repurchase agreements, reverse repurchase agreements and dollar rolls.
(b) An unmanaged index comprised of Treasury securities with maturities ranging from one to three years. On 3/1/2021 the Fund began to track the 4pm pricing variant of the ICE BofA1-3 Year U.S. Treasury Index (the "Index"). Historical index data prior to 3/1/2021 is for the 3pm pricing variant of the Index. Index data on and after 3/1/2021 is for the 4pm pricing variantof the Index.
Performance Summary for the Period Ended March 31, 2021Average Annual Total Returns(a)
(a) See “About Fund Performance” for a detailed description of performance related information.Past performance is not an indication of future results.Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.
(a) Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.(b) For shares of the Fund, expenses are equal to the annualized expense ratio of 0.00%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the
one-half year period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund.Extraordinary expenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
(c) For shares of the Fund, expenses are equal to the annualized expense ratio of 0.00%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect theone-half year period shown). BlackRock has contractually agreed to waive all fees and pay or reimburse all direct expenses, except extraordinary expenses, incurred by the Fund.Extraordinary expenses may include dividend expense, interest expense, acquired fund fees and expenses and certain other Fund expenses. This agreement has no fixed term.
See “Disclosure of Expenses” for further information on how expenses were calculated.
Fund Summary as of March 31, 2021 (continued) BATS: Series S Portfolio
20 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
(a) Total investments exclude short-term securities, options purchased and options written.(b) Amount is less than 1%.(c) For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are
independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings arecredit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings aresubject to change.
(d) The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis ofsectors, individual investments and/or issuers. Using this approach, the investment adviser has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligationsto be of similar credit quality as investments rated AAA/Aaa.
Fund Summary as of March 31, 2021 (continued) BATS: Series S Portfolio
F U N D S U M M A R Y 21
About Fund Performance
Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. Thesecircumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the fund’s investments. As a result, currentperformance may be lower or higher than the performance data quoted. Refer to blackrock.com to obtain performance data current to the most recent month-end. Performanceresults do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Figures shown in the performance tables onthe previous pages assume reinvestment of all distributions, if any, at net asset value ("NAV") on the ex-dividend date or payable date, as applicable. Investment return andprincipal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
The performance information also reflects fee waivers and reimbursements that subsidize and reduce the total operating expenses of each Fund. The Funds’ returns wouldhave been lower if there were no such waivers and reimbursements.
Disclosure of ExpensesShareholders of each Fund may incur the following charges: (a) transactional expenses and (b) operating expenses, including administration fees and other fund expenses.The expense examples shown on the previous pages (which are based on a hypothetical investment of $1,000 invested on October 1, 2020 and held through March 31, 2021)are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in othermutual funds.
The expense examples provide information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period coveredby this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their Fund under the heading entitled“Expenses Paid During the Period.”
The expense examples also provide information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rateof return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in these Funds and other funds, compare the 5%hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect transactional expenses, if any. Therefore, thehypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If thesetransactional expenses were included, shareholder expenses would have been higher.
The Benefits and Risks of LeveragingThe Funds may utilize leverage to seek to enhance returns and NAV. However, there is no guarantee that these objectives can be achieved in all interest rate environments.
The Funds may utilize leverage by entering into reverse repurchase agreements.
Series E Portfolio may leverage its assets through the use of proceeds received in tender option bond (“TOB”) transactions, as described in the Notes to Financial Statements.In a TOB Trust transaction, the Series E Portfolio transfers municipal bonds or other municipal securities into a special purpose entity (a “TOB Trust”). TOB investmentsgenerally provide the Series E Portfolio with economic benefits in periods of declining short-term interest rates, but expose the Series E Portfolio to risks during periods of risingshort-term interest rates. Additionally, fluctuations in the market value of municipal bonds deposited into a TOB Trust may adversely affect the Series E Portfolio’s NAV pershare.
In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the incomeearned by each Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of each Fund (including the assetsobtained from leverage) are invested in higher-yielding portfolio investments, each Fund’s shareholders benefit from the incremental net income.
The interest earned on securities purchased with the proceeds from leverage is distributed to each Fund’s shareholders, and the value of these portfolio holdings is reflectedin each Fund’s per share NAV. However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associatedwith the leverage. If interest and other ongoing costs of leverage exceed a Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower thanif the Funds had not used leverage.
Furthermore, the value of each Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can also influencethe value of portfolio investments. As a result, changes in interest rates can influence each Fund’s NAV positively or negatively in addition to the impact on each Fund’sperformance from leverage. Changes in the direction of interest rates are difficult to predict accurately, and there is no assurance that a Fund’s leveraging strategy will besuccessful.
The use of leverage also generally causes greater changes in each Fund’s NAV and dividend rates than comparable portfolios without leverage. In a declining market, leverageis likely to cause a greater decline in the NAV of a Fund’s shares than if the Fund were not leveraged. In addition, each Fund may be required to sell portfolio securities atinopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of the leverageinstruments, which may cause the Funds to incur losses. The use of leverage may limit a Fund’s ability to invest in certain types of securities or use certain types of hedgingstrategies. Each Fund incurs expenses in connection with the use of leverage, all of which are borne by each Fund’s shareholders and may reduce income.
22 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Derivative Financial Instruments
The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other assetswithout owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currencyexchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfectcorrelation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the instrument.The Funds’ successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot beassured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investmentand/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.
A B O U T F U N D P E R F O R M A N C E 23
SecurityPar
(000) Value
Asset-Backed SecuritiesABFC Trust, Series 2007-WMC1, Class A2B,
(1 mo. LIBOR US + 1.00%), 1.11%, 06/25/37(a). . USD 3,705 $ 3,447,846AGL CLO 3 Ltd., Series 2020-3A, Class A, (3 mo.
LIBOR US + 1.30%), 1.54%, 01/15/33(a)(b) . . . . . . 250 250,635AIMCO CLO, Series 2017-AA, Class AR, (3 mo.
Loanpal Solar Loan Ltd.Series 2020-2GF, Class A, 2.75%, 07/20/47(b) . . . 1,252 1,268,881Series 2021-1GS, Class A, 2.29%, 01/20/48(b) . . 3,762 3,762,560Series 2021-2GS, Class A, 2.22%, 03/20/48(b) . . 4,760 4,753,543
Mill City Solar Loan Ltd.Series 2019-1A, Class A, 4.34%, 03/20/43(b) . . . . 1,662 1,804,043Series 2019-2GS, Class A, 3.69%, 07/20/43(b) . . 2,786 2,938,955
Morgan Stanley ABS Capital I, Inc. Trust,Series 2007-NC1, Class A2D, (1 mo. LIBOR US+ 0.22%), 0.33%, 11/25/36(a) . . . . . . . . . . . . . . . . . . . 6,209 3,986,048
Mosaic Solar Loan TrustSeries 2018-2GS, Class A, 4.20%, 02/22/44(b) . . 1,715 1,864,344Series 2019-1A, Class A, 4.37%, 12/21/43(b) . . . . 2,754 3,010,724Series 2019-2A, Class A, 2.88%, 09/20/40(b) . . . . 394 411,279Series 2020-2A, Class B, 2.21%, 08/20/46(b) . . . . 2,496 2,486,640Series 2021-1A, Class B, 2.05%, 12/20/46(b) . . . . 660 650,294
Tricon American Homes TrustSeries 2017-SFR1, Class F, 5.15%, 09/17/34(b) . 4,781 4,865,513Series 2018-SFR1, Class E, 4.56%, 05/17/37(b) . 2,000 2,081,699Series 2019-SFR1, Class E, 3.40%, 03/17/38(b) . 2,000 2,031,766
Morgan Stanley Bank of America Merrill LynchTrustSeries 2015-C23, Class D, 4.15%, 07/15/50(a)(b). 233 229,016Series 2015-C25, Class A5, 3.64%, 10/15/48. . . . 1,455 1,592,036Series 2015-C26, Class C, 4.40%, 10/15/48(a). . . 1,000 1,061,699Series 2015-C26, Class D, 3.06%, 10/15/48(b). . . 156 149,637Series 2016-C32, Class A4, 3.72%, 12/15/49. . . . 1,060 1,168,708
Morgan Stanley Capital I TrustSeries 2014-CPT, Class E, 3.45%, 07/13/29(a)(b). 500 499,936Series 2015-MS1, Class A4, 3.78%, 05/15/48(a) . 2,000 2,194,386Series 2017-CLS, Class A, (1 mo. LIBOR US +
(a) Variable rate security. Interest rate resets periodically. The rate shown is the effectiveinterest rate as of period end. Security description also includes the reference rate andspread if published and available.
(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,as amended. These securities may be resold in transactions exempt from registration toqualified institutional investors.
(c) Security is valued using significant unobservable inputs and is classified as Level 3 in thefair value hierarchy.
(d) Step-up bond that pays an initial coupon rate for the first period and then a higher couponrate for the following periods. Rate as of period end.
(e) Issuer filed for bankruptcy and/or is in default.(f) Non-income producing security.(g) Perpetual security with no stated maturity date.(h) Annualized 7-day yield as of period end.
For Fund compliance purposes, the Fund’s industry classifications refer to one or more of the industry sub-classifications used by one or more widely recognized marketindexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such industrysub-classifications for reporting ease.
Schedule of Investments (continued)
March 31, 2021
BATS: Series A Portfolio(Percentages shown are based on Net Assets)
38 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Derivative Financial Instruments Outstanding as of Period End
(a) Using the rating of the issuer or the underlying securities of the index, as applicable, provided by S&P Global Ratings.(b) The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.
Balances Reported in the Statements of Assets and Liabilities for OTC Swaps
(a) Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums paid/received in the Statements of Assets and Liabilities.
The following tables present the Funds’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateralreceived and pledged by the Fund:
(a) The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.(b) Net amount represents the net amount receivable from the counterparty in the event of default.(c) Excess of collateral pledged to the individual counterparty is not shown for financial reporting purposes.(d) Net amount represents the net amount payable due to the counterparty in the event of default.
Schedule of Investments (continued)
March 31, 2021
BATS: Series A Portfolio
40 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Unfunded floating rate loan interests are valued at the unrealized appreciation (depreciation) on the commitment.(b) Derivative financial instruments are swaps. Swaps are valued at the unrealized appreciation (depreciation) on the instrument.
A reconciliation of Level 3 financial instruments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relationto net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:
(a) Rounds to less than $1.(b) As of March 31, 2020, the Fund used observable inputs in determining the value of certain investments. As of March 31, 2021, the Fund used significant unobservable inputs in determining
the value of the same investments. As a result, investments at beginning of period value were transferred from Level 2 to Level 3 in the fair value hierarchy.(c) As of March 31, 2020, the Fund used significant unobservable inputs in determining the value of certain investments. As of March 31, 2021, the Fund used observable inputs in determining
the value of the same investments. As a result, investments at beginning of period value were transferred from Level 3 to Level 2 in the disclosure hierarchy.(d) Included in the related net change in unrealized appreciation (depreciation) in the Statements of Operations.(e) Any difference between net change in unrealized appreciation (depreciation) and net change in unrealized appreciation (depreciation) on investments still held at March 31, 2021 is generally
due to investments no longer held or categorized as Level 3 at period end.
The Fund’s financial instruments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based onunobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 financial instruments.
(a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,as amended. These securities may be resold in transactions exempt from registration toqualified institutional investors.
(b) Variable rate security. Interest rate resets periodically. The rate shown is the effectiveinterest rate as of period end. Security description also includes the reference rate andspread if published and available.
(c) Perpetual security with no stated maturity date.(d) Step-up bond that pays an initial coupon rate for the first period and then a higher coupon
rate for the following periods. Rate as of period end.(e) Annualized 7-day yield as of period end.
Schedule of Investments (continued)
March 31, 2021
BATS: Series C Portfolio(Percentages shown are based on Net Assets)
52 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
For Fund compliance purposes, the Fund’s industry classifications refer to one or more of the industry sub-classifications used by one or more widely recognized marketindexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such industrysub-classifications for reporting ease.
Derivative Financial Instruments Outstanding as of Period End
(a) Using the rating of the issuer or the underlying securities of the index, as applicable, provided by S&P Global Ratings.(b) The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.
Balances Reported in the Statements of Assets and Liabilities for OTC Swaps
(a) Net cumulative unrealized appreciation (depreciation) on futures and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets andLiabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings(loss).
For the year ended March 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
(a) Options purchased are included in net realized gain (loss) from investments — unaffiliated.(b) Options purchased are included in net change in unrealized appreciation (depreciation) on investments — unaffiliated.
Average Quarterly Balances of Outstanding Derivative Financial Instruments
(a) Includes unrealized appreciation (depreciation) on OTC swaps in the Statements of Assets and Liabilities.
The following tables present the Funds’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateralreceived and pledged by the Fund:
(a) The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.(b) Net amount represents the net amount receivable from the counterparty in the event of default.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Derivative financial instruments are swaps and futures contracts. Swaps and futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.
See notes to financial statements.
Schedule of Investments (continued)
March 31, 2021
BATS: Series C Portfolio
56 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
SecurityPar
(000) Value
Municipal Bonds
Alabama — 1.6%County of Jefferson Sewer Revenue, Refunding RB,
City of Irvine, Special Tax Bonds, 5.00%, 09/01/44 . . . . 250 274,870City of Roseville, Special Tax Bonds, 5.00%, 09/01/44. 500 515,535CMFA Special Finance Agency I, RB, Series A-2,
Fort Bend County IDC, RB, Series B, 4.75%, 11/01/42. 465 487,855Mission EDC, Refunding RB, AMT, 4.63%, 10/01/31(b). 285 302,656New Hope Cultural Education Facilities Finance Corp.
(a) Variable rate security. Interest rate resets periodically. The rate shown is the effectiveinterest rate as of period end. Security description also includes the reference rate andspread if published and available.
(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,as amended. These securities may be resold in transactions exempt from registration toqualified institutional investors.
(c) Zero-coupon bond.(d) When-issued security.(e) Issuer filed for bankruptcy and/or is in default.(f) Non-income producing security.(g) All or a portion of the security is subject to a recourse agreement. The aggregate
maximum potential amount the Fund could ultimately be required to pay under theagreements, which expire between 06/01/26 to 07/01/28, is $4,043,653. See Note 4 of theNotes to Financial Statements for details.
(h) Represents bonds transferred to a TOB Trust in exchange of cash and residual certificatesreceived by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4of the Notes to Financial Statements for details.
(i) Annualized 7-day yield as of period end.
Derivative Financial Instruments Outstanding as of Period End
(a) Net cumulative unrealized appreciation (depreciation) on futures contracts, if any, are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only currentday’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).
For the year ended March 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, TOB Trust Certificatesof $18,987,000 are categorized as Level 2 within the fair value hierarchy.
See notes to financial statements.
Schedule of Investments (continued)
March 31, 2021
BATS: Series E Portfolio
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SecurityPar
(000) Value
Asset-Backed SecuritiesMosaic Solar Loan Trust, Series 2019-2A, Class A,
Banc of America Merrill Lynch Commercial MortgageSecurities TrustSeries 2015-200P, Class B, 3.49%, 04/14/33(a) . . . . 2,164 2,312,807Series 2018-DSNY, Class A, (1 mo. LIBOR US +
Series 2014-C23, Class ASB, 3.66%, 09/15/47 . . . . 4,176 4,388,486Series 2016-C1, Class ASB, 3.32%, 03/15/49. . . . . . 3,219 3,412,946
JPMorgan Chase Commercial Mortgage SecuritiesTrustSeries 2016-NINE, Class A, 2.85%, 09/06/38(a)(b) . . 1,790 1,894,190Series 2018-AON, Class A, 4.13%, 07/05/31(a). . . . . 865 923,342Series 2020-609M, Class A, (1 mo. LIBOR US +
(a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,as amended. These securities may be resold in transactions exempt from registration toqualified institutional investors.
(b) Variable rate security. Interest rate resets periodically. The rate shown is the effectiveinterest rate as of period end. Security description also includes the reference rate andspread if published and available.
(c) Security is valued using significant unobservable inputs and is classified as Level 3 in thefair value hierarchy.
(d) All or a portion of the security has been pledged as collateral in connection withoutstanding TBA commitments.
(e) Represents or includes a TBA transaction.(f) Annualized 7-day yield as of period end.(g) Rates are discount rates or a range of discount rates as of period end.
Derivative Financial Instruments Outstanding as of Period End
(a) Using the rating of the issuer or the underlying securities of the index, as applicable, provided by S&P Global Ratings.(b) The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.
Balances Reported in the Statements of Assets and Liabilities for Centrally Cleared Swaps, OTC Swaps and Options Written
(a) Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within theStatements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
(a) Net cumulative unrealized appreciation (depreciation) on futures and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets andLiabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings(loss).
For the year ended March 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
(a) Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Schedule of Investments (continued)
March 31, 2021
BATS: Series M Portfolio
S C H E D U L E S O F I N V E S T M E N T S 73
Derivative Financial Instruments – Offsetting as of Period End
The Fund’s derivative assets and liabilities (by type) were as follows:
(a) Includes unrealized appreciation (depreciation) on OTC swaps in the Statements of Assets and Liabilities.
The following tables present the Funds’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateralreceived and pledged by the Fund:
(a) The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.(b) Excess of collateral pledged to the individual counterparty is not shown for financial reporting purposes.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Derivative financial instruments are swaps, futures contracts and options written. Swaps and futures contracts are valued at the unrealized appreciation (depreciation) on the instrumentand options written are shown at fair value.
Investments in issuers considered to be affiliate(s) of the Fund during the year ended March 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940,as amended, were as follows:
(a) Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within theStatements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.
Schedule of Investments (continued)
March 31, 2021
BATS: Series P Portfolio
S C H E D U L E S O F I N V E S T M E N T S 77
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
(a) Net cumulative unrealized appreciation (depreciation) on futures and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets andLiabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings(loss).
For the year ended March 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Schedule of Investments (continued)
March 31, 2021
BATS: Series P Portfolio
78 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Derivative financial instruments are swaps and futures contracts. Swaps and futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.
See notes to financial statements.
Schedule of Investments (continued)
March 31, 2021
BATS: Series P Portfolio
S C H E D U L E S O F I N V E S T M E N T S 79
SecurityPar
(000) Value
Asset-Backed SecuritiesAGL CLO 3 Ltd., Series 2020-3A, Class A, (3 mo. LIBOR
(a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,as amended. These securities may be resold in transactions exempt from registration toqualified institutional investors.
(b) Variable rate security. Interest rate resets periodically. The rate shown is the effectiveinterest rate as of period end. Security description also includes the reference rate andspread if published and available.
(c) Security is valued using significant unobservable inputs and is classified as Level 3 in thefair value hierarchy.
(d) Amount is less than $500.(e) All or a portion of the security has been pledged as collateral in connection with
outstanding OTC derivatives.(f) Rates are discount rates or a range of discount rates as of period end.(g) Annualized 7-day yield as of period end.
For Fund compliance purposes, the Fund’s industry classifications refer to one or more of the industry sub-classifications used by one or more widely recognized marketindexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such industrysub-classifications for reporting ease.
Derivative Financial Instruments Outstanding as of Period End
(a) Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Schedule of Investments. Only current day’s variation margin is reported within theStatements of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
(a) Net cumulative unrealized appreciation (depreciation) on futures and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets andLiabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings(loss).
(b) Includes options purchased at value as reported in the Schedule of Investments.
For the year ended March 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
(a) Options purchased are included in net realized gain (loss) from investments — unaffiliated.(b) Options purchased are included in net change in unrealized appreciation (depreciation) on investments — unaffiliated.
Average Quarterly Balances of Outstanding Derivative Financial Instruments
(a) Includes options purchased at value which is included in Investments at value — unaffiliated in the Statements of Assets and Liabilities and reported in the Schedule of Investments.
The following tables present the Funds’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateralreceived and pledged by the Fund:
(a) The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.(b) Net amount represents the net amount receivable from the counterparty in the event of default.(c) Excess of collateral pledged to the individual counterparty is not shown for financial reporting purposes.(d) Net amount represents the net amount payable due to the counterparty in the event of default.
Schedule of Investments (continued)
March 31, 2021
BATS: Series S Portfolio
100 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuationof financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s investments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosedin the Schedule of Investments above.
(a) Derivative financial instruments are swaps, futures contracts, forward foreign currency exchange contracts and options written. Swaps, futures contracts and forward foreign currencyexchange contracts are valued at the unrealized appreciation (depreciation) on the instrument and options written are shown at value.
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Amount is greater than $(0.005) per share.(d) Where applicable, assumes the reinvestment of distributions.(e) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
(e) Amount is less than 0.005%.(f) Includes mortgage dollar roll transactions ("MDRs"). Additional information regarding portfolio turnover rate is as follows:
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Amount is greater than $(0.005) per share.(d) Where applicable, assumes the reinvestment of distributions.(e) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
(a) Based on average shares outstanding.(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.(c) Where applicable, assumes the reinvestment of distributions.(d) Includes a payment received from an affiliate, which had no impact on the Fund’s total return.(e) Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:
BlackRock Allocation Target Shares (the "Trust") is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end managementinvestment company. The Trust is organized as a Delaware statutory trust. The following, each of which is a series of the Trust, are referred to herein collectively as the “Funds”or individually as a “Fund”:
Fund Name Herein Referred To As Diversification Classification
Shares of the Funds are offered to separate account clients of the adviser, BlackRock Advisors, LLC (the “Manager”) or certain of its affiliates. Series A is also offered tocollective trust funds managed by BlackRock Institutional Trust Company, N.A., an affiliate of the Manager, and mutual funds advised by the Manager or its affiliates.Participants in wrap-fee programs pay a single aggregate fee to the program sponsor for all costs and expenses of the wrap-fee programs including investment advice andportfolio execution.
The Funds, together with certain other registered investment companies advised by the Manager or its affiliates, are included in a complex of non-index fixed-income mutualfunds and all BlackRock-advised closed-end funds referred to as the BlackRock Fixed-Income Complex.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may requiremanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual resultscould differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable toinvestment companies. Below is a summary of significant accounting policies:
Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed (the“trade dates”). Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions,if any, are recorded on the ex-dividend dates. Non-cash dividends, if any, are recorded on the ex-dividend dates at fair value. Interest income, including amortization andaccretion of premiums and discounts on debt securities, is recognized daily on an accrual basis.
Foreign Currency Translation: Each Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currenciesare translated into U.S. dollars using exchange rates determined as of the close of trading on the New York Stock Exchange (“NYSE”). Purchases and sales of investments arerecorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, theinvestments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes.Accordingly, the effects of changes in exchange rates on investments are not segregated in the Statements of Operations from the effects of changes in market prices of thoseinvestments, but are included as a component of net realized and unrealized gain (loss) from investments. Each Fund reports realized currency gains (losses) on foreigncurrency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary incomefor U.S. federal income tax purposes.
Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., dollar rolls, to-be-announced (“TBA”) sale commitments, futures contracts,forward foreign currency exchange contracts, options written and swaps) or certain borrowings (e.g., reverse repurchase transactions and TOB Trust transactions) that wouldbe treated as “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equalto the amount of its future obligations under such investments or borrowings. Doing so allows the investment or borrowings to be excluded from treatment as a “senior security.”Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealeror custodian as collateral for certain investments or obligations.
Distributions: Distributions from net investment income are declared daily and paid monthly, except for Series P, which declares and pays dividends at least annually.Distributions of capital gains are recorded on the ex-dividend dates and made at least annually. The portion of distributions, if any, that exceeds a fund’s current andaccumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. The character and timing of distributions are determined inaccordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.
Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by the Board of Trustees of the Trust (the “Board”), the trustees who are not“interested persons” of the Funds, as defined in the 1940 Act (“Independent Trustees”), may defer a portion of their annual complex-wide compensation. Deferred amountsearn an approximate return as though equivalent dollar amounts had been invested in common shares of certain funds in the BlackRock Fixed-Income Complex selected bythe Independent Trustees. This has the same economic effect for the Independent Trustees as if the Independent Trustees had invested the deferred amounts directly incertain funds in the BlackRock Fixed-Income Complex.
Notes to Financial Statements
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The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of each Fund, as applicable. Deferred compensationliabilities, if any, are included in the Trustees’ and Officer’s fees payable in the Statements of Assets and Liabilities and will remain as a liability of the Funds until such amountsare distributed in accordance with the Plan.
Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A Fund’smaximum exposure under these arrangements is unknown because it involves future potential claims against a Fund, which cannot be predicted with any certainty.
Other: Expenses directly related to a Fund are charged to that Fund. Other operating expenses shared by several funds, including other funds managed by the Manager, areprorated among those funds on the basis of relative net assets or other appropriate methods.
The Funds have an arrangement with their custodian whereby credits are earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraftcharges. The Funds may incur charges on overdrafts, subject to certain conditions.
3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS
Investment Valuation Policies: Each Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fundis open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfera liability in an orderly transaction between market participants at the measurement date. Each Fund determines the fair values of its financial instruments using variousindependent dealers or pricing services under policies approved by the Board. If a security’s market price is not readily available or does not otherwise accurately represent thefair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. The BlackRock Global Valuation MethodologiesCommittee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing functionfor all financial instruments.
Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Fund’s assets and liabilities:
• Fixed-income investments for which market quotations are readily available are generally valued using the last available bid price or current market quotations providedby independent dealers or third party pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more independent brokers ordealers as obtained from a third party pricing service. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lotsize, but a fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots. The pricing services mayuse matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers),market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed andmortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yieldand develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may beused with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.
• Investments in open-end U.S. mutual funds (including money market funds) are valued at that day’s published net asset value (“NAV”).
• Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded.
• Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of trading on the NYSE basedon that day’s prevailing forward exchange rate for the underlying currencies.
• Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-tradedoption for which there is no mean price, is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price willbe used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps(“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades andprices of the underlying instruments.
• Swap agreements are valued utilizing quotes received daily by independent pricing services or through brokers, which are derived using daily swap curves and modelsthat incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments.
If events (e.g., a market closure, market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, orin the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment,or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflectingfair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and costapproach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used indetermining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fundmight reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be basedupon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of allFair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Notes to Financial Statements (continued)
N O T E S T O F I N A N C I A L S T A T E M E N T S 117
For investments in equity or debt issued by privately held companies or funds (“Private Company” or collectively, the “Private Companies”) and other Fair Valued Investments,the fair valuation approaches that are used by the Global Valuation Committee and third party pricing services utilize one or a combination of, but not limited to, the followinginputs.
Standard Inputs Generally Considered By Third Party Pricing Services
Market approach . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) recent market transactions, including subsequent rounds of financing, in the underlying investment or comparable issuers;(ii) recapitalizations and other transactions across the capital structure; and(iii) market multiples of comparable issuers.
Income approach . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) future cash flows discounted to present and adjusted as appropriate for liquidity, credit and/or market risks;(ii) quoted prices for similar investments or assets in active markets; and(iii) other risk factors, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates,
liquidation amounts and/or default rates.
Cost approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) audited or unaudited financial statements, investor communications and financial or operational metrics issued by the PrivateCompany;
(ii) changes in the valuation of relevant indices or publicly traded companies comparable to the Private Company;(iii) relevant news and other public sources; and(iv) known secondary market transactions in the Private Company’s interests and merger or acquisition activity in companies
comparable to the Private Company.
Investments in series of preferred stock issued by Private Companies are typically valued utilizing market approach in determining the enterprise value of the company. Suchinvestments often contain rights and preferences that differ from other series of preferred and common stock of the same issuer. Enterprise valuation techniques such as anoption pricing model (“OPM”), a probability weighted expected return model (“PWERM”), current value method or a hybrid of those techniques are used, as deemedappropriate under the circumstances. The use of these valuation techniques involve a determination of the exit scenarios of the investment in order to appropriately allocatethe enterprise value of the company among the various parts of its capital structure.
The Private Companies are not subject to the public company disclosure, timing, and reporting standards applicable to other investments held by a Fund. Typically, the mostrecently available information by a Private Company is as of a date that is earlier than the date a Fund is calculating its NAV. This factor may result in a difference between thevalue of the investment and the price a Fund could receive upon the sale of the investment.
Fair Value Hierarchy: Various inputs are used in determining the fair value of financial instruments. These inputs to valuation techniques are categorized into a fair valuehierarchy consisting of three broad levels for financial reporting purposes as follows:
• Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each Fund has the ability to access;
• Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similarassets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves,volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs); and
• Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the GlobalValuation Committee’s assumptions used in determining the fair value of financial instruments).
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority tounobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. Theinputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification isdetermined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservableinputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by Private Companiesthat may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricingtransparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.
4. SECURITIES AND OTHER INVESTMENTS
Asset-Backed and Mortgage-Backed Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securitiesissued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments,which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets andissuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certainasset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time becausethe underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments asborrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shorteningthe maturity of the security. In addition, a fund may subsequently have to reinvest the proceeds at lower interest rates. If a fund has purchased such an asset-backed securityat a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
For mortgage pass-through securities (the “Mortgage Assets”) there are a number of important differences among the agencies and instrumentalities of the U.S. Governmentthat issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to thetimely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities
Notes to Financial Statements (continued)
118 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of FreddieMac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subjectto various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. Theability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God,terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Collateralized Debt Obligations: Collateralized debt obligations (“CDOs”), including collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”), aretypes of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDOcan be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche. This tranche bearsthe greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances.Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than their underlying securities, andoften receive investment grade ratings from one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches canexperience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changesin the credit profile of the underlying pool of assets.
Inflation-Indexed Bonds: Inflation-indexed bonds (other than municipal inflation-indexed and certain corporate inflation-indexed bonds) are fixed-income securities whoseprincipal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds (other thanmunicipal inflation-indexed and certain corporate inflation-indexed bonds) will be adjusted upward or downward, and consequently the interest payable on these securities(calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of aninflation-indexed bond is included as interest income in the Statements of Operations, even though investors do not receive their principal until maturity. Repayment of theoriginal bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similarguarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal. With regard to municipal inflation-indexed bonds and certaincorporate inflation-indexed bonds, the inflation adjustment is typically reflected in the semi-annual coupon payment. As a result, the principal value of municipal inflation-indexed bonds and such corporate inflation-indexed bonds does not adjust according to the rate of inflation.
Multiple Class Pass-Through Securities: Multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backedsecurities, may be issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. Ingeneral, CMOs are debt obligations of a legal entity that are collateralized by a pool of residential or commercial mortgage loans or mortgage assets. The payments on theseare used to make payments on the CMOs or multiple pass-through securities. Multiple class pass-through securities represent direct ownership interests in the MortgageAssets. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are strippedmortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive theinterest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates riseand fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases therate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO islengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, a fund’s initial investment inthe IOs may not fully recoup.
Stripped Mortgage-Backed Securities: Stripped mortgage-backed securities are typically issued by the U.S. Government, its agencies and instrumentalities. Strippedmortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool ofMortgage Assets. Stripped mortgage-backed securities may be privately issued.
Zero-Coupon Bonds: Zero-coupon bonds are normally issued at a significant discount from face value and do not provide for periodic interest payments. These bonds mayexperience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Capital Securities and Trust Preferred Securities: Capital securities, including trust preferred securities, are typically issued by corporations, generally in the form ofinterest-bearing notes with preferred securities characteristics. In the case of trust preferred securities, an affiliated business trust of a corporation issues these securities,generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured with either a fixed or adjustablecoupon that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation pays interest to the trust, which is then distributedto holders of these securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless allcumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. These securitiesgenerally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.
Preferred Stocks: Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well), but is subordinated to the liabilities of theissuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates andperceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debtsecurities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more seniordebt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s boardof directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Floating Rate Loan Interests: Floating rate loan interests are typically issued to companies (the “borrower”) by banks, other financial institutions, or privately and publiclyoffered corporations (the “lender”). Floating rate loan interests are generally non-investment grade, often involve borrowers whose financial condition is troubled or uncertainand companies that are highly leveraged or in bankruptcy proceedings. In addition, transactions in floating rate loan interests may settle on a delayed basis, which may result
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in proceeds from the sale not being readily available for a fund to make additional investments or meet its redemption obligations. Floating rate loan interests may include fullyfunded term loans or revolving lines of credit. Floating rate loan interests are typically senior in the corporate capital structure of the borrower. Floating rate loan interestsgenerally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. Since the rates reset only periodically, changes in prevailinginterest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of a fund to the extent that it invests in floating rate loaninterests. The base lending rates are generally the lending rate offered by one or more European banks, such as the London Interbank Offered Rate (“LIBOR”), the prime rateoffered by one or more U.S. banks or the certificate of deposit rate. Floating rate loan interests may involve foreign borrowers, and investments may be denominated in foreigncurrencies. These investments are treated as investments in debt securities for purposes of a fund’s investment policies.
When a fund purchases a floating rate loan interest, it may receive a facility fee and when it sells a floating rate loan interest, it may pay a facility fee. On an ongoing basis, afund may receive a commitment fee based on the undrawn portion of the underlying line of credit amount of a floating rate loan interest. Facility and commitment fees aretypically amortized to income over the term of the loan or term of the commitment, respectively. Consent and amendment fees are recorded to income as earned. Prepaymentpenalty fees, which may be received by a fund upon the prepayment of a floating rate loan interest by a borrower, are recorded as realized gains. A fund may invest in multipleseries or tranches of a loan. A different series or tranche may have varying terms and carry different associated risks.
Floating rate loan interests are usually freely callable at the borrower’s option. A fund may invest in such loans in the form of participations in loans (“Participations”) orassignments (“Assignments”) of all or a portion of loans from third parties. Participations typically will result in a fund having a contractual relationship only with the lender, notwith the borrower. A fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only uponreceipt by the lender of the payments from the borrower. In connection with purchasing Participations, a fund generally will have no right to enforce compliance by the borrowerwith the terms of the loan agreement, nor any rights of offset against the borrower. A fund may not benefit directly from any collateral supporting the loan in which it haspurchased the Participation. As a result, a fund assumes the credit risk of both the borrower and the lender that is selling the Participation. A fund’s investment in loanparticipation interests involves the risk of insolvency of the financial intermediaries who are parties to the transactions. In the event of the insolvency of the lender selling theParticipation, a fund may be treated as a general creditor of the lender and may not benefit from any offset between the lender and the borrower. Assignments typically resultin a fund having a direct contractual relationship with the borrower, and a fund may enforce compliance by the borrower with the terms of the loan agreement.
In connection with floating rate loan interests, the Funds may also enter into unfunded floating rate loan interests (“commitments”). In connection with these commitments, afund earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income, which is included in interest income in the Statements of Operations,is recognized ratably over the commitment period. Unfunded floating rate loan interests are marked-to-market daily, and any unrealized appreciation (depreciation) is includedin the Statements of Assets and Liabilities and Statements of Operations. As of period end, the Funds had the following unfunded floating rate loan interests:
Forward Commitments, When-Issued and Delayed Delivery Securities: The Funds may purchase securities on a when-issued basis and may purchase or sell securitieson a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. A Fund may purchasesecurities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Sincethe value of securities purchased may fluctuate prior to settlement, a Fund may be required to pay more at settlement than the security is worth. In addition, a Fund is notentitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, a Fund assumes the rights and risks of ownership of thesecurity, including the risk of price and yield fluctuations. In the event of default by the counterparty, a Fund’s maximum amount of loss is the unrealized appreciation ofunsettled when-issued transactions.
TBA Commitments: TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on anagreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms,including issuer, rate and mortgage terms. When entering into TBA commitments, a fund may take possession of or deliver the underlying mortgage-backed securities but canextend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, priorto settlement date.
In order to better define contractual rights and to secure rights that will help a fund mitigate its counterparty risk, TBA commitments may be entered into by a fund under MasterSecurities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting provisions in the eventof default and/or termination event. The collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement andcomparing that amount to the value of the collateral currently pledged by a fund and the counterparty. Cash collateral that has been pledged to cover the obligations of a fundand cash collateral received from the counterparty, if any, is reported separately in the Statements of Assets and Liabilities as cash pledged as collateral for TBA commitmentsor cash received as collateral for TBA commitments, respectively. Non-cash collateral pledged by a fund, if any, is noted in the Schedules of Investments. Typically, a fund ispermitted to sell, re-pledge or use the collateral it receives; however, the counterparty is not permitted to do so. To the extent amounts due to a fund are not fully collateralized,contractually or otherwise, a fund bears the risk of loss from counterparty non-performance.
Mortgage Dollar RollTransactions: Certain Funds may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (i.e., same type,coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, a fund is not entitled to receive interestand principal payments on the securities sold. Mortgage dollar roll transactions are treated as purchases and sales and a fund realizes gains and losses on these transactions.Mortgage dollar rolls involve the risk that the market value of the securities that a fund is required to purchase may decline below the agreed upon repurchase price of thosesecurities.
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Reverse Repurchase Agreements: Reverse repurchase agreements are agreements with qualified third party broker dealers in which a fund sells securities to a bank orbroker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. A fund receives cash from the sale to use for other investment purposes.During the term of the reverse repurchase agreement, a fund continues to receive the principal and interest payments on the securities sold. Certain agreements have nostated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based uponcompetitive market rates determined at the time of issuance. A fund may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned fromthe investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk. If a fund suffersa loss on its investment of the transaction proceeds from a reverse repurchase agreement, a fund would still be required to pay the full repurchase price. Further, a fundremains subject to the risk that the market value of the securities repurchased declines below the repurchase price. In such cases, a fund would be required to return a portionof the cash received from the transaction or provide additional securities to the counterparty.
Cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the Statements of Assets and Liabilities at facevalue including accrued interest. Due to the short-term nature of the reverse repurchase agreements, face value approximates fair value. Interest payments made by a fund tothe counterparties are recorded as a component of interest expense in the Statements of Operations. In periods of increased demand for the security, a fund may receive a feefor the use of the security by the counterparty, which may result in interest income to a fund.
For the year ended March 31, 2021, the average amount of reverse repurchase agreements outstanding and the daily weighted average interest rate were as follows:
Reverse repurchase transactions are entered into by a fund under Master Repurchase Agreements (each, an “MRA”), which permit a fund, under certain circumstances,including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty andcreate one single net payment due to or from a fund. With reverse repurchase transactions, typically a fund and counterparty under an MRA are permitted to sell, re-pledge,or use the collateral associated with the transaction. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right ofoffset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, a fund receives or posts securities and cash as collateral with amarket value in excess of the repurchase price to be paid or received by a fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty,a fund is considered an unsecured creditor with respect to excess collateral and, as such, the return of excess collateral may be delayed.
In the event the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, a fund’s use of the proceeds from the agreement may be restricted whilethe counterparty, or its trustee or receiver, determines whether or not to enforce a fund’s obligation to repurchase the securities.
Municipal Bonds Transferred to TOB Trusts: Certain Funds leverage their assets through the use of “TOB Trust” transactions. The funds transfer municipal bonds into aspecial purpose trust (a “TOB Trust”). A TOB Trust issues two classes of beneficial interests: short-term floating rate interests (“TOB Trust Certificates”), which are sold to thirdparty investors, and residual inverse floating rate interests (“TOB Residuals”), which are issued to the participating funds that contributed the municipal bonds to the TOB Trust.The TOB Trust Certificates have interest rates that reset weekly and their holders have the option to tender such certificates to the TOB Trust for redemption at par and anyaccrued interest at each reset date. The TOB Residuals held by a fund provide the fund with the right to cause the holders of a proportional share of the TOB Trust Certificatesto tender their certificates to the TOB Trust at par plus accrued interest. The funds may withdraw a corresponding share of the municipal bonds from the TOB Trust. Other fundsmanaged by the investment adviser may also contribute municipal bonds to a TOB Trust into which a fund has contributed bonds. If multiple BlackRock-advised fundsparticipate in the same TOB Trust, the economic rights and obligations under the TOB Residuals will be shared among the funds ratably in proportion to their participation inthe TOB Trust.
TOB Trusts are supported by a liquidity facility provided by a third party bank or other financial institution (the “Liquidity Provider”) that allows the holders of the TOB TrustCertificates to tender their certificates in exchange for payment of par plus accrued interest on any business day. The tendered TOB Trust Certificates are remarketed by aRemarketing Agent. In the event of a failed remarketing, the TOB Trust may draw upon a loan from the Liquidity Provider to purchase the tendered TOB Trust Certificates. Anyloans made by the Liquidity Provider will be secured by the purchased TOB Trust Certificates held by the TOB Trust and will be subject to an increased interest rate based onnumber of days the loan is outstanding.
The TOB Trust may be collapsed without the consent of a fund, upon the occurrence of a termination event as defined in the TOB Trust agreement. Upon the occurrence of atermination 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 and theLiquidity Provider. Upon certain termination events, TOB Trust Certificates holders will be paid before the TOB Residuals holders (i.e., the Funds) whereas in other terminationevents, TOB Trust Certificates holders and TOB Residuals holders will be paid pro rata.
While a fund’s investment policies and restrictions expressly permit investments in inverse floating rate securities, such as TOB Residuals, they restrict the ability of a fund toborrow money for purposes of making investments. Each fund’s transfer of the municipal bonds to a TOB Trust is considered a secured borrowing for financial reportingpurposes. The cash received by the TOB Trust from the sale of the TOB Trust Certificates, less certain transaction expenses, is paid to a fund. A fund typically invests the cashreceived in additional municipal bonds.
Accounting for TOBTrusts: The municipal bonds deposited into a TOB Trust are presented in a fund’s Schedule of Investments and the TOB Trust Certificates are shown inOther Liabilities in the Statements of Assets and Liabilities. Any loans drawn by the TOB Trust pursuant to the liquidity facility to purchase tendered TOB Trust Certificates areshown as Loan for TOB Trust Certificates. The carrying amount of a fund’s payable to the holder of the TOB Trust Certificates, as reported in the Statements of Assets andLiabilities as TOB Trust Certificates, approximates its fair value.
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Interest income, including amortization and accretion of premiums and discounts, from the underlying municipal bonds is recorded by a fund on an accrual basis. Interestexpense incurred on the TOB Trust transaction and other expenses related to remarketing, administration, trustee, liquidity and other services to a TOB Trust are shown asinterest expense, fees and amortization of offering costs in the Statements of Operations. Fees paid upon creation of the TOB Trust are recorded as debt issuance costs andare amortized to interest expense, fees and amortization of offering costs in the Statements of Operations to the expected maturity of the TOB Trust. In connection with therestructurings of the TOB Trusts to non-bank sponsored TOB Trusts, a fund incurred non-recurring, legal and restructuring fees, which are recorded as interest expense, feesand amortization of deferred offering costs in the Statements of Operations. Amounts recorded within interest expense, fees and amortization of offering costs in theStatements of Operations are:
Fund Name Interest Expense Liquidity Fees Other Expenses Total
(a) The municipal bonds transferred to a TOB Trust are generally high grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOBTrust transaction may include 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 providerin the event of default of the municipal bond. The TOB Trust would be responsible for the payment of the credit enhancement fee and the funds, as TOB Residuals holders, would beresponsible for reimbursement of any payments of principal and interest made by the credit enhancement provider. The maximum potential amounts owed by the funds, for suchreimbursements, as applicable, are included in the maximum potential amounts disclosed for recourse TOB Trusts in the Schedules of Investments.
(b) TOB Trusts may be structured on a non-recourse or recourse basis. When a Fund invests in TOB Trusts on a non-recourse basis, the Liquidity Provider may be required to make apayment under the liquidity facility to allow the TOB Trust to repurchase TOB Trust Certificates. The Liquidity Provider will be reimbursed from the liquidation of bonds held in the TOBTrust. If a fund invests in a TOB Trust on a recourse basis, a fund enters into a reimbursement agreement with the Liquidity Provider where a fund is required to reimburse the LiquidityProvider for any shortfall between the amount paid by the Liquidity Provider and proceeds received from liquidation of municipal bonds held in the TOB Trust (the “Liquidation Shortfall”).As a result, if a fund invests in a recourse TOB Trust, a fund will bear the risk of loss with respect to any Liquidation Shortfall. If multiple funds participate in any such TOB Trust, theselosses will be shared ratably, including the maximum potential amounts owed by a fund at March 31, 2021, in proportion to their participation in the TOB Trust. The recourse TOB Trustsare identified in the Schedules of Investments including the maximum potential amounts owed by a fund at March 31, 2021.
5. DERIVATIVE FINANCIAL INSTRUMENTS
The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to manage their exposure to certainrisks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financialinstruments categorized by risk exposure are included in the Schedules of Investments. These contracts may be transacted on an exchange or OTC.
Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the valueof equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are exchange-traded agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price andon a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of acash amount on the settlement date. Upon entering into a futures contract, the Funds are required to deposit initial margin with the broker in the form of cash or securities inan amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract.Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statements of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in theStatements of Assets and Liabilities. Pursuant to the contract, the Funds agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in marketvalue of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable)on futures contracts in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statements of Operations equal to thedifference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves therisk of an imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.
Forward Foreign Currency Exchange Contracts: Forward foreign currency exchange contracts are entered into to gain or reduce exposure to foreign currencies (foreigncurrency exchange rate risk).
A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a specified date. These contracts helpto manage the overall exposure to the currencies in which some of the investments held by the Funds are denominated and in some cases, may be used to obtain exposureto a particular market. The contracts are traded OTC and not on an organized exchange.
The contract is marked-to-market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the Statements of Assets and Liabilities. Whena contract is closed, a realized gain or loss is recorded in the Statements of Operations equal to the difference between the value at the time it was opened and the value at thetime it was closed. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The use of
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forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in thevalue of the referenced foreign currencies, and such value may exceed the amounts reflected in the Statements of Assets and Liabilities. Cash amounts pledged for forwardforeign currency exchange contracts are considered restricted and are included in cash pledged as collateral for OTC derivatives in the Statements of Assets and Liabilities.A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund.
Options: The Funds may purchase and write call and put options to increase or decrease their exposure to the risks of underlying instruments, including equity risk, interestrate risk and/or commodity price risk and/or, in the case of options written, to generate gains from options premiums.
A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) theunderlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates thewriter to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period.
Premiums paid on options purchased and premiums received on options written, as well as the daily fluctuation in market value, are included in investments at value –unaffiliated and options written at value, respectively, in the Statements of Assets and Liabilities. When an instrument is purchased or sold through the exercise of an option,the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is recorded in the Statements of Operations tothe extent of the premiums received or paid. When an option is closed or sold, a gain or loss is recorded in the Statements of Operations to the extent the cost of the closingtransaction exceeds the premiums received or paid. When the Funds write a call option, such option is typically “covered,” meaning that they hold the underlying instrumentsubject to being called by the option counterparty. When the Funds write a put option, cash is segregated in an amount sufficient to cover the obligation. These amounts, whichare considered restricted, are included in cash pledged as collateral for options written in the Statements of Assets and Liabilities.
• Swaptions – The Funds may purchase and write swaptions primarily to preserve a return or spread on a particular investment or portion of the Funds’ holdings, as aduration management technique or to protect against an increase in the price of securities it anticipates purchasing at a later date. The purchaser and writer of a swaptionis buying or granting the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time beforethe expiration of the option.
In purchasing and writing options, the Funds bear the risk of an unfavorable change in the value of the underlying instrument or the risk that they may not be able to enter intoa closing transaction due to an illiquid market. Exercise of a written option could result in the Funds purchasing or selling a security when they otherwise would not, or at a pricedifferent from the current market value.
Swaps: Swap contracts are entered into to manage exposure to issuers, markets and securities. Such contracts are agreements between the Funds and a counterparty tomake periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may beentered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”).
For OTC swaps, any upfront premiums paid and any upfront fees received are shown as swap premiums paid and swap premiums received, respectively, in the Statementsof Assets and Liabilities and amortized over the term of the contract. The daily fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC Swapsin the Statements of Assets and Liabilities. Payments received or paid are recorded in the Statements of Operations as realized gains or losses, respectively. When an OTCswap is terminated, a realized gain or loss is recorded in the Statements of Operations equal to the difference between the proceeds from (or cost of) the closing transactionand the Funds’ basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap contract, the swap contract is novated to a central counterparty (the “CCP”) and the CCP becomes theFunds’ counterparty on the swap. Each Fund is required to interface with the CCP through the broker. Upon entering into a centrally cleared swap, each Fund is required todeposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities depositedas initial margin are designated in the Schedules of Investments and cash deposited is shown as cash pledged for centrally cleared swaps in the Statements of Assets andLiabilities. Amounts pledged, which are considered restricted cash, are included in cash pledged for centrally cleared swaps in the Statements of Assets and Liabilities.Pursuant to the contract, each Fund agrees to receive from or pay to the broker variation margin. Variation margin is recorded as unrealized appreciation (depreciation) andshown as variation margin receivable (or payable) on centrally cleared swaps in the Statements of Assets and Liabilities. Payments received from (paid to) the counterparty areamortized over the term of the contract and recorded as realized gains (losses) in the Statements of Operations, including those at termination.
• Credit default swaps — Credit default swaps are entered into to manage exposure to the market or certain sectors of the market, to reduce risk exposure to defaults ofcorporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which a fund is not otherwise exposed (credit risk).
The Funds may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or tradedindexes. Credit default swaps are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a promise from the protectionseller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation acceleration,repudiation, moratorium or restructuring). As a buyer, if an underlying credit event occurs, the Funds will either (i) receive from the seller an amount equal to the notionalamount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amountof the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Funds willeither pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or paya net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.
• Interest rate swaps — Interest rate swaps are entered into to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate (interest raterisk).
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Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interestpayments, either fixed or floating, on the same notional amount for a specified period of time. In more complex interest rate swaps, the notional principal amount maydecline (or amortize) over time.
• Forward swaps — The Funds may enter into forward interest rate swaps and forward total return swaps. In a forward swap, each Fund and the counterparty agree tomake periodic net payments beginning on a specified date or a net payment at termination.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statements of Assets and Liabilities.Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform ordisagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with thesetransactions.
Master Netting Arrangements: In order to define its contractual rights and to secure rights that will help it mitigate its counterparty risk, a Fund may enter into an InternationalSwaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateralagreement betweens a Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and nettingprovisions in the event of a default and/or termination event. Under an ISDA Master Agreement, a Fund may, under certain circumstances, offset with the counterparty certainderivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA MasterAgreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws ofa particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events.
Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amountfor each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately in the Statements ofAssets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Funds, if any, is noted in the Schedulesof Investments. Generally, the amount of collateral due from or to a counterparty is subject to a certain minimum transfer amount threshold before a transfer is required, whichis determined at the close of business of the Funds. Any additional required collateral is delivered to/pledged by the Funds on the next business day. Typically, the counterpartyis not permitted to sell, re-pledge or use cash and non-cash collateral it receives. A Fund generally agrees not to use non-cash collateral that it receives but may, absent defaultor certain other circumstances defined in the underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, interest may be paid pursuantto the collateral arrangement with the counterparty. To the extent amounts due to the Funds from the counterparties are not fully collateralized, each Fund bears the risk of lossfrom counterparty non-performance. Likewise, to the extent the Funds have delivered collateral to a counterparty and stand ready to perform under the terms of theiragreement with such counterparty, each Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to returnsuch collateral. Based on the terms of agreements, collateral may not be required for all derivative contracts.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statements of Assetsand Liabilities.
6. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory: The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment adviser, and an indirect,wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory services. The Manager receives no advisory fee from the Funds under theInvestment Advisory Agreement.
With respect to each Fund, except for Series E, the Manager entered into a sub-advisory agreement with BlackRock International Limited (“BIL”), an affiliate of the Manager.
Service and Distribution Fees: The Trust, on behalf of the Funds, entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of theManager.
Expense Limitations, Waivers and Reimbursements: The Manager contractually agreed to waive all fees and pay or reimburse all operating expenses of each Fund, exceptextraordinary expenses. Extraordinary expenses may include interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fundexpenses. This agreement has no fixed termination date. With respect to Series C, Series E, Series M, Series P and Series S, the Manager does not charge the Funds amanagement fee, although investors in the Funds will pay a fee to BlackRock Investment Management, LLC (“BIM”), an affiliate of the Manager, or their managed accountprogram sponsor. With respect to Series A, the Manager does not charge the Fund a management fee, although investors in the Fund that are (i) retail and institutionalseparately managed account clients of BIM will pay a fee to BIM or their managed account program sponsor, (ii) participants in the collective trust funds managed by BlackRockInstitutional Trust Company, N.A. (“BTC”), an affiliate of the Manager, that invest in the Fund will pay a fee to BTC, and (iii) mutual funds that are advised by the Manager or itsaffiliates will pay the Manager or its affiliate a management fee pursuant to a management agreement between each such fund and BlackRock or its affiliate. The Managerwaived fees for each Fund which are included in fees waived and/or reimbursed by the Manager in the Statements of Operations.
Notes to Financial Statements (continued)
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Although the Funds do not compensate the Manager directly for its services under the Investment Advisory Agreement, because each Fund is an investment option for certainwrap-fee or other separately managed account program clients, the Manager may benefit from the fees charged to such clients who have retained the Manager’s affiliates tomanage their accounts. The Manager waived fees for each Fund which are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. Thewaivers were as follows:
Interfund Lending: In accordance with an exemptive order (the “Order”) from the U.S. Securities and Exchange Commission (“SEC”), each Fund may participate in a jointlending and borrowing facility for temporary purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extentpermitted by each Fund’s investment policies and restrictions. Series A, Series E and Series P are currently permitted to borrow and lend and Series C, Series M and Series Sare currently permitted to borrow under the Interfund Lending Program.
A lending BlackRock fund may lend in aggregate up to 15% of its net assets, but may not lend more than 5% of its net assets, to any one borrowing fund through the InterfundLending Program. A borrowing BlackRock fund may not borrow through the Interfund Lending Program or from any other source more than 33 1/3% of its total assets (or anylower threshold provided for by the fund’s investment restrictions). If a borrowing BlackRock fund’s total outstanding borrowings exceed 10% of its total assets, each of itsoutstanding interfund loans will be subject to collateralization of at least 102% of the outstanding principal value of the loan. All interfund loans are for temporary or emergencypurposes and the interest rate to be charged will be the average of the highest current overnight repurchase agreement rate available to a lending fund and the bank loan rate,as calculated according to a formula established by the Board.
During the year ended March 31, 2021, the Funds did not participate in the Interfund Lending Program.
Trustees and Officers: Certain trustees and/or officers of the Trust are directors and/or officers of BlackRock or its affiliates. The Funds reimburse the Manager for a portionof the compensation paid to the Trust’s Chief Compliance Officer, which is included in Trustees and Officer in the Statements of Operations.
Other Transactions: During the year ended March 31, 2021, Series S received a reimbursement of $59,952 from an affiliate, which is included in payment by affiliate in theStatements of Operations related to an operating event.
The Funds may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers,or common trustees. For the year ended March 31, 2021, the purchase and sale transactions and any net realized gains (losses) with an affiliated fund in compliance withRule 17a-7 under the 1940 Act were as follows:
For the year ended March 31, 2021, purchases and sales of investments, including paydowns and mortgage dollar rolls and excluding short-term investments transactions,were as follows:
It is each Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distributesubstantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.
Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on each Fund’sU.S. federal tax returns generally remains open for a period of three fiscal years after they are filed. The statutes of limitations on each Fund’s state and local tax returns mayremain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Funds as of March 31, 2021, inclusive of the open tax return years, and does not believe thatthere are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have noeffect on net assets or net asset values per share. As of period end, the following permanent difference attributable to net operating losses was reclassified to the followingaccounts:
Series A Series C Series E Series M Series P Series S
(a) The Funds designate these amounts paid during the fiscal year ended March 31, 2021 as exempt-interest dividends.(b) The Funds designate these amounts paid during the fiscal year ended March 31, 2021 as 20% rate long-term capital gain dividends.
As of period end, the tax components of accumulated net earnings (losses) were as follows:
Series A Series C Series E Series M Series P Series S
(a) Amounts available to offset future realized capital gains.(b) The differences between book-basis and tax-basis net unrealized gains (losses) was attributable primarily to the tax deferral of losses on wash sales, amortization methods for discounts
on fixed income securities, the accrual of income on securities in default, the realization for tax purposes of unrealized gains/losses on certain futures and options contracts, theaccounting for swap agreements, the treatment of residual interests in tender option bond trusts and the classification of investments.
(c) The Fund has elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.
During the year ended March 31, 2021, the funds listed below utilized the following amounts of their respective capital loss carryforwards:
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As of March 31, 2021, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal incometax purposes were as follows:
Series A Series C Series E Series M Series P Series S
The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion creditagreement with a group of lenders. Under this agreement, the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for certain individualfunds, the Participating Funds, including the Funds, can borrow up to an aggregate commitment amount of $1.75 billion at any time outstanding, subject to asset coverage andother limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.10% per annum on unused commitment amounts and interest at a rateequal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in anyevent, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2021 unless extended or renewed. Thesefees were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the yearended March 31, 2021, the Funds did not borrow under the credit agreement.
10. PRINCIPAL RISKS
In the normal course of business, the Funds invest in securities or other instruments and may enter into certain transactions, and such activities subject each Fund to variousrisks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may alsobe affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability;(iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war,acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Funds and their investments.Each Fund’s prospectus provides details of the risks to which each Fund is subject.
Series E structures and “sponsors” the TOB Trusts in which it holds TOB Residuals and has certain duties and responsibilities, which may give rise to certain additional risksincluding, but not limited to, compliance, securities law and operational risks.
Should short-term interest rates rise, Series E’s investments in the TOB Trusts may adversely affect Series E’s net investment income and dividends to shareholders. Also,fluctuations in the market value of municipal bonds deposited into the TOB Trust may adversely affect Series E’s NAV per share.
The SEC and various federal banking and housing agencies have adopted credit risk retention rules for securitizations (the “Risk Retention Rules”). The Risk Retention Ruleswould require the sponsor of a TOB Trust to retain at least 5% of the credit risk of the underlying assets supporting the TOB Trust’s municipal bonds. The Risk Retention Rulesmay adversely affect Series E’s ability to engage in TOB Trust transactions or increase the costs of such transactions in certain circumstances.
TOB Trusts constitute an important component of the municipal bond market. Any modifications or changes to rules governing TOB Trusts may adversely impact the municipalmarket and Series E, including through reduced demand for and liquidity of municipal bonds and increased financing costs for municipal issuers. The ultimate impact of anypotential modifications on the TOB Trust market and the overall municipal market is not yet certain.
Market Risk: Each Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled duringperiods of declining interest rates, which would force each Fund to reinvest in lower yielding securities. Each Fund may also be exposed to reinvestment risk, which is the riskthat income from each Fund’s portfolio will decline if each Fund invests the proceeds from matured, traded or called fixed-income securities at market interest rates that arebelow each Fund portfolio’s current earnings rate.
Municipal securities are subject to the risk that litigation, legislation or other political events, local business or economic conditions, credit rating downgrades, or the bankruptcyof the issuer could have a significant effect on an issuer’s ability to make payments of principal and/or interest or otherwise affect the value of such securities. Municipalsecurities can be significantly affected by political or economic changes, including changes made in the law after issuance of the securities, as well as uncertainties in themunicipal market related to, taxation, legislative changes or the rights of municipal security holders, including in connection with an issuer insolvency. Municipal securitiesbacked by current or anticipated revenues from a specific project or specific assets can be negatively affected by the discontinuance of the tax benefits supporting the projector assets or the inability to collect revenues for the project or from the assets. Municipal securities may be less liquid than taxable bonds, and there may be less publiclyavailable information on the financial condition of municipal security issuers than for issuers of other securities.
An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines, disruptions to supplychains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affectthe economies of many nations, individual companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result insubstantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. The duration of this pandemic and its effects cannot be determined withcertainty.
Notes to Financial Statements (continued)
N O T E S T O F I N A N C I A L S T A T E M E N T S 127
Counterparty Credit Risk: The Funds may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related tounsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations. The Funds manage counterparty credit risk byentering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability ofthose counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments andreceivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximatelytheir value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.
A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlyinginstrument. Losses can also occur if the counterparty does not perform under the contract.
For OTC options purchased, each Fund bears the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral held by theFunds should the counterparty fail to perform under the contracts. Options written by the Funds do not typically give rise to counterparty credit risk, as options written generallyobligate the Funds, and not the counterparty, to perform. The Funds may be exposed to counterparty credit risk with respect to options written to the extent each Fund depositscollateral with its counterparty to a written option.
With exchange-traded options purchased and exchange-traded futures and centrally cleared swaps, there is less counterparty credit risk to the Funds since the exchange orclearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract;therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against aclearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures and centrallycleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customermargin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount ofmargin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resultingin losses to the Funds.
Concentration Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investmentwill have a material impact on the NAV of a fund. The investment concentrations within each Fund’s portfolio are disclosed in its Schedule of Investments.
Certain Funds invest a significant portion of their assets in high yield securities. High yield securities that are rated below investment-grade (commonly referred to as “junkbonds”) or are unrated may be deemed speculative, involve greater levels of risk than higher-rated securities of similar maturity and are more likely to default. High yieldsecurities may be issued by less creditworthy issuers, and issuers of high yield securities may be unable to meet their interest or principal payment obligations. High yieldsecurities are subject to extreme price fluctuations, may be less liquid than higher rated fixed-income securities, even under normal economic conditions, and frequently haveredemption features.
Certain Funds invest a significant portion of their assets in fixed-income securities and/or use derivatives tied to the fixed-income markets. Changes in market interest rates oreconomic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increaseas interest rates fall and decrease as interest rates rise. The Funds may be subject to a greater risk of rising interest rates due to the current period of historically low rates.
Certain Funds invest a significant portion of their assets in securities backed by commercial or residential mortgage loans or in issuers that hold mortgage and other asset-backed securities. When a Fund concentrates its investments in this manner, it assumes a greater risk of prepayment or payment extension by securities issuers. Changes ineconomic conditions, including delinquencies and/or defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions. Investmentpercentages in these securities are presented in the Schedules of Investments.
LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBORrates will be phased out by the end of 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition.The Funds may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transitionprocess away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose termscurrently include LIBOR. The ultimate effect of the LIBOR transition process on the Funds is uncertain.
Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial statements were issued andthe following item was noted:
Effective April 15, 2021, the credit agreement was extended until April 2022 under substantially the same terms.
Notes to Financial Statements (continued)
N O T E S T O F I N A N C I A L S T A T E M E N T S 129
Report of Independent Registered Public Accounting Firm
To the Shareholders of BATS: Series A Portfolio, BATS: Series C Portfolio, BATS: Series E Portfolio, BATS: Series M Portfolio, BATS: Series P Portfolio and BATS: Series SPortfolio and the Board of Trustees of BlackRock Allocation Target Shares:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of BATS: Series A Portfolio, BATS: Series C Portfolio, BATS: Series E Portfolio, BATS: Series MPortfolio, BATS: Series P Portfolio, and BATS: Series S Portfolio of BlackRock Allocation Target Shares (the “Funds”), including the schedules of investments, as of March 31,2021, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financialhighlights 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 materialrespects, the financial position of the Funds as of March 31, 2021, and the results of their operations for the year then ended, the changes in their net assets for each of the twoyears 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 theUnited 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’ financialstatements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)(PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities 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 aboutwhether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were weengaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financialreporting 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, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of March 31, 2021, bycorrespondence with the custodian, agent banks, and brokers; when replies were not received from agent banks and brokers, we performed other auditing procedures. Webelieve that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more BlackRock investment companies since 1992.
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Important Tax Information (unaudited)
For corporate shareholders, the percentage of ordinary income distributions paid during the fiscal year ended March 31, 2021 that qualified for the dividends-receiveddeduction were as follows:
For the fiscal year ended March 31, 2021, the Fund hereby designate the following maximum amounts allowable as interest income eligible to be treated as Section 163(j)interest dividend:
For the fiscal year ended March 31, 2021, the Funds hereby designate the following maximum amounts allowable as interest-related and qualifed short-term capital gaindividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations:
The law varies in each state as to whether and what percent of ordinary income dividends attribute to federal obligations is exempt from state income tax. Shareholders areadvised to check with their tax advisers to determine if any portion of the dividends received is exempt from state income tax.
I M P O R T A N T T A X I N F O R M A T I O N 131
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), BlackRock Allocation Target Shares (the "Trust") has adoptedand implemented a liquidity risk management program (the "Program") for BATS: Series A Portfolio, BATS: Series C Portfolio, BATS: Series E Portfolio, BATS: Series MPortfolio, BATS: Series P Portfolio and BATS: Series S Portfolio (the "Funds"), each a series of the Trust, which is reasonably designed to assess and manage each Fund’sliquidity risk.
The Board of Trustees (the "Board") of the Trust, on behalf of the Funds, met on November 18-19, 2020 (the “Meeting”) to review the Program. The Board previously appointedBlackRock Advisors, LLC or BlackRock Fund Advisors (“BlackRock”), each an investment adviser to certain funds, as the program administrator for each Fund’s Program, asapplicable. BlackRock also previously delegated oversight of the Program to the 40 Act Liquidity Risk Management Committee (the “Committee”). At the Meeting, theCommittee, on behalf of BlackRock, provided the Board with a report that addressed the operation of the Program and assessed its adequacy and effectiveness ofimplementation, including the management of each Fund’s Highly Liquid Investment Minimum (“HLIM”) where applicable, and any material changes to the Program (the“Report”). The Report covered the period from October 1, 2019 through September 30, 2020 (the “Program Reporting Period”).
The Report described the Program’s liquidity classification methodology for categorizing a Fund’s investments (including derivative transactions) into one of four liquiditybuckets. It also referenced the methodology used by BlackRock to establish a Fund’s HLIM and noted that the Committee reviews and ratifies the HLIM assigned to each Fundno less frequently than annually. The Report also discussed notable events affecting liquidity over the Program Reporting Period, including the impact of the coronavirusoutbreak on the Funds and the overall market.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’sliquidity risk, as follows:
a) The Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions. During theProgram Reporting Period, the Committee reviewed whether each Fund’s strategy is appropriate for an open-end fund structure with a focus on Funds with moresignificant and consistent holdings of less liquid and illiquid assets. The Committee also factored a Fund’s concentration in an issuer into the liquidity classificationmethodology by taking issuer position sizes into account. Where a Fund participated in borrowings for investment purposes (such as tender option bonds andreverse repurchase agreements), such borrowings were factored into the Program’s calculation of a Fund’s liquidity bucketing. Derivative exposure was alsoconsidered in such calculation.
b) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. During the Program Reporting Period,the Committee reviewed historical net redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size(“RATS”). Each Fund has adopted an in-kind redemption policy which may be utilized to meet larger redemption requests. The Committee may also take intoconsideration a Fund’s shareholder ownership concentration (which, depending on product type and distribution channel, may or may not be available), a Fund’sdistribution channels, and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
c) Holdings of cash and cash equivalents, as well as borrowing arrangements. The Committee considered the terms of the credit facility committed to the Funds,the financial health of the institution providing the facility and the fact that the credit facility is shared among multiple Funds (including that a portion of the aggregatecommitment amount is specifically designated for BlackRock Floating Rate Income Portfolio, a series of BlackRock Funds V). The Committee also considered othertypes of borrowing available to the Funds, such as the ability to use reverse repurchase agreements and interfund lending, as applicable.
There were no material changes to the Program during the Program Reporting Period. The Report provided to the Board stated that the Committee concluded that based onthe operation of the functions, as described in the Report, the Program is operating as intended and is effective in implementing the requirements of the Liquidity Rule.
Statement Regarding Liquidity Risk Management Program
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Independent Trustees(a)
NameYear of Birth(b)
Position(s) Held(Length ofService)(c) Principal Occupation(s) During Past Five Years
Number of BlackRock-AdvisedRegistered Investment Companies("RICs") Consisting of InvestmentPortfolios ("Portfolios") Overseen
Public Companyand OtherInvestmentCompany
DirectorshipsHeld During
Past Five Years
Richard E.Cavanagh1946
Co-Chair of theBoard andTrustee(Since 2019)
Director, The Guardian Life Insurance Company of America since 1998; BoardChair, Volunteers of America (a not-for-profit organization) from 2015 to 2018 (boardmember since 2009); Director, Arch Chemicals (chemical and allied products) from1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairmanthereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 andDirector thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard Universitysince 2007 and Executive Dean from 1987 to 1995; President and Chief ExecutiveOfficer, The Conference Board, Inc. (global business research organization) from1995 to 2007.
83 RICs consisting of108 Portfolios
None
Karen P. Robards1950
Co-Chair of theBoard andTrustee(Since 2019)
Principal of Robards & Company, LLC (consulting and private investing) since 1987;Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Injections, LLC (medicaldevices) since 2019; Investment Banker at Morgan Stanley from 1976 to 1987.
Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief FinancialOfficer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015 and from 2017 to September 2020; Director, NationalAdvisory Board of Church Management at Villanova University since 2010; Trustee,Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financialtechnology company) from 2015 to July 2020.
83 RICs consisting of108 Portfolios
None
Cynthia L. Egan1955
Trustee(Since 2019)
Advisor, U.S. Department of the Treasury from 2014 to 2015; President, RetirementPlan Services, for T. Rowe Price Group, Inc. from 2007 to 2012; executive positionswithin Fidelity Investments from 1989 to 2007.
83 RICs consisting of108 Portfolios
Unum (insurance);The HanoverInsurance Group(Board Chair)(insurance);HuntsmanCorporation(chemicalproducts);Envestnet(investmentplatform) from2013 until 2016
Frank J. Fabozzi(d)
1948Trustee(Since 2019)
Editor of The Journal of Portfolio Management since 1986; Professor of Finance,EDHEC Business School (France) since 2011; Visiting Professor,Princeton University for the 2013 to 2014 academic year and Spring 2017 semester;Professor in the Practice of Finance, Yale University School of Management from1994 to 2011 and currently a Teaching Fellow in Yale’s Executive Programs; BoardMember, BlackRock Equity-Liquidity Funds from 2014 to 2016; affiliated professorKarlsruhe Institute of Technology from 2008 to 2011; Visiting Professor, RutgersUniversity for the Spring 2019 semester; Visiting Professor, New York University forthe 2019 academic year. Adjunct Professor of Finance, Carnegie Mellon Universityin fall 2020 semester.
85 RICs consisting of110 Portfolios
None
R. Glenn Hubbard1958
Trustee(Since 2019)
Dean, Columbia Business School from 2004 to 2019; Faculty member, ColumbiaBusiness School since 1988.
83 RICs consisting of108 Portfolios
ADP (data andinformationservices) 2004-2020;Metropolitan LifeInsuranceCompany(insurance); KKRFinancialCorporation(finance) from2004 until 2014
Trustee and Officer Information
T R U S T E E A N D O F F I C E R I N F O R M A T I O N 133
Independent Trustees(a)
NameYear of Birth(b)
Position(s) Held(Length ofService)(c) Principal Occupation(s) During Past Five Years
Number of BlackRock-AdvisedRegistered Investment Companies("RICs") Consisting of InvestmentPortfolios ("Portfolios") Overseen
Public Companyand OtherInvestmentCompany
DirectorshipsHeld During
Past Five Years
W. Carl Kester(d)
1951Trustee(Since 2019)
George Fisher Baker Jr. Professor of Business Administration, Harvard BusinessSchool since 2008; Deputy Dean for Academic Affairs from 2006 to 2010; Chairmanof the Finance Unit, from 2005 to 2006; Senior Associate Dean and Chairman of theMBA Program from 1999 to 2005; Member of the faculty of Harvard Business Schoolsince 1981.
85 RICs consisting of110 Portfolios
None
Catherine A.Lynch(d)
1961
Trustee(Since 2019)
Chief Executive Officer, Chief Investment Officer and various other positions,National Railroad Retirement Investment Trust from 2003 to 2016; Associate VicePresident for Treasury Management, The George Washington University from1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.
85 RICs consisting of110 Portfolios
None
Trustee and Officer Information (continued)
134 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Interested Trustees(a)(e)
NameYear of Birth(b)
Position(s) Held(Length ofService)(c) Principal Occupation(s) During Past Five Years
Number of BlackRock-AdvisedRegistered Investment Companies("RICs") Consisting of InvestmentPortfolios ("Portfolios") Overseen
Public Companyand OtherInvestmentCompany
DirectorshipsHeld During
Past Five Years
Robert Fairbairn1965
Trustee(Since 2015)
Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s GlobalExecutive and Global Operating Committees; Co-Chair of BlackRock’s HumanCapital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019;oversaw BlackRock’s Strategic Partner Program and Strategic ProductManagement Group from 2012 to 2019; Member of the Board of Managers ofBlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retailand iShares� businesses from 2012 to 2016.
Managing Director of BlackRock, Inc. since 2009; Head of BlackRock GlobalAccounting and Product Services since 2009; Advisory Director of Family ResourceNetwork (charitable foundation) since 2009.
115 RICs consisting of260 Portfolios
None
(a) The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.(b) Each Independent Trustees holds office until his or her successor is duly elected and qualifies or until his or her earlier death, resignation, retirement or removal as provided by the Trust’s by-laws
or charter or statute, or until December 31 of the year in which he or she turns 75. Trustees who are “interested persons,” as defined in the Investment Company Act serve until their successoris duly elected and qualifies or until their earlier death, resignation, retirement or removal as provided by the Trust’s by-laws or statute, or until December 31 of the year in which they turn 72. TheBoard may determine to extend the terms of Independent Trustees on a case-by-case basis, as appropriate.
(c) Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy BlackRock fund boards wererealigned and consolidated into three new fund boards in 2007. Certain Independent Trustees first became members of the boards of other legacy MLIM or legacy BlackRock funds asfollows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; R. Glenn Hubbard, 2004; W. Carl Kester, 1995; and Karen P. Robards, 1998. Certain other Independent Trustees became membersof the boards of the closed-end funds in the Fixed-Income Complex as follows: Michael J. Castellano, 2011; Cynthia L. Egan, 2016; and Catherine A. Lynch, 2016.
(d) Dr. Fabozzi, Dr. Kester, Ms. Lynch and Mr. Perlowski are also trustees of the BlackRock Credit Strategies Fund and BlackRock Private Investments Fund.(e) Mr. Fairbairn and Mr. Perlowski are both "interested persons," as defined in the Investment Company Act 1940 Act, of the Trust based on their positions with BlackRock, Inc. and its affiliates. Mr.
Fairbairn and Mr. Perlowski are also board members of the BlackRock Multi-Asset Complex.
Trustee and Officer Information (continued)
T R U S T E E A N D O F F I C E R I N F O R M A T I O N 135
Officers Who Are Not Trustees(a)
NameYear of Birth(b)
Position(s) Held(Length ofService) Principal Occupation(s) During Past Five Years
JenniferMcGovern1977
Vice President(Since 2014)
Managing Director of BlackRock, Inc. since 2016; Director of BlackRock, Inc. from 2011 to 2015; Head of Americas Product Development andGovernance for BlackRock’s Global Product Group since 2019; Head of Product Structure and Oversight for BlackRock’s U.S. Wealth Advisory Groupfrom 2013 to 2019.
Trent Walker1974
Chief FinancialOfficer(Since 2021)
Managing Director of BlackRock, Inc. since September 2019; Executive Vice President of PIMCO from 2016 to 2019; Senior Vice President of PIMCOfrom 2008 to 2015; Treasurer from 2013 to 2019 and Assistant Treasurer from 2007 to 2017 of PIMCO Funds, PIMCO Variable Insurance Trust,PIMCO ETF Trust, PIMCO Equity Series, PIMCO Equity Series VIT, PIMCO Managed Accounts Trust, 2 PIMCO-sponsored interval funds and21 PIMCO-sponsored closed-end funds.
Jay M. Fife1970
Treasurer(Since 2007)
Managing Director of BlackRock, Inc. since 2007.
Charles Park1967
ChiefComplianceOfficer(Since 2014)
Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors,LLC and the BlackRock-advised Funds in the BlackRock Multi AssetComplex and the BlackRock Fixed-Income Complex since 2014; Principal of andChief Compliance Officer for iShares� Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006;Chief ComplianceOfficer for the BFA-advised iShares� exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset ManagementInternational Inc. since 2012.
Lisa Belle1968
Anti-MoneyLaunderingComplianceOfficer(Since 2019)
Managing Director of BlackRock, Inc. since 2019; Global Financial Crime Head for Asset and Wealth Management of JP Morgan from 2013 to 2019;Managing Director of RBS Securities from 2012 to 2013; Head of Financial Crimes for Barclays Wealth Americas from 2010 to 2012.
Janey Ahn1975
Secretary(Since 2019)
Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017.
(a) The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.(b) Officers of the Trust serve at the pleasure of the Board.
Further information about the Trust’s Trustees and Officers is available in the Trust’s Statement of Additional Information, which can be obtained without charge by calling (800) 441-7762
Neal J. Andrews retired as the Chief Financial Officer effective December 31, 2020, and Trent Walker was elected as the Chief Financial Officer effective January 1, 2021.
Trustee and Officer Information (continued)
136 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Regulation Regarding Derivatives
On October 28, 2020, the Securities and Exchange Commission (the “SEC”) adopted new regulations governing the use of derivatives by registered investment companies(“Rule 18f-4”). The Funds 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 ofderivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as seniorsecurities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives riskmanagement program and appoint a derivatives risk manager.
General Information
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Funds may be found on BlackRock’s website, which canbe accessed at blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Funds and doesnot, and is not intended to, incorporate BlackRock’s website in this report.
Householding
The Funds will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports, Rule 30e-3 notices and proxy statements, toshareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicatemailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailingof these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.
Availability of Quarterly Schedule of Investments
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. TheFunds’ Forms N-PORT are available on the SEC’s website at sec.gov. Additionally, each Fund makes its portfolio holdings for the first and third quarters of each fiscal yearavailable at blackrock.com/fundreports.
Availability of Proxy Voting Policies, Procedures and Voting Records
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities and information about how the Funds votedproxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available without charge, upon request (1) by calling (800)441-7762; (2) on the BlackRock website at blackrock.com; and (3) on the SEC’s website at sec.gov.
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-publicpersonal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why incertain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is setforth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, ifapplicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information wereceive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respondto regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it onlyfor its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest toyou. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for theinformation. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, includingprocedures relating to the proper storage and disposal of such information.
Additional Information
A D D I T I O N A L I N F O R M A T I O N 137
Fund and Service Providers
Investment AdviserBlackRock Advisors, LLCWilmington, DE 19809
Sub-Advisor(a)
BlackRock International LimitedEdinburgh EH3 8BL, United Kingdom
Accounting Agent, Administrator and Transfer AgentBNY Mellon Investment Servicing (US) Inc.Wilmington, DE 19809
CustodianThe Bank of New York MellonNew York, NY 10286
(a) Excludes BATS: Series E Portfolio
Independent Registered Public Accounting FirmDeloitte & Touche LLPBoston, MA 02116
DistributorBlackRock Investments, LLCNew York, NY 10022
Legal CounselWillkie Farr & Gallagher LLPNew York, NY 10019
Address of the Trust100 Bellevue ParkwayWilmington, DE 19809
Additional Information (continued)
138 2 0 2 1 B L A C K R O C K A N N U A L R E P O R T T O S H A R E H O L D E R S
Currency Abbreviation
AUD Australian Dollar
CAD Canadian Dollar
NZD New Zealand Dollar
USD United States Dollar
Portfolio Abbreviation
ABS Asset-Backed Security
AGM Assured Guaranty Municipal Corp.
AKA Also Known As
AMT Alternative Minimum Tax
CD Certificate of Deposit
CLO Collateralized Loan Obligation
DAC Designated Activity Co.
EDA Economic Development Authority
EDC Economic Development Corp.
EURIBOR Euro Interbank Offered Rate
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
GO General Obligation Bonds
GTD Guaranteed
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDC Industrial Development Corp.
IO Interest Only
LIBOR London Interbank Offered Rate
LP Limited Partnership
OTC Over-the-Counter
RB Revenue Bonds
REMIC Real Estate Mortgage Investment Conduit
SONIA Sterling Overnight Index Average
TA Tax Allocation
TBA To-be-Announced
Glossary of Terms Used in this Report
G L O S S A R Y O F T E R M S U S E D I N T H I S R E P O R T 139
Want to know more?blackrock.com | 800-441-7762
This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buyshares of the Funds unless preceded or accompanied by the Funds’ current prospectus. Past performance results shown inthis report should not be considered a representation of future performance. Investment returns and principal value ofshares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and otherinformation herein are as dated and are subject to change.