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*This Prospectus is only valid if read in conjunction with the First Addendum dated 10 May 2021. 10 MARCH 2021 Prospectus * BlackRock Global Funds
*This Prospectus is only valid if read in conjunction with the First Addendum dated 10 May 2021.
10 MARCH 2021
Prospectus *
BlackRock Global Funds
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ContentsPage
Introduction to BlackRock Global Funds 2
Important Notice 5
Distribution 5
Management and Administration 6
Enquiries 6
Board of Directors 7
Glossary 8
Investment Management of the Funds 12
Risk Considerations 14
Specific Risk Considerations 21
Excessive Trading Policy 39
Investment Objectives and Policies 40
Classes and Form of Shares 86
Dealing in Fund Shares 88
Prices of Shares 88
Application for Shares 89
Redemption of Shares 90
Conversion of Shares 91
Calculation of Dividends 94
Fees, Charges and Expenses 96
Taxation 97
Meetings and Reports 100
Appendix A - Investment and Borrowing Powers and Restrictions 101
Appendix B - Summary of Certain Provisions of the Articles and of Company Practice 112
Appendix C - Additional Information 119
Appendix D - Authorised Status 126
Appendix E - Summary of Charges and Expenses 133
Appendix F - List of Depositary Delegates 147
Appendix G - Securities Financing Transaction Disclosures 149
Summary of Subscription Procedure and Payment Instructions 153
First Addendum Dated 10 May 2021 to Prospectus dated 10 March 2021 155
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Introduction to BlackRock Global FundsStructureBlackRock Global Funds (the “Company”) is a public limitedcompany (société anonyme) established under the laws of theGrand Duchy of Luxembourg as an open ended variable capitalinvestment company (société d’investissement à capital variable).The Company has been established on 14 June 1962 and itsregistration number in the Registry of the Luxembourg Trade andCompanies Register is B 6317. The Company has beenauthorised by the Commission de Surveillance du SecteurFinancier (the "CSSF") as an undertaking for collectiveinvestments in transferable securities pursuant to the provisions ofPart I of the law of 17 December 2010, as amended from time totime and, for some of its Funds pursuant to the provisions of theMMF Regulations and is regulated pursuant to such law andregulations, respectively. Authorisation by the CSSF is not anendorsement or guarantee of the Company by the CSSF nor is theCSSF responsible for the contents of this Prospectus. Theauthorisation of the Company shall not constitute a warranty as toperformance of the Company and the CSSF shall not be liable forthe performance or default of the Company.
The articles of association governing the Company (the "Articles")have been deposited with the Luxembourg Trade and CompaniesRegister. The Articles have been amended and restated severaltimes, most recently on 4 February 2019 and published in the
Recueil Electronique des Sociétés et Associations (“RESA”), on25 February 2019.
The Company is an umbrella structure comprising separatecompartments with segregated liability. Each compartment shallhave segregated liability from the other compartments and theCompany shall not be liable as a whole to third parties for theliabilities of each compartment. Each compartment shall be madeup of a separate portfolio of investments maintained and investedin accordance with the investment objectives applicable to suchcompartment, as specified herein. The Directors are offeringseparate classes of Shares, each representing interests in acompartment, on the basis of the information contained in thisProspectus and in the documents referred to herein which aredeemed to be an integral part of this Prospectus.
ManagementThe Company is managed by BlackRock (Luxembourg) S.A., apublic limited company (société anonyme) established in 1988under registration number B 27689. The Management Companyhas been authorised by the CSSF to manage the business andaffairs of the Company pursuant to chapter 15 of the 2010 Law.
Choice of FundsAs of the date of this Prospectus, investors are able to choose fromthe following Funds of BlackRock Global Funds:
Fund Base Currency Bond/Equity or MixedFund
Short Term VNAV MoneyMarket Fund
1. ASEAN Leaders Fund USD E
2. Asia Pacific Equity Income Fund USD E
3. Asian Dragon Fund USD E
4. Asian Growth Leaders Fund USD E
5. Asian High Yield Bond Fund USD B
6. Asian Multi-Asset Income Fund USD M
7. Asian Tiger Bond Fund USD B
8. China A-Share Fund USD E
9. China Bond Fund RMB B
10. China Flexible Equity Fund USD E
11. China Fund USD E
12. Circular Economy Fund USD E
13. Continental European Flexible Fund EUR E
14. Dynamic High Income Fund USD M
15. Emerging Europe Fund EUR E
16. Emerging Markets Bond Fund USD B
17. Emerging Markets Corporate Bond Fund USD B
18. Emerging Markets Equity Income Fund USD E
19. Emerging Markets Fund USD E
20. Emerging Markets Local Currency Bond Fund USD B
21. ESG Asian Bond Fund USD B
22. ESG Emerging Markets Blended Bond Fund USD B
23. ESG Emerging Markets Bond Fund USD B
24. ESG Emerging Markets Corporate Bond Fund USD B
25. ESG Emerging Markets Local Currency Bond Fund USD B
26. ESG Fixed Income Global Opportunities Fund EUR B
27. ESGMulti-Asset Fund EUR M
28. Euro Bond Fund EUR B
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Fund Base Currency Bond/Equity or MixedFund
Short Term VNAV MoneyMarket Fund
29. Euro Corporate Bond Fund EUR B
30. Euro Reserve Fund EUR MMF
31. Euro Short Duration Bond Fund EUR B
32. Euro-Markets Fund EUR E
33. European Equity Income Fund EUR E
34. European Focus Fund EUR E
35. European Fund EUR E
36. European High Yield Bond Fund EUR B
37. European Special Situations Fund EUR E
38. European Value Fund EUR E
39. FinTech Fund USD E
40. Fixed Income Global Opportunities Fund USD B
41. Future Of Transport Fund USD E
42. Global Allocation Fund USD M
43. Global Bond Income Fund USD B
44. Global Conservative Income Fund EUR M
45. Global Corporate Bond Fund USD B
46. Global Dynamic Equity Fund USD E
47. Global Equity Income Fund USD E
48. Global Government Bond Fund USD B
49. Global High Yield Bond Fund USD B
50. Global Inflation Linked Bond Fund USD B
51. Global Multi-Asset Income Fund USD M
52. Global Long-Horizon Equity Fund USD E
53. India Fund USD E
54. Japan Small & MidCap Opportunities Fund Yen E
55. Japan Flexible Equity Fund Yen E
56. Latin American Fund USD E
57. Multi -Theme Equity Fund USD F
58. Natural Resources Growth & Income Fund USD E
59. Next Generation Technology Fund USD E
60. Nutrition Fund USD E
61. Pacific Equity Fund USD E
62. Sustainable Energy Fund USD E
63. Swiss Small & MidCap Opportunities Fund CHF E
64. Systematic China A-Share Opportunities Fund USD E
65. Systematic Global Equity High Income Fund USD E
66. Systematic Global SmallCap Fund USD E
67. United Kingdom Fund GBP E
68. US Basic Value Fund USD E
69. US Dollar Bond Fund USD B
70. US Dollar High Yield Bond Fund USD B
71. US Dollar Reserve Fund USD MMF
72. US Dollar Short Duration Bond Fund USD B
73. US Flexible Equity Fund USD E
74. US Government Mortgage Fund USD B
75. US Growth Fund USD E
76. US Small & MidCap Opportunities Fund USD E
77. World Bond Fund USD B
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Fund Base Currency Bond/Equity or MixedFund
Short Term VNAV MoneyMarket Fund
78. World Energy Fund USD E
79. World Financials Fund USD E
80. World Gold Fund USD E
81. World Healthscience Fund USD E
82. World Mining Fund USD E
83. World Real Estate Securities Fund USD E
84. World Technology Fund USD E
B Bond FundE Equity FundF Fund of FundsM Mixed FundMMF Short Term VNAV Money Market FundA list of Dealing Currencies, Hedged Share Classes, Distributing and Non-Distributing Share Classes and UK Reporting Fund status Classes is available from theCompany’s registered office and the local Investor Servicing team.
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IMPORTANT NOTICE
If you are in any doubt about the contents of this Prospectusor whether an investment in the Company is suitable for you,you should consult your stockbroker, solicitor, accountant,relationship manager or other professional adviser.
The Directors of the Company, whose names appear in the section“Board of Directors”, and the directors of the ManagementCompany are the persons responsible for the informationcontained in this document. To the best knowledge and belief ofthe Directors and the directors of the Management Company (whohave taken all reasonable care to ensure that such is the case), theinformation contained herein is accurate in all material respectsand does not omit anything likely to affect the accuracy of suchinformation. The Directors and the directors of the ManagementCompany accept responsibility accordingly.
This Prospectus has been prepared solely for, and is beingfurnished to investors for the purpose of evaluating an investmentin Shares in the Funds. Investment in the Funds is only suitable forinvestors seeking long-term capital appreciation (save for theReserve Funds which may not be appropriate for investors whoseek long-term capital appreciation) who understand the risksinvolved in investing in the Company, including the risk of loss of allcapital invested.
In considering an investment in the Company, investorsshould also take account of the following:
E certain information contained in this Prospectus, thedocuments referred to herein and any brochures issuedby the Company as substitute offering documentsconstitutes forward-looking statements, which can beidentified by the use of forward-looking terminology suchas “seek”, "may", "should", "expect", "anticipate","estimate", "intend", "continue", "target" or "believe" orthe negatives thereof or other variations thereof orcomparable terminology and includes projected ortargeted returns on investments to be made by theCompany. Such forward-looking statements are inherentlysubject to significant economic, market and other risksand uncertainties and accordingly actual events or resultsor the actual performance of the Company may differmaterially from those reflected or contemplated in suchforward-looking statements; and
E nothing in this Prospectus should be taken as legal, tax,regulatory, financial, accounting or investment advice.
An application / decision to subscribe for Shares should bemade on the basis of the information contained in thisProspectus which is issued by the Company and in the mostrecent annual and (if later) interim report and accounts of theCompany which are available at the registered office of theCompany. Information updating this Prospectus may, ifappropriate, appear in the report and accounts.
This Prospectus, and the KIID for the relevant Share Class, shouldeach be read in their entirety before making an application forShares. KIIDs for each available Share Class can be found at:http://kiid.blackrock.com
Statements made in this Prospectus are based on laws andpractices in force at the date hereof and are subject to changestherein. Neither the delivery of this Prospectus nor the issue ofShares will, in any circumstances, imply that there has been nochange in the circumstances affecting any of the matters containedin this Prospectus since the date hereof.
This Prospectus may be translated into other languagesprovided that any such translation shall be a direct translationof the English text. In the event of any inconsistency orambiguity in relation to the meaning of any word or phrase inany translation, the English text shall prevail, except to theextent (and only to the extent) that the laws of a jurisdictionrequire that the legal relationship between the Company andinvestors in such jurisdiction shall be governed by the locallanguage version of this Prospectus.
Any shareholder in the Company will only be able to fullyexercise its shareholder rights directly against the Company,and in particular the right to participate in general meetings ofshareholders, where such shareholder is registered in its ownname in the register of shareholders for the Company. Incases where a shareholder invests into the Company throughan intermediary investing in its own name but on behalf of theshareholder, it may not always be possible for suchshareholder to exercise certain of its shareholder rights in theCompany. Investors are therefore advised to take legal advicein respect of the exercise of their shareholder rights in theCompany.
DistributionThis Prospectus does not constitute an offer or solicitation byanyone in any jurisdiction in which such offer or solicitation is notlawful or in which the person making such offer or solicitation is notqualified to do so or to anyone to whom it is unlawful to make suchoffer or solicitation. Details of certain countries in which theCompany is currently authorised to offer Shares are contained inAppendix D. Prospective subscribers for Shares should informthemselves as to the legal requirements of applying for Shares andof applicable exchange control regulations and taxes in thecountries of their respective citizenship, residence or domicile. USPersons are not permitted to subscribe for Shares. The Funds arenot registered for distribution in India. In some countries investorsmay be able to subscribe for Shares through regular savings plans.Under Luxembourg law, the fees and commissions relating toregular savings plans during the first year must not exceed onethird of the amount contributed by the investor. These fees andcommissions do not include premiums to be paid by the investorwhere the regular savings plan is offered as part of a life insuranceor whole life insurance product. Please contact the local InvestorServicing team for more details.
http://kiid.blackrock.com
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DIRECTORY
Management and AdministrationManagement CompanyBlackRock (Luxembourg) S.A.35 A, avenue J.F. Kennedy,L-1855 Luxembourg,Grand Duchy of Luxembourg
Investment AdvisersBlackRock Financial Management, Inc.Park Avenue Plaza,55 East 52nd Street,New York, NY 10055,USA
BlackRock Investment Management, LLC100 Bellevue Parkway,Wilmington,Delaware 19809,USA
BlackRock Investment Management (UK) Limited12 Throgmorton Avenue,London EC2N 2DL,UK
BlackRock (Singapore) Limited#18-01 Twenty Anson,20 Anson Road,Singapore, 079912
Principal DistributorBlackRock Investment Management (UK) Limited12 Throgmorton Avenue,London EC2N 2DL,UK
DepositaryThe Bank of New York Mellon SA / NV, Luxembourg Branch2-4, rue Eugène Ruppert,L-2453 Luxembourg,Grand Duchy of Luxembourg
RQFII CustodianHSBC Bank (China) Company Limited33rd Floor, HSBC BuildingShanghai ifc, 8 Century AvenuePudong, ShanghaiChina 200120
Fund AccountantThe Bank of New York Mellon SA / NV, Luxembourg Branch2-4, rue Eugène Ruppert,L-2453 Luxembourg,Grand Duchy of Luxembourg
Transfer Agent and RegistrarJ.P. Morgan Bank Luxembourg S.A.6C, route de Trèves,L-2633 Senningerberg,Grand Duchy of Luxembourg
AuditorErnst & Young S.A.35E avenue John F. KennedyL-1855 LuxembourgGrand Duchy of Luxembourg
Legal AdvisersLinklaters LLP35 avenue John F. Kennedy,L-1855 Luxembourg,Grand Duchy of Luxembourg
Listing AgentJ.P. Morgan Bank Luxembourg S.A.6C, route de Trèves,L-2633 Senningerberg,Grand Duchy of Luxembourg
Paying AgentsA list of Paying Agents is to be found in paragraph 15. of AppendixC.
Registered Office2-4, rue Eugène Ruppert,L-2453 Luxembourg.Grand Duchy of Luxembourg
EnquiriesIn the absence of other arrangements, enquiries regarding theCompany should be addressed as follows:Written enquiries:BlackRock Investment Management (UK) Limitedc/o BlackRock (Luxembourg) S.A.P.O. Box 1058,L-1010 Luxembourg,Grand Duchy of LuxembourgAll other enquiries:Telephone: + 44 207 743 3300,Fax: + 44 207 743 1143.Email: [email protected]
mailto:[email protected]
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Board of DirectorsPaul FreemanMichael GruenerUrsula MarchioniBarry O’DwyerGeoffrey RadcliffeDenise Voss
Michael Gruener, Ursula Marchioni, Barry O’Dwyer and Geoffrey Radcliffe areemployees of the BlackRock Group (of which the Management Company, InvestmentAdvisers and Principal Distributor are part), and Paul Freeman is a former employeeof the BlackRock Group.
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Glossary2010 Lawmeans the Luxembourg law of 17 December 2010 on undertakingsfor collective investment, as amended, modified or supplementedfrom time to time.
Base Currencymeans in relation to Shares of any Fund, the currency indicated inthe section “Choice of Funds”.
BlackRock Groupmeans the BlackRock group of companies, the ultimate holdingcompany of which is BlackRock, Inc.
Bond Connectmeans the initiative launched in July 2017 for mutual bond marketaccess between Hong Kong and Mainland China as described inthe section entitled “China Interbank Bond Market” in the“Investment Objectives and Policies” section of this Prospectus.
BRLmeans Brazilian Real, the lawful currency of Brazil.
Business Daymeans any day normally treated by the banks in Luxembourg as abusiness day (except for Christmas Eve) and such other days asthe Directors may decide. The Management Company may alsotake into account whether relevant local exchanges are open forFunds that invest a substantial amount in assets outside theEurozone, and/or whether relevant currency exchange vendors areopen for Funds that have substantial exposure to a currency otherthan their respective Base Currency, and may elect to treat suchclosures as non-business days. Information regarding closures oflocal exchanges or currency exchange vendors treated by theManagement Company as non-business days will be availablebefore such a non-business day and can be obtained from theregistered office of the Company and from the local InvestorServicing team.
CDSCmeans a contingent deferred sales charge as set out in the section“Contingent Deferred Sales Charge”.
China A-Sharesmeans securities of companies that are incorporated in the PRCand denominated and traded in Renminbi on the SSE and SZSE.
China Interbank Bond Marketmeans the Mainland China interbank bond markets of the PRC.
ChinaClearmeans China Securities Depositary and Clearing CorporationLimited which is the PRC’s central securities depository in respectof China A-Shares.
CIBM FundsAsian High Yield Bond Fund, Asian Multi-Asset Income Fund,Asian Tiger Bond Fund, Dynamic High Income Fund, EmergingMarkets Local Currency Bond Fund, ESG Asian Bond Fund, ESGFixed Income Global Opportunities Fund, ESG Multi-Asset Fund,Fixed Income Global Opportunities Fund, China Bond Fund,Emerging Markets Bond Fund, Emerging Markets Corporate BondFund, Global Allocation Fund, Global Bond Income Fund, GlobalConservative Income Fund, Global Multi-Asset Income Fund, US
Dollar Bond Fund, US Dollar Short Duration Bond Fund, GlobalCorporate Bond Fund, Global Government Bond Fund, ESGEmerging Markets Blended Bond Fund, ESG Emerging MarketsBond Fund, ESG Emerging Markets Corporate Bond Fund, ESGEmerging Markets Local Currency Bond Fund and World BondFund.
CSRCmeans the China Securities Regulatory Commission of the PRC orits successors which is the regulator of the securities and futuresmarket of the PRC.
Dealing Currencymeans the currency or currencies in which applicants maycurrently subscribe for the Shares of any Fund. Dealing Currenciesmay be introduced at the Directors’ discretion. Confirmation of theDealing Currencies and the date of their availability can beobtained from the registered office of the Company and from thelocal Investor Servicing team.
Dealing Daymeans any Business Day other than any day declared as a non-dealing day by the Directors as further described in the section“Non-Dealing Days” and any day falling within a period ofsuspension of subscriptions, redemptions and conversions and/orsuch other day determined by the Directors to be a day when aFund is open for dealing.
Directorsmeans the members of the board of directors of the Company forthe time being and any successors to such members as may beappointed from time to time.
Distributing Funds and Distributing Sharesmeans a Fund or a Share Class for which dividends may bedeclared, at the Directors’ discretion. Distributing Shares may alsobe treated as UK Reporting Fund status Shares. Confirmation ofthe Funds, Share Classes and Currencies on which dividends maybe declared and Share Classes which are UK Reporting Fundstatus Shares (please see below for more details) is available fromthe registered office of the Company and from the local InvestorServicing team.
Dividend Threshold Amountmeans such minimum dividend yield set on an annual basis for theperiod 1 January each year to 31 December each year and whichwill be paid to investors as determined by the Directors in respectof the Distributing (Y) Shares. The Dividend Threshold Amount isavailable from the local Investor Servicing Team. In certaincircumstances, as determined by the Directors’, the DividendThreshold Amount may need to be reduced during the year.Shareholders will be notified of this, where possible, in advance.
Equity Income Fundsmeans the Asia Pacific Equity Income Fund, Emerging MarketsEquity Income Fund, European Equity Income Fund and GlobalEquity Income Fund.
ESGRefers to “environmental, social and governance” criteria, whichare three central factors used in measuring the sustainability andethical impact of an investment in securities of an issuer. By way ofexample, “environmental” may cover themes such as climate risksand natural resources scarcity, “social” may include labour issues
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and product liability risks such as data security and “governance”may encompass items such as business ethics and executive pay.These are only examples and do not necessarily determine thepolicy of any specific ESG Fund. Investors should refer to theinvestment policy of an ESG Fund, including any website referredto in such investment policy, for more detailed information.
ESG Fundmeans a Fund which uses ESG criteria as part of its investmentstrategy.
ESG Providermeans a provider of ESG research, reports, screening, ratingsand/or analysis including, without limitation, third party indexproviders, ESG consultancies or members of the BlackRockGroup.
EURIBORmeans the Euro Interbank Offered Rate published by theEuropean Money Markets Institute.
Euromeans the single European currency unit (referred to in CouncilRegulation (EC) No. 974/98 of 3 May 1998 on the introduction ofthe Euro) and, at the Investment Adviser’s discretion, thecurrencies of any countries that have previously formed part of theEurozone. As at the date of this Prospectus the countries thatmake up the Eurozone are: Austria, Belgium, Cyprus, Estonia,Finland, France, Germany, Greece, Ireland, Italy, Latvia,Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia andSpain.
Europe or Europeanmeans all European countries including the UK, Eastern Europeand former Soviet Union countries.
Foreign Access Regimemeans the regime for foreign institutional investors to invest in theChina Interbank Bond Market as described in the section entitled“China Interbank Bond Market” in the “Investment Objectives andPolicies” section of this Prospectus.
Fundmeans a segregated compartment established and maintained bythe Company in respect of one or more Share Classes to whichassets, liabilities, income and expenditure attributable to each suchClass or Share Classes will be applied or charged, as furtherdescribed in this Prospectus.
Global Industry Classification Standardmeans an industry taxonomy developed by MSCI and Standard &Poor’s for use by the global financial community.
Hedged Share Classesmeans those Share Classes to which a currency hedging strategyis applied. Hedged Share Classes may be made available inFunds and currencies at the Directors’ discretion. Confirmation ofthe Funds and currencies in which the Hedged Share Classes areavailable can be obtained from the registered office of theCompany and from the local Investor Servicing team.
HKEXmeans Hong Kong Exchanges and Clearing Limited.
HKSCCmeans Hong Kong Securities Clearing Company Limited whichoperates a securities market and a derivatives market in HongKong and the clearing houses for those markets.
Institutional Investormeans an institutional investor within the meaning of the 2010 Lawwhich satisfies the eligibility and suitability requirements ofinstitutional investors. Please see the section headed “Restrictionson Holding of Shares”.
Internal Credit Quality Assessment ProcedureMeans, in relation to the Reserve Funds, the procedure requiredby the MMF Regulations and followed by the Investment Adviserwhen assessing the credit quality of investments.
Interest Rate Differentialmeans the difference in interest rates between two similar interest-bearing assets.
Investment Adviser(s)means the investment adviser(s) appointed by the ManagementCompany from time to time in respect of the management of theassets of the Funds as described under “Investment Managementof the Funds”.
Investor Servicingmeans the dealing provisions and other investor servicingfunctions by local BlackRock Group companies or branches ortheir administrators.
KIIDmeans the key investor information document issued in respect ofeach Share Class pursuant to the 2010 Law.
Management Companymeans BlackRock (Luxembourg) S.A., a Luxembourg sociétéanonyme authorised as a management company under the 2010Law.
MMFmeans a money market fund as defined in the MMF Regulations. A“VNAV MMF” means a variable net asset value money marketfund as defined in the MMF Regulations.
MMF Regulationsmeans Regulation (EU) 2017/1131 of the European Parliamentand Council of 14 June 2017 on money market funds (“MMF”) andany delegated regulation published pursuant to it.
Net Asset Valuemeans in relation to a Fund or a Share Class, the amountdetermined in accordance with the provisions described inparagraphs 12. to 17. of Appendix B. The Net Asset Value (or“NAV”) of a Fund may be adjusted in accordance with paragraph17.3 of Appendix B.
Non-Distributing Sharesmeans Non-Distributing Shares / Non-Distributing Share Classesare Share Classes that do not pay dividends.
OTC derivativesmeans over-the-counter derivative instruments.
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PBOCmeans the People’s Bank of China in the PRC.
PRC or Mainland Chinameans the People’s Republic of China.
Principal Distributormeans BlackRock Investment Management (UK) Limited acting inits capacity as Principal Distributor. References to distributors mayinclude BlackRock Investment Management (UK) Limited in itscapacity as Principal Distributor.
Prospectusmeans this offering memorandum, as amended, modified orsupplemented from time to time.
QFIImeans Qualified Foreign Institutional Investor.
Remuneration Policymeans the policy as described in the section entitled“Management” including, but not limited to, a description as to howremuneration and benefits are calculated and identification of thoseindividuals responsible for awarding remuneration and benefits.
Reserve Fundsmeans the Euro Reserve Fund and the US Dollar Reserve Fund.The Euro Reserve Fund and the US Dollar Reserve Fund are“Short-Term Variable Net Asset Value Money Market Funds”(Short-term MMFs) in accordance with the MMF Regulations. Theinvestment objectives of the Euro Reserve Fund and the US DollarReserve Fund are intended to comply with this classification.
RMB or Renminbimeans Renminbi, the lawful currency of the PRC.
RQFIImeans Renminbi Qualified Foreign Institutional Investor.
RQFII Access FundsAsian Dragon Fund, Asian Growth Leaders Fund, ASEAN LeadersFund, Asia Pacific Equity Income Fund, Asian Tiger Bond Fund,Asian Multi-Asset Income Fund, China A-Share Fund, China Fund,Systematic China A-Share Opportunities Fund, China FlexibleEquity Fund, Emerging Markets Local Currency Bond Fund, ESGAsian Bond Fund, Pacific Equity Fund, China Bond Fund andMulti-Theme Equity Fund.
RQFII Custodianmeans HSBC Bank (China) Company Limited or such otherperson appointed as a sub-custodian of the relevant Fund forChina A-Shares and/or China onshore bonds acquired through theRQFII regime.
RQFII Licencemeans the licence awarded by the CSRC to entities based incertain jurisdictions outside of the PRC, enabling such entities toinvest in eligible PRC securities via the RQFII regime.
RQFII Licence Holdermeans the holder of a RQFII Licence.
SAFEmeans the State Administration of Foreign Exchange of the PRC.
SEHKmeans the Stock Exchange of Hong Kong.
Sharemeans a share of any Class representing a participation in thecapital of the Company, and carrying rights attributable to arelevant Share Class, as further described in this Prospectus.
Share Classmeans any class of Shares attributable to a particular Fund, andcarrying rights to participate in the assets and liabilities of suchFund as further described in section “Classes and Form ofShares”.
SFCmeans the Securities and Futures Commission in Hong Kong.
SFDR Regulationmeans EU Regulation 2019/2088 on sustainable financedisclosure as may be amended, modified or supplemented fromtime to time.
SICAVmeans an investment company with variable capital (sociétéd’investissement à capital variable).
Stock Connectmeans each of the Shanghai-Hong Kong Stock Connect and theShenzhen-Hong Kong Stock Connect, and collectively the “StockConnects”.
Stock Connect FundsASEAN Leaders Fund, Asia Pacific Equity Income Fund, AsianDragon Fund, Asian Growth Leaders Fund, Asian Multi-AssetIncome Fund, China A-Share Fund, China Flexible Equity Fund,China Fund, Circular Economy Fund, Dynamic High Income Fund,Emerging Markets Fund, Emerging Markets Equity Income Fund,FinTech Fund, ESG-Multi-Asset Fund, Future Of Transport Fund,Global Allocation Fund, Global Conservative Income Fund, GlobalDynamic Equity Fund, Global Equity Income Fund, Global Multi-Asset Income Fund, Multi-Theme Equity Fund, Global Long-Horizon Equity Fund, Systematic China A-Share OpportunitiesFund, Systematic Global Equity High Income Fund, SystematicGlobal SmallCap Fund, Natural Resources Growth & IncomeFund, Sustainable Energy Fund, Next Generation TechnologyFund, Nutrition Fund, Pacific Equity Fund, World Energy Fund,World Financials Fund, World Gold Fund, World HealthscienceFund, World Mining Fund, World Real Estate Securities Fund andWorld Technology Fund.
SSEmeans the Shanghai Stock Exchange.
Subsidiarymeans BlackRock India Equities (Mauritius) Limited, a wholly-owned subsidiary of the Company, incorporated as a privatecompany limited by shares through which the India Fund mayinvest into securities.
SZSEmeans the Shenzhen Stock Exchange.
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UCITSmeans an undertaking for collective investment in transferablesecurities.
UCITS Directivemeans Directive 2009/65/EC of the European Parliament and ofthe Council of 13 July 2009 on the coordination of laws, regulationsand administrative provisions relating to undertakings for collectiveinvestment in transferable securities (UCITS), as amended.
UK Reporting Fundsmeans the Statutory Instrument 2009 / 3001 that the UKGovernment enacted in November 2009 (The Offshore Funds(Tax) Regulations 2009) which provides for a framework for thetaxation of investments in offshore funds which operates byreference to whether a Fund opts into a reporting regime (“UKReporting Funds”) or not (“Non-UK Reporting Funds”). Under theUK Reporting Funds regime, investors in UK Reporting Funds aresubject to tax on the share of the UK Reporting Fund’s incomeattributable to their holding in the Fund, whether or not distributed,but any gains on disposal of their holding are subject to capitalgains tax. The UK Reporting Funds regime has applied to theCompany since 1 September 2010.
A list of the Funds which currently have UK Reporting Fund statusis available at https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-fund.
https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-fundhttps://www.gov.uk/government/publications/offshore-funds-list-of-reporting-fund
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Investment Management of the FundsManagementThe Directors are responsible for the overall investment policy ofthe Company.
BlackRock (Luxembourg) S.A. has been appointed by theCompany to act as its management company. The ManagementCompany is authorised to act as a fund management company inaccordance with Chapter 15 of the 2010 Law.
The Company has signed a management company agreementwith the Management Company. Under this agreement, theManagement Company is entrusted with the day-to-daymanagement of the Company, with responsibility for performingdirectly or by way of delegation all operational functions relating tothe Company’s investment management, administration and themarketing of the Funds.
In agreement with the Company, the Management Company hasdecided to delegate several of its functions as is further describedin this Prospectus.
The directors of the Management Company are:
ChairmanGraham Bamping
DirectorsJoanne FitzgeraldAdrian LawrenceGeoffrey Radcliffe
Joanne Fitzgerald, Adrian Lawrence and Geoffrey Radcliffe areemployees of the BlackRock Group (of which the ManagementCompany, Investment Advisers and Principal Distributor arepart).
Graham Bamping is a former employee of the BlackRock Group.
BlackRock (Luxembourg) S.A. is a wholly owned subsidiary withinthe BlackRock Group. It is regulated by the CSSF.
The Remuneration Policy of the Management Company sets outthe policies and practices that are consistent with and promotesound and effective risk management. It does not encourage risk-taking which is inconsistent with the risk profiles, rules orinstruments of incorporation of the Company and does not impaircompliance with the Management Company’s duty to act in thebest interest of shareholders. The remuneration policy is in linewith the business strategy, objectives, values and interests of theManagement Company and the UCITS funds that it manages andof the investors in such UCITS funds, and includes measures toavoid conflicts of interest. It includes a description as to howremuneration and benefits are calculated and identifies thoseindividuals responsible for awarding remuneration and benefits.With regard to the internal organisation of the ManagementCompany, the assessment of performance is set in a multi-yearframework appropriate to the holding period recommended to theinvestors of the UCITS funds managed by the ManagementCompany in order to ensure that the assessment process is basedon longer-term performance of the Company and its investmentrisks and that the actual payment of performance-basedcomponents of remuneration is spread over the same period. The
Remuneration Policy includes fixed and variable components ofsalaries and discretionary pension benefits that are appropriatelybalanced and the fixed component represents a sufficiently highproportion of the total remuneration to allow the operation of a fullyflexible policy on variable remuneration components, including thepossibility to pay no variable remuneration component. TheRemuneration Policy applies to those categories of staff, includingsenior management, risk takers, control functions and anyemployee receiving total remuneration that falls within theremuneration bracket of senior management and risk takers whoseprofessional activities have a material impact on the risk profile ofthe Management Company. The details of the up-to-dateRemuneration Policy, including but not limited to, a description ofhow remuneration and benefits are calculated, the identity ofpersons responsible for awarding the remuneration and benefits,including the composition of the remuneration committee wheresuch a committee exists, are available on the individual Fundpages at www.blackrock.com (select the relevant Fund in the“Product” section and then select “All Documents”) andwww.blackrock.com/Remunerationpolicy and a paper copy will bemade available free of charge upon request from the registeredoffice of the Management Company.
Investment Advisers and Sub-AdvisersThe Management Company has delegated its investmentmanagement functions to the Investment Advisers. The InvestmentAdvisers provide advice and management in the areas of stockand sector selection and strategic allocation. Notwithstanding theappointment of the Investment Advisers, the ManagementCompany accepts full responsibility to the Company for allinvestment transactions. References to an Investment Adviser inthis Prospectus may refer to one or more of the below InvestmentAdvisers.
BlackRock Investment Management (UK) Limited is a principaloperating subsidiary of the BlackRock Group outside the US. It isregulated by the Financial Conduct Authority (“FCA”) but theCompany will not be a customer of BlackRock InvestmentManagement (UK) Limited for the purposes of the FCA rules andwill accordingly not directly benefit from the protection of thoserules.
BlackRock Investment Management (UK) Limited also acts as theinvestment manager to the Subsidiary.
BlackRock Investment Management (UK) Limited has sub-delegated some of its functions to BlackRock Japan Co., Ltd.,BlackRock Investment Management (Australia) Limited andBlackRock Asset Management North Asia Limited (“BAMNA”).
BlackRock (Singapore) Limited is regulated by the MonetaryAuthority of Singapore.
BlackRock Financial Management, Inc. and BlackRock InvestmentManagement, LLC are regulated by the Securities and ExchangeCommission. BlackRock Financial Management, Inc. has sub-delegated some of its functions to BlackRock Japan Co., Ltd.,BlackRock Investment Management (Australia) Limited, BAMNAand BlackRock Investment Management (UK) Limited.
The investment sub-advisers are also licensed and/or regulated(as applicable). BlackRock Japan Co., Ltd is regulated by theJapanese Financial Services Agency. BlackRock InvestmentManagement (Australia) Limited is licensed by the Australian
http://www.blackrock.com
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Securities and Investments Commission as an Australian FinancialServices Licence holder. BAMNA is regulated by the SFC.
The Investment Advisers and their sub-advisers are indirectoperating subsidiaries of BlackRock, Inc., the ultimate holdingcompany of the BlackRock Group. The Investment Advisers andtheir sub-advisers form part of the BlackRock Group.
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Risk ConsiderationsAll investments risk the loss of capital. An investment in theShares involves considerations and risk factors whichinvestors should consider before subscribing. In addition,there will be occasions when the BlackRock Group mayencounter potential conflicts of interest in connection with theCompany. See section “Conflicts of interest fromrelationships within the BlackRock Group”.
Investors should review this Prospectus carefully and in itsentirety and are invited to consult with their professionaladvisers before making an application for Shares. Aninvestment in the Shares should form only a part of acomplete investment programme and an investor must beable to bear the loss of its entire investment. Investors shouldcarefully consider whether an investment in the Shares issuitable for them in light of their circumstances and financialresources. In addition, investors should consult their own taxadvisers regarding the potential tax consequences of theactivities and investments of the Company and/or each Fund.Below is a summary of risk factors that apply to all Fundswhich in particular, in addition to the matters set outelsewhere in this Prospectus, should be carefully evaluatedbefore making an investment in the Shares. Not all risks applyto all Funds. The risks that, in the opinion of the Directors andthe Management Company, could have significant impact onthe overall risk of the relevant Fund are detailed in the table inthe section “Specific Risk Considerations”.
Only those risks which are believed to be material and arecurrently known to the Directors have been disclosed.Additional risks and uncertainties not currently known to theDirectors, or that the Directors deem to be immaterial, mayalso have an adverse effect on the business of the Companyand/or the Funds.
General RisksThe performance of each Fund will depend on the performance ofthe underlying investments. No guarantee or representation ismade that any Fund or any investment will achieve its respectiveinvestment objectives. Past results are not necessarily indicative offuture results. The value of the Shares may fall due to any of therisk factors below as well as rise and an investor may not recoupits investment. Income from the Shares may fluctuate in moneyterms. Changes in exchange rates may, among other factors,cause the value of Shares to increase or decrease. The levels andbases of, and reliefs from, taxation may change. There can be noassurance that the collective performance of a Fund’s underlyinginvestments will be profitable. Also, there is no guarantee of therepayment of principal. On establishment, a Fund will normallyhave no operating history upon which investors may base anevaluation of performance.
Financial Markets, Counterparties and Service ProvidersThe Funds may be exposed to finance sector companies that actas a service provider or as a counterparty for financial contracts. Intimes of extreme market volatility, such companies may beadversely affected, with a consequent adverse effect on the returnof the Funds.
Regulators and self-regulatory organisations and exchanges areauthorised to take extraordinary actions in the event of marketemergencies. The effect of any future regulatory action on theCompany could be substantial and adverse.
Tax ConsiderationsThe Company may be subject to withholding or other taxes onincome and/or gains arising from its investment portfolio. Wherethe Company invests in securities that are not subject towithholding or other taxes at the time of acquisition, there can beno assurance that tax may not be imposed in the future as a resultof any change in applicable laws, treaties, rules or regulations orthe interpretation thereof. The Company may not be able torecover such tax and so any such change could have an adverseeffect on the Net Asset Value of the Shares.
The tax information provided in the “Taxation” section is based, tothe best knowledge of the Directors, upon tax law and practice asat the date of this Prospectus. Tax legislation, the tax status of theCompany, the taxation of shareholders and any tax reliefs, and theconsequences of such tax status and tax reliefs, may change fromtime to time. Any change in the taxation legislation in anyjurisdiction where a Fund is registered, marketed or invested couldaffect the tax status of the Fund, affect the value of the Fund’sinvestments in the affected jurisdiction and affect the Fund’s abilityto achieve its investment objective and/or alter the post-tax returnsto shareholders. Where a Fund invests in derivatives, thepreceding sentence may also extend to the jurisdiction of thegoverning law of the derivative contract and/or the derivativecounterparty and/or to the market(s) comprising the underlyingexposure(s) of the derivative.
The availability and value of any tax reliefs available toshareholders depend on the individual circumstances ofshareholders. The information in the “Taxation” section is notexhaustive and does not constitute legal or tax advice. Investorsare urged to consult their tax advisors with respect to theirparticular tax situations and the tax effects of an investment in theCompany.
Where a Fund invests in a jurisdiction where the tax regime is notfully developed or is not sufficiently certain, for example India andjurisdictions in the Middle East, the relevant Fund, theManagement Company, the Investment Advisers and theDepositary shall not be liable to account to any shareholder for anypayment made or suffered by the Company in good faith to a fiscalauthority for taxes or other charges of the Company or the relevantFund notwithstanding that it is later found that such payments neednot or ought not have been made or suffered. Conversely, wherethrough fundamental uncertainty as to the tax liability, adherence tobest or common market practice (to the extent that there is noestablished best practice) that is subsequently challenged or thelack of a developed mechanism for practical and timely payment oftaxes, the relevant Fund pays taxes relating to previous years, anyrelated interest or late filing penalties will likewise be chargeable tothe Fund. Such late paid taxes will normally be debited to the Fundat the point the decision to accrue the liability in the Fund accountsis made.
Shareholders should note that certain Share Classes may paydividends gross of expenses. This may result in shareholdersreceiving a higher dividend that they would have otherwisereceived and therefore shareholders may suffer a higher incometax liability as a result. In addition, in some circumstances, payingdividends gross of expenses may mean that the Fund paysdividends from capital property as opposed to income property.This is also the case where dividends may include Interest RateDifferentials arising from Share Class currency hedging. Suchdividends may still be considered income distributions in the hands
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of shareholders, depending on the local tax legislation in place,and therefore shareholders may be subject to tax on the dividendat their marginal income tax rate. Shareholders should seek theirown professional tax advice in this regard.
The tax laws and regulations in the PRC may be expected tochange and develop as the PRC’s economy changes anddevelops. Consequently, there may be less authoritative guidanceto assist in planning and less uniform application of the tax lawsand regulations in comparison to more developed markets. Inaddition, any new tax laws and regulations and any newinterpretations may be applied retroactively. The application andenforcement of PRC tax rules could have a significant adverseeffect on the Company and its investors, particularly in relation tocapital gains withholding tax imposed upon non-residents. TheCompany does not currently intend to make any accountingprovisions for these tax uncertainties.
Similarly, the tax regime in India has been subject to developmentand uncertainty. Investors’ attention is particularly drawn to thesection headed “Taxation of the Subsidiary and the India Fund”in Appendix C of this Prospectus.
Shareholders should also read the information set out in thesection headed “FATCA and other cross-border reportingsystems”, particularly in relation to the consequences of theCompany being unable to comply with the terms of suchreporting systems.
Share Class ContagionIt is the Directors’ intention that all gains/losses or expenses arisingin respect of a particular Share Class are borne separately by thatShare Class. Given that there is no segregation of liabilitiesbetween Share Classes, there is a risk that, under certaincircumstances, transactions in relation to one Share Class couldresult in liabilities which might affect the Net Asset Value of theother Share Classes of the same Fund.
Currency Risk – Base CurrencyThe Funds may invest in assets denominated in a currency otherthan the Base Currency of the Funds. Changes in exchange ratesbetween the Base Currency and the currency in which the assetsare denominated and changes in exchange rate controls will causethe value of the asset expressed in the Base Currency to fall orrise. The Funds may utilise techniques and instruments includingderivatives for hedging purposes to control currency risk. Howeverit may not be possible or practical to completely mitigate currencyrisk in respect of a Fund’s portfolio or specific assets within theportfolio. Furthermore, unless otherwise stated in the investmentpolicies of the relevant fund, the Investment Adviser is not obligedto seek to reduce currency risk within the Funds.
Currency Risk – Share Class CurrencyCertain Share Classes of certain Funds may be denominated in acurrency other than the Base Currency of the relevant Fund. Inaddition, the Funds may invest in assets denominated incurrencies other than the Base Currency. Therefore changes inexchange rates and changes in foreign exchange rate controlsmay affect the value of an investment in the Funds.
Currency Risk – Investor’s Own CurrencyAn investor may choose to invest in a Share Class which isdenominated in a currency that is different from the currency inwhich the majority of the investor’s assets and liabilities are
denominated (the “Investor’s Currency”). In this scenario, theinvestor is subject to currency risk in the form of potential capitallosses resulting from movements of the exchange rate betweenthe Investor’s Currency and the currency of the Share Class inwhich such investor invests, in addition to the other currency risksdescribed herein and the other risks associated with an investmentin the relevant Fund.
Hedged Share ClassesWhile a Fund or its authorised agent may attempt to hedgecurrency risks, there can be no guarantee that it will be successfulin doing so and it may result in mismatches between the currencyposition of that Fund and the Hedged Share Class.
The hedging strategies may be entered into whether the BaseCurrency is declining or increasing in value relative to the relevantcurrency of the Hedged Share Class and so, where such hedgingis undertaken it may substantially protect shareholders in therelevant Class against a decrease in the value of the BaseCurrency relative to the Hedged Share Class currency, but it mayalso preclude shareholders from benefiting from an increase in thevalue of the Base Currency.
Hedged Share Classes in non-major currencies may be affectedby the fact that capacity of the relevant currency market may belimited, which could further affect the volatility of the Hedged ShareClass.
Funds may also use hedging strategies which seek to provideexposure to certain currencies (i.e. where a currency is subject tocurrency trading restrictions). These hedging strategies involveconverting the Net Asset Value of the relevant Share Class into therelevant currency using financial derivative instruments (includingcurrency forwards).
All gains/losses or expenses arising from hedging transactions areborne separately by the shareholders of the respective HedgedShare Classes. Given that there is no segregation of liabilitiesbetween Share Classes, there is a risk that, under certaincircumstances, currency hedging transactions in relation to oneShare Class could result in liabilities which might affect the NetAsset Value of the other Share Classes of the same Fund.
Global Financial Market Crisis and Governmental InterventionSince 2007, global financial markets have undergone pervasiveand fundamental disruption and suffered significant instabilitywhich has led to governmental intervention. Regulators in manyjurisdictions have implemented or proposed a number ofemergency regulatory measures. Government and regulatoryinterventions have sometimes been unclear in scope andapplication, resulting in confusion and uncertainty which in itselfhas been detrimental to the efficient functioning of financialmarkets. It is impossible to predict what additional interim orpermanent governmental restrictions may be imposed on themarkets and/or the effect of such restrictions on the InvestmentAdviser’s ability to implement a Fund’s investment objective.
Whether current undertakings by governing bodies of variousjurisdictions or any future undertakings will help stabilise thefinancial markets is unknown. The Investment Advisers cannotpredict how long the financial markets will continue to be affectedby these events and cannot predict the effects of these – or similarevents in the future – on a Fund, the European or global economyand the global securities markets. The Investment Advisers are
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monitoring the situation. Instability in the global financial markets orgovernment intervention may increase the volatility of the Fundsand hence the risk of loss to the value of your investment.
Impact of Natural or Man-Made Disasters and DiseaseEpidemicsCertain regions are at risk of being affected by natural disasters orcatastrophic natural events. Considering that the development ofinfrastructure, disaster management planning agencies, disasterresponse and relief sources, organized public funding for naturalemergencies, and natural disaster early warning technology maybe immature and unbalanced in certain countries, the naturaldisaster toll on an individual portfolio company or the broader localeconomic market may be significant. Prolonged periods may passbefore essential communications, electricity and other powersources are restored and operations of the portfolio company canbe resumed. The Fund’s investments could also be at risk in theevent of such a disaster. The magnitude of future economicrepercussions of natural disasters may also be unknown, maydelay the Fund’s ability to invest in certain companies, and mayultimately prevent any such investment entirely.
Investments may also be negatively affected by man-madedisasters. Publicity of man-made disasters may have a significantnegative impact on overall consumer confidence, which in turnmay materially and adversely affect the performance of the Fund’sinvestments, whether or not such investments are involved in suchman-made disaster.
Outbreaks of infectious diseases may also have a negative impacton the performance of the Funds. For example, an outbreak ofrespiratory disease caused by a novel coronavirus was firstdetected in December 2019 and then spread globally. Thiscoronavirus has resulted in borders closing, restrictions onmovement of people, quarantines, cancellations of transportationand other services, disruptions to supply chains, businesses andcustomer activity, as well as general concern and uncertainty. It ispossible that there may be similar outbreaks of other infectiousdiseases in the future. The impact of this coronavirus, and otherepidemics and pandemics that may arise in the future, could affectthe economies of many nations, individual companies and themarket in general in ways that cannot necessarily be foreseen atthe present time. In addition, the impact of infectious diseases inemerging developing or emerging market countries may be greaterdue to less established health care systems. Health crises causedby the recent coronavirus outbreak may exacerbate other pre-existing political, social and economic risks in certain countries.The impact of the outbreak may be short term or may last for anextended period of time. Such events could increase volatility andthe risk of loss to the value of your investments.
Recent Market EventsPeriods of market volatility may occur in response to various localand/or global political, social and economic events. Theseconditions have resulted in, and in many cases continue to resultin, greater price volatility, less liquidity, widening credit spreads anda lack of price transparency, with many securities remaining illiquidand of uncertain value. Such market conditions may adverselyaffect the Funds, including by making valuation of some of aFund’s securities uncertain and/or result in sudden and significantvaluation increases or declines in the Fund’s holdings. If there is asignificant decline in the value of a Fund’s portfolio, this mayimpact the asset coverage levels for any outstanding leverage theFund may have.
Risks resulting from any future debt or other economic crisis couldalso have a detrimental impact on the global economic recovery,the financial condition of financial institutions and a Fund’sbusiness, financial condition and results of operation. Market andeconomic disruptions have affected, and may in the future affect,consumer confidence levels and spending, personal bankruptcyrates, levels of incurrence and default on consumer debt and homeprices, among other factors. To the extent uncertainty regardingthe U.S. or global economy negatively impacts consumerconfidence and consumer credit factors, a Fund’s business,financial condition and results of operations could be significantlyand adversely affected. Downgrades to the credit ratings of majorbanks could result in increased borrowing costs for such banksand negatively affect the broader economy. Moreover, FederalReserve policy, including with respect to certain interest rates, mayalso adversely affect the value, volatility and liquidity of dividend-and interest-paying securities. Market volatility, rising interest ratesand/or unfavourable economic conditions could impair a Fund’sability to achieve its investment objective(s).
Derivatives(a) General
In accordance with the investment limits and restrictions set out inAppendix A and in the section headed “Investment Objectives andPolicies”, each of the Funds may use derivatives for investmentpurposes and for the purposes of efficient portfolio managementand to hedge market, interest rate and currency risk.
The use of derivatives may expose Funds to a higher degree ofrisk. These risks may include credit risk with regard tocounterparties with whom the Funds trade, the risk of settlementdefault, volatility risk, over-the-counter transaction risk, lack ofliquidity of the derivatives, imperfect tracking between the changein value of the derivative, and the change in value of the underlyingasset that the relevant Fund is seeking to track and greatertransaction costs than investing in the underlying assets directly.Some derivatives are leveraged and therefore may magnify orotherwise increase investment losses to the Funds.
In accordance with standard industry practice when purchasingderivatives, a Fund may be required to secure its obligations to itscounterparty. For non-fully funded derivatives, this may involve theplacing of initial and/or variation margin assets with thecounterparty. For derivatives which require a Fund to place initialmargin assets with a counterparty, such assets may not besegregated from the counterparty’s own assets and, being freelyexchangeable and replaceable, the Fund may have a right to thereturn of equivalent assets rather than the original margin assetsdeposited with the counterparty. These deposits or assets mayexceed the value of the relevant Fund’s obligations to thecounterparty in the event that the counterparty requires excessmargin or collateral. In addition, as the terms of a derivative mayprovide for one counterparty to provide collateral to the othercounterparty to cover the variation margin exposure arising underthe derivative only if a minimum transfer amount is triggered, theFund may have an uncollateralised risk exposure to a counterpartyunder a derivative up to such minimum transfer amount.
Derivative contracts can be highly volatile, and the amount of initialmargin is generally small relative to the size of the contract so thattransactions may be leveraged in terms of market exposure. Arelatively small market movement may have a potentially largerimpact on derivatives than on standard bonds or equities.
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Leveraged derivative positions can therefore increase Fundvolatility. Whilst the Funds will not borrow money to leverage theymay for example take synthetic short positions through derivativesto adjust their exposure, always within the restrictions provided forin Appendix A of this Prospectus. Certain Funds may enter intolong positions executed using derivatives (synthetic long positions)such as futures positions including currency forwards.
Additional risks associated with investing in derivatives mayinclude a counterparty breaching its obligations to providecollateral, or due to operational issues (such as time gaps betweenthe calculation of risk exposure to a counterparty’s provision ofadditional collateral or substitutions of collateral or the sale ofcollateral in the event of a default by a counterparty), there may beinstances where a Fund’s credit exposure to its counterparty undera derivative contract is not fully collateralised but each Fund willcontinue to observe the limits set out in Appendix A. The use ofderivatives may also expose a Fund to legal risk, which is the riskof loss resulting from changing laws or from the unexpectedapplication of a law or regulation, or because a court declares acontract not legally enforceable. Where derivative instruments areused in this manner the overall risk profile of the Fund may beincreased. Accordingly the Company will employ a risk-management process which enables the Management Companyto monitor and measure at any time the risk of the positions andtheir contribution to the overall risk profile of the Fund. TheManagement Company uses one of two methodologies tocalculate each Fund’s global exposure, the “CommitmentApproach” or the “Value at Risk” or “VaR” approach, in both casesensuring each Fund complies with the investment restrictions setout in Appendix A. The methodology used for each Fund will bedetermined by the Management Company based on theinvestment strategy of the relevant Fund. Details about themethodologies used for each Fund are set out in the sectionentitled “Investment Objectives and Policies”.
For more detail regarding the derivative strategies applied byindividual Funds please refer to the individual Fund investmentobjectives in the section headed “Investment Objectives andPolicies” below and the latest risk management programme whichis available on request from the local Investor Servicing team.
(b) Specific
The Funds may use derivatives for investment purposes or for thepurpose of efficient portfolio management in accordance with theirrespective investment objective and policies. In particular this mayinvolve (on a non-exhaustive basis):
E using swap contracts to adjust interest rate risk;
E using currency derivatives to buy or sell currency risk;
E writing covered call options;
E using credit default swaps to buy or sell credit risk;
E using volatility derivatives to adjust volatility risk;
E buying and selling options;
E using swap contracts to gain exposure to one or more indices;
E using synthetic short positions to take advantage of anynegative investment views; and
E using synthetic long positions to gain market exposure.
Investors should note the associated risks with the following typesof derivative instruments and strategies as described below:
Credit Default Swaps, Interest Rate Swaps, Currency Swaps, TotalReturn Swaps, Swaptions and Contracts for Difference
The use of credit default swaps may carry a higher risk thaninvesting in bonds directly. A credit default swap allows the transferof default risk. This allows investors to effectively buy insurance ona bond they hold (hedging the investment) or buy protection on abond they do not physically own where the investment view is thatthe stream of coupon payments required will be less than thepayments received due to the decline in credit quality. Conversely,where the investment view is that the payments due to decline incredit quality will be less than the coupon payments, protection willbe sold by means of entering into a credit default swap.Accordingly, one party, the protection buyer, makes a stream ofpayments to the seller of protection, and a payment is due to thebuyer in the event that there is a “credit event” (a decline in creditquality, which will be pre-defined in the agreement). If the creditevent does not occur the buyer pays all the required premiums andthe swap terminates on maturity with no further payments. The riskof the buyer is therefore limited to the value of the premiums paid.
The market for credit default swaps may sometimes be moreilliquid than bond markets. A Fund entering into credit defaultswaps must at all times be able to meet the redemption requests.Credit default swaps are valued on a regular basis according toverifiable and transparent valuation methods reviewed by theCompany’s auditor.
Interest rate swaps involve an exchange with another party ofrespective commitments to pay or receive interest, such as anexchange of fixed rate payments for floating rate payments.Currency swaps may involve the exchange of rights to make orreceive payments in specified currencies. Total return swapsinvolve the exchange of the right to receive the total return,coupons plus capital gains or losses, of a specified referenceasset, index or basket of assets against the right to make fixed orfloating payments. The Funds may enter into swaps as either thepayer or receiver of payments under such swaps.
Where a Fund enters into interest rate or total return swaps on anet basis, the two payment streams are netted out, with each partyreceiving or paying, as the case may be, only the net amount of thetwo payments. Interest rate or total return swaps entered into on anet basis do not involve the physical delivery of investments, otherunderlying assets or principal. Accordingly, it is intended that therisk of loss with respect to interest rate swaps is limited to the netamount of interest payments that a Fund is contractually obliged tomake (or in the case of total return swaps, the net amount of thedifference between the total rate of return of a referenceinvestment, index or basket of investments and the fixed or floatingpayments). If the other party to an interest rate or total return swapdefaults, in normal circumstances each Fund’s risk of loss consistsof the net amount of interest or total return payments that eachparty is contractually entitled to receive. In contrast, currencyswaps usually involve the delivery of the entire principal value ofone designated currency in exchange for the other designated
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currency. Therefore, the entire principal value of a currency swapis subject to the risk that the other party to the swap will default onits contractual delivery obligations.
Certain Funds may also buy or sell interest rate swaptioncontracts. These give the purchaser the right, but not the obligationto enter into an interest rate swap at a pre-set interest rate within aspecified period of time. The interest rate swaption buyer pays apremium to the seller for this right. A receiver interest rate swaptiongives the purchaser the right to receive fixed payments in return forpaying a floating rate of interest. A payer interest rate swaptionwould give the purchaser the right to pay a fixed rate of interest inreturn for receiving a floating rate payment stream.
Contracts for difference are similar to swaps and may also be usedby certain Funds. A contract for difference (CFD) is an agreementbetween a buyer and a seller stipulating that the seller will pay thebuyer the difference between the current value of a security and itsvalue when the contract is made. If the difference turns out to benegative, the buyer pays the seller.
The use of credit default swaps, interest rate swaps, currencyswaps, total return swaps, interest rate swaptions andcontracts for difference is a specialised activity whichinvolves investment techniques and risks different from thoseassociated with ordinary portfolio securities transactions. Ifthe Investment Adviser is incorrect in its forecasts of marketvalues, interest rates and currency exchange rates, theinvestment performance of the Fund would be less favourablethan it would have been if these investment techniques werenot used.
Volatility Derivatives
“Historic Volatility” of a security is a statistical measure of the speedand magnitude of changes in the price of that security over definedperiods of time. “Implied Volatility” is the market’s expectation offuture realised volatility. Volatility derivatives are derivatives whoseprice depends on Historic Volatility or Implied Volatility or both.Volatility derivatives are based on an underlying security, andFunds may use volatility derivatives to increase or reduce volatilityrisk, in order to express an investment view on the change involatility, based on an assessment of expected developments inunderlying securities markets. For example, if a significant changein the market background is expected, it is likely that the volatility ofthe price of a security will increase as prices adapt to the newcircumstances.
The Funds may only buy or sell volatility derivatives which arebased on an index where:
E the composition of the index is sufficiently diversified;
E the index represents an adequate benchmark for the market towhich it refers; and
E it is published in an appropriate manner.
The price of volatility derivatives may be highly volatile, and maymove in a different way to the other assets of the Fund, whichcould have a significant effect on the Net Asset Value of a Fund’sShares.
Currency Overlay Strategies
In addition to the use of techniques and instruments to controlcurrency risk (see ‘Currency Risk’), certain Funds may invest incurrencies or utilise techniques and instruments in relation tocurrencies other than the Base Currency with the aim of generatingpositive returns. The Investment Adviser utilises specialist currencyoverlay strategies which involves the creation of long positions andsynthetic pair trades in currencies to implement tactical viewsthrough the use of currency derivatives, including forward foreignexchange contracts, currency futures, options, swaps and otherinstruments providing exposure to changes in exchange rates. Themovement in currency exchange rates can be volatile and wherefunds engage substantially in such strategies, there will be asignificant impact on the overall performance of the funds. TheseFunds have the flexibility to invest in any currency in the worldincluding emerging market currencies which may be less liquid andcurrencies that may be affected by the actions of governments andcentral banks including intervention, capital controls, currency pegmechanisms or other measures.
Option Strategies
An option is the right (but not the obligation) to buy or sell aparticular asset or index at a stated price at some date in thefuture. In exchange for the rights conferred by the option, theoption buyer has to pay the option seller a premium for carrying onthe risk that comes with the obligation. The option premiumdepends on the strike price, volatility of the underlying asset, aswell as the time remaining to expiration. Options may be listed ordealt in OTC.
A Fund may enter into option transactions as either the buyer orseller of this right and may combine them to form a particulartrading strategy as well as use options for reducing an existing risk.
If the Investment Adviser or its delegate is incorrect in itsexpectation of changes in the market prices or determination of thecorrelation between the particular assets or indices on which theoptions are written or purchased and the assets in a Fund’sinvestment portfolio, that Fund may incur losses that it would nototherwise incur.
Transfer of Collateral
In order to use derivatives the Funds will enter intoarrangements with counterparties which may require thepayment of collateral or margin out of a Fund’s assets to actas cover to any exposure by the counterparty to the Fund. Ifthe title of any such collateral or margin is transferred to thecounterparty, it becomes an asset of such counterparty andmay be used by the counterparty as part of its business.Collateral so transferred will not be held in custody by theDepositary for safekeeping, but collateral positions will beoverseen and reconciled by the Depositary. Where thecollateral is pledged by the Fund to the benefit of the relevantcounterparty, then such counterparty may not rehypothecatethe assets pledged to it as collateral without the Fund’sconsent.
Securities LendingThe Funds may engage in securities lending. The Funds engagingin securities lending will have a credit risk exposure to thecounterparties to any securities lending contract. Fund investments
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can be lent to counterparties over a period of time. A default by thecounterparty combined with a fall in the value of the collateralbelow that of the value of the securities lent may result in areduction in the value of the Fund. The Company intends to ensurethat all securities lending is fully collateralised but, to the extent thatany securities lending is not fully collateralised (for example due totiming issues arising from payment lags), the Funds will have acredit risk exposure to the counterparties to the securities lendingcontracts.
Risks Relating to Repurchase AgreementsIn the event of the failure of the counterparty with which collateralhas been placed, the Funds may suffer loss as there may bedelays in recovering collateral placed out or the cash originallyreceived may be less than the collateral placed with thecounterparty due to inaccurate pricing of the collateral or marketmovements.
Risks Relating to Reverse Repurchase AgreementsIn the event of the failure of the counterparty with which cash hasbeen placed, the Funds may suffer loss as there may be delay inrecovering cash placed out or difficulty in realising collateral orproceeds from the sale of the collateral may be less than the cashplaced with the counterparty due to inaccurate pricing of thecollateral or market movements.
Counterparty RiskA Fund will be exposed to the credit risk of the parties with which ittransacts and may also bear the risk of settlement default. Creditrisk is the risk that the counterparty to a financial instrument will failto discharge an obligation or commitment that it has entered intowith the relevant Fund. This would include the counterparties toany derivatives, repurchase / reverse repurchase agreement orsecurities lending agreement that it enters into. Trading inderivatives which have not been collateralised gives rise to directcounterparty exposure. The relevant Fund mitigates much of itscredit risk to its derivative counterparties by receiving collateral witha value at least equal to the exposure to each counterparty but, tothe extent that any derivative is not fully collateralised, a default bythe counterparty may result in a reduction in the value of the Fund.A formal review of each new counterparty is completed and allapproved counterparties are monitored and reviewed on anongoing basis. The Fund maintains an active oversight ofcounterparty exposure and the collateral management process.
Counterparty Risk to the DepositaryThe assets of the Company are entrusted to the Depositary forsafekeeping, as set out in further detail in paragraph 11. ofAppendix C. In accordance with the UCITS Directive, insafekeeping the assets of the Company, the Depositary shall: (a)hold in custody all financial instruments that may be registered in afinancial instruments account opened in the Depositary’s booksand all financial instruments that can be physically delivered to theDepositary; and (b) for other assets, verify the ownership of suchassets and maintain a record accordingly. The assets of theCompany should be identified in the Depositary’s books asbelonging to the Company.
Securities held by the Depositary should be segregated from othersecurities / assets of the Depositary in accordance with applicablelaw and regulation which mitigates but does not exclude the risk ofnon-restitution in the case of bankruptcy of the Depositary. Theinvestors are therefore exposed to the risk of the Depositary notbeing able to fully meet its obligation to restitute all of the assets of
the Company in the case of bankruptcy of the Depositary. Inaddition, a Fund’s cash held with the Depositary may not besegregated from the Depositary’s own cash / cash under custodyfor other clients of the Depositary, and a Fund may therefore rankas an unsecured creditor in relation thereto in the case ofbankruptcy of the Depositary.
The Depositary may not keep all the assets of the Company itselfbut may use a network of sub-custodians which are not alwayspart of the same group of companies as the Depositary. Investorsmay be exposed to the risk of bankruptcy of the sub-custodians incircumstances where the Depositary may have no liability.
A Fund may invest in markets where custodial and/or settlementsystems are not fully developed. The assets of the Fund that aretraded in such markets and which have been entrusted to suchsub-custodians may be exposed to risk in circumstances wherethe Depositary may have no liability.
Fund Liability RiskThe Company is structured as an umbrella fund with segregatedliability between its Funds. As a matter of Luxembourg law, theassets of one Fund will not be available to meet the liabilities ofanother. However, the Company is a single legal entity that mayoperate or have assets held on its behalf or be subject to claims inother jurisdictions that may not necessarily recognise suchsegregation of liability. As at the date of this Prospectus, theDirectors are not aware of any such existing or contingent liability.
Market LeverageThe Funds will not use borrowing to purchase additionalinvestments but may be expected, via derivative positions, toobtain market leverage (gross market exposure, aggregating bothlong and synthetic short positions, in excess of net asset value).The Investment Adviser will seek to make absolute returns fromrelative value decisions between markets (“this market will dobetter than that market”), as well as from directional views on theabsolute return of markets (“this market is going to go up ordown”). The extent of market leverage is likely to depend on thedegree of correlation between positions. The higher the degree ofcorrelation, the greater is the likelihood and probable extent ofmarket leverage.
Repurchase and Reverse Repurchase AgreementsUnder a repurchase agreement a Fund sells a security to acounterparty and simultaneously agrees to repurchase the securityback from the counterparty at an agreed price and date. Thedifference between the sale price and the repurchase priceestablishes the cost of the transaction. The resale price generallyexceeds the purchase price by an amount which reflects anagreed-upon market interest rate for the term of the agreement. Ina reverse repurchase agreement a Fund purchases an investmentfrom a counterparty which undertakes to repurchase the security atan agreed resale price on an agreed future date. The Fundtherefore bears the risk that if the seller defaults the Fund mightsuffer a loss to the extent that proceeds from the sale of theunderlying securities together with any other collateral held by theFund in connection with the relevant agreement may be less thanthe repurchase price because of market movements. A Fundcannot sell the securities which are the subject of a reverserepurchase agreement until the term of the agreement has expiredor the counterparty has exercised its right to repurchase thesecurities.
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MiFID IILaws and regulations introduced by Member States of the EU toimplement the EU’s second Markets in Financial InstrumentsDirective (“MiFID II”) and the EU’s Markets in Financial InstrumentsRegulation (“MiFIR”), which came into force on 3 January 2018and will impose new regulatory obligations and costs on theManagement Company and the Investment Advisers. The impactof MiFID II on the EU financial markets and on EU investment firmswhich offer financial services to clients is expected to be significant.The exact impact of MiFID II on the Funds, the ManagementCompany and Investment Advisers remains unclear and will taketime to quantify.
In particular, MiFID II and MiFIR will require certain standardisedOTC derivatives to be executed on regulated trading venues. It isunclear how the OTC derivatives markets will adapt to these newregulatory regimes and how this will impact on the Funds.
In addition, MiFID II introduces wider transparency regimes inrespect of trading on EU trading venues and with EUcounterparties. Under MiFID II, pre- and post-trade transparencyregimes are extended from equities traded on a regulated marketto also cover equity-like instruments (such as Depositary Receipts,Exchange-Traded Funds and certificates that are traded onregulated trading venues) and non-equities such as bonds,structured finance products, emission allowances and derivatives.The increased transparency regime under MiFID II, together withthe restrictions on the use of “dark pools” and other trading venues,may mean greater disclosure of information relating to pricediscovery becoming available and may have an adverse impact ontrading costs.
Cybersecurity RiskA Fund or any of the service providers, including the ManagementCompany and the Investment Advisers, may be subject to risksresulting from cybersecurity incidents and/or technologicalmalfunctions. A cybersecurity incident is an event that may cause aloss of proprietary information, data corruption or a loss ofoperational capacity. Cybersecurity incidents can result fromdeliberate cyber attacks or unintentional events. Cyber attacksinclude, but are not limited to, gaining unauthorised access todigital systems (e.g. through hacking or malicious software coding)for the purposes of misappropriating assets or sensitiveinformation, corrupting data, releasing confidential informationwithout authorisation or causing operational disruption. Cyberattacks may also be carried out in a manner that does not requiregaining unauthorised access, such as causing denial-of-serviceattacks on websites, which may make network servicesunavailable to intended users. The issuers of securities andcounterparties to other financial instruments in which a Fundinvests may also be subject to cybersecurity incidents.
Cybersecurity incidents may cause a Fund to suffer financiallosses, interfere with a Fund’s ability to calculate its net assetvalue, impede trading, disrupt the ability of investors to subscribefor, exchange or redeem their units, violate privacy and other lawsand incur regulatory fines, penalties, reputational damage,reimbursement or other compensation costs, or additionalcompliance costs. Cyber-attacks may render records of assets andtransactions of a Fund, unitholder ownership of units, and otherdata integral to the functioning of a Fund inaccessible, inaccurateor incomplete. In addition, substantial costs may be incurred inorder to prevent any cybersecurity incidents in the future whichmay adversely impact a Fund.
While the Management Company and the Investment Advisershave established business continuity plans and risk managementstrategies to seek to prevent cybersecurity incidents, there areinherent limitations in such plans and strategies, including thepossibility that certain risks have not been identified given theevolving nature of the threat of cyber-attacks.
Furthermore, none of the Funds, the Management Company or theInvestment Advisers can control the business continuity plans orcybersecurity strategies put in place by other service providers to aFund or issuers of securities and counterparties to other financialinstruments in which a Fund invests. The Investment Advisers relyon its third party service providers for many of their day-to-dayoperations and will be subject to the risk that the protections andpolicies implemented by those service providers will be ineffectiveto protect the Investment Advisers or a Fund from cyber-attack.
BlackRock is committed to an effective information securityprogramme (focused on confidentiality, integrity and availabilityprotections) and considers this of paramount importance tomaintaining client trust and an essential cornerstone of itsoperations. BlackRock’s Information Security group is focused onproviding effective protection for BlackRock's information andtechnology systems. BlackRock’s Information Security group hasactive partnerships with business lines, and technology anddevelopment groups. All BlackRock personnel are responsible formaintaining information security. BlackRock’s Information Securityprogram applies best practices from the ISO 27001/27002:2013controls framework and the NIST Cybersecurity Framework (“NISTCSF”) to prioritise technology defences.
Tax RiskThe Company (or its representative) may file claims on behalf ofthe Funds to recover withholding tax on dividend and interestincome (if any) received from issuers in certain countries wheresuch withholding tax reclaim is possible. Whether or when a Fundwill receive a withholding tax refund in the future is within thecontrol of the tax authorities in such countries. Where theCompany expects to recover withholding tax for a Fund based on acontinuous assessment of probability of recovery, the Net AssetValue of that Fund generally includes accruals for such taxrefunds. The Company continues to evaluate tax developments forpotential impact to the probability of recovery for such Funds. If thelikelihood of receiving refunds materially decreases, for exampledue to a change in tax regulation or approach, accruals in therelevant Fund’s net asset value for such refunds may need to bewritten down partially or in full, which will adversely affect thatFund’s Net Asset Value. Investors in that Fund at the time anaccrual is written down will bear the impact of any resultingreduction in Net Asset Value regardless of whether they wereinvestors during the accrual period. Conversely, if the Fundreceives a tax refund that has not been previously accrued,investors in the Fund at the time the claim is successful will benefitfrom any resulting increase in the Fund’s Net Asset Value.Investors who sold their Shares prior to such time will not benefitfrom such net asset value increase.
LIBOR and Other Reference RatesCertain of the Funds’ investments, benchmarks and paymentobligations may be based on floating rates, such as the LondonInterbank Offered Rate (“LIBOR”), European Interbank Offer Rate(“EURIBOR”), Sterling Overnight Interbank Average Rate(“SONIA”), and other similar types of reference rates (“ReferenceRates”). The elimination of a Reference Rate or any other changes
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or reforms to the determination or supervision of Reference Ratescould have an adverse impact on the market for, or value of, anysecurities or payments linked to those Reference Rates. Inaddition, any substitute Reference Rate and any pricingadjustments imposed by a regulator or by counterparties orotherwise may adversely affect the Fund’s performance and/or netasset value.
There remains uncertainty regarding the future utilization of LIBORand the nature of any replacement Reference Rate. As such, thepotential effect of a transition away from LIBOR on the Fund or thefinancial instruments in which the Fund may invest cannot yet bedetermined.
In 2017, the Alternative Reference Rates Committee, a group oflarge U.S. banks working with the Federal Reserve, announced itsselection of the Secured Overnight Financing Rate (“SOFR”),which is intended to be a broad measure of secured overnight U.S.Treasury repo rates, as an appropriate replacement for LIBOR.The Federal Reserve Bank of New York began publishing theSOFR in 2018, with the expectation that it could be used on avoluntary basis in new instruments and transactions.
Bank working groups and regulators in other countriesjurisdictions have suggested other alternatives for theirmarkets, including the SONIA in the United Kingdom inaddition to the changes outlined above.
Sustainability RiskSustainability risk is an inclusive term to designate investment risk(probability or uncertainty of occurrence of material losses relativeto the expected return of an investment) that relates toenvironmental, social or governance issues.
Sustainability risk around environmental issues includes, but is notlimited to, climate risk, both physical and transition risk. Physicalrisk arises from t
