0001193125-21-290666.txt : 20211004 0001193125-21-290666.hdr.sgml : 20211004 20211004121615 ACCESSION NUMBER: 0001193125-21-290666 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20210731 FILED AS OF DATE: 20211004 DATE AS OF CHANGE: 20211004 EFFECTIVENESS DATE: 20211004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK MUNIYIELD PENNSYLVANIA QUALITY FUND CENTRAL INDEX KEY: 0000891038 IRS NUMBER: 223199516 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07136 FILM NUMBER: 211301603 BUSINESS ADDRESS: STREET 1: 100 BELLEVUE PARKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 800-441-7762 MAIL ADDRESS: STREET 1: 100 BELLEVUE PARKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 FORMER COMPANY: FORMER CONFORMED NAME: BLACKROCK MUNIYIELD PENNSYLVANIA INSURED FUND DATE OF NAME CHANGE: 20080620 FORMER COMPANY: FORMER CONFORMED NAME: BLACKROCK MUNIYIELD INSURED PENNSYLVANIA FUND DATE OF NAME CHANGE: 20070803 FORMER COMPANY: FORMER CONFORMED NAME: BLACKROCK MUNIYIELD PENNSYLVANIA FUND DATE OF NAME CHANGE: 20070611 N-CSR 1 d206286dncsr.htm BLACKROCK MUNIYIELD PENNSYLVANIA QUALITY FUND BLACKROCK MUNIYIELD PENNSYLVANIA QUALITY FUND

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-07136

 

Name of Fund:   BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

Fund Address:   100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer,
BlackRock MuniYield Pennsylvania Quality Fund, 55 East 52nd Street, New York, NY 10055

Registrant’s telephone number, including area code: (800) 882-0052, Option 4

Date of fiscal year end: 07/31/2021

Date of reporting period: 07/31/2021


Item 1 – Report to Stockholders

(a) The Report to Shareholders is attached herewith.

 


 

LOGO   JULY 31, 2021

 

  

2021 Annual Report

 

 

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

 

 

Not FDIC Insured • May Lose Value • No Bank Guarantee


The Markets in Review

Dear Shareholder,

The 12-month reporting period as of July 31, 2021 was a remarkable period of adaptation and recovery, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. The United States, along with most of the world, began the reporting period emerging from a severe recession, prompted by pandemic-related restrictions that disrupted many aspects of daily life. However, easing restrictions and robust government intervention led to a strong rebound, and the economy grew at a significant pace for the reporting period, eventually regaining the output lost from the pandemic.

Equity prices rose with the broader economy, as strong fiscal and monetary support, as well as the development of vaccines, made investors increasingly optimistic about the economic outlook. The implementation of mass vaccination campaigns and passage of two additional fiscal stimulus packages further boosted stocks, and many equity indices neared or surpassed all-time highs late in the reporting period. In the United States, returns of small-capitalization stocks, which benefited the most from the resumption of in-person activities, outpaced large-capitalization stocks. International equities also gained, as both developed and emerging markets rebounded substantially.

The 10-year U.S. Treasury yield (which is inversely related to bond prices) had fallen sharply prior to the beginning of the reporting period, which meant bonds were priced for extreme risk avoidance and economic disruption. Despite expectations of doom and gloom, the economy expanded rapidly, stoking inflation concerns in early 2021, which led to higher yields and 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 concerns and led to solid returns for high-yield corporate bonds, although investment-grade corporates declined slightly.

The Fed remained committed to accommodative monetary policy by maintaining near zero interest rates and by reiterating that inflation could exceed its 2% target for a sustained period without triggering a rate increase. In response to rising inflation late in the period, the Fed changed its market guidance, raising the likelihood of less bond purchasing and the possibility of higher rates in 2023.

Looking ahead, we believe that the global expansion will continue to broaden as Europe and other developed market economies gain momentum, although the Delta variant remains a threat, particularly in emerging markets. While we expect inflation to remain elevated in the medium-term as the expansion continues, we believe the recent uptick owes more to temporary supply disruptions than a lasting change in fundamentals. The change in Fed policy also means that moderate inflation is less likely to be followed by interest rate hikes that could threaten the economic expansion.

Overall, we favor a moderately positive stance toward risk, with an overweight in equities. Sectors that are better poised to manage the transition to a lower-carbon world, such as technology and healthcare, are particularly attractive in the long-term. U.S. small-capitalization stocks and European equities are likely to benefit from the continuing vaccine-led restart. We are underweight long-term credit, but inflation-protected U.S. Treasuries, Asian fixed income, and Chinese government bonds offer potential opportunities. We believe that international diversification and a focus on sustainability can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments.

In this environment, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of July 31, 2021
     6-Month    12-Month

U.S. large cap equities
(S&P 500® Index)

  19.19%   36.45%

U.S. small cap equities
(Russell 2000® Index)

  7.86   51.97  

International equities
(MSCI Europe, Australasia, Far East Index)

  10.83     30.31  

Emerging market equities
(MSCI Emerging Markets Index)

  (2.76)   20.64  

3-month Treasury bills
(ICE BofA 3-Month U.S. Treasury Bill Index)

  0.02   0.08

U.S. Treasury securities
(ICE BofA 10-Year U.S. Treasury Index)

  (0.59)   (5.12)

U.S. investment grade bonds
(Bloomberg Barclays U.S. Aggregate Bond Index)

  0.21   (0.70)

Tax-exempt municipal bonds
(S&P Municipal Bond Index)

  1.38   3.47

U.S. high yield bonds
(Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index)

  3.66   10.62  
Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
 

 

 

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Table of Contents

 

     

Page

 

 

The Markets in Review

     2  

Annual Report:

  

Municipal Market Overview

     4  

The Benefits and Risks of Leveraging

     5  

Derivative Financial Instruments

     5  

Fund Summary

     6  

Financial Statements:

  

Schedules of Investments

     18  

Statements of Assets and Liabilities

     39  

Statements of Operations

     40  

Statements of Changes in Net Assets

     41  

Statements of Cash Flows

     43  

Financial Highlights

     44  

Notes to Financial Statements

     48  

Report of Independent Registered Public Accounting Firm

     59  

Disclosure of Investment Advisory Agreements

     60  

Investment Objectives, Policies and Risks

     64  

Automatic Dividend Reinvestment Plan

     74  

Director and Officer Information

     75  

Additional Information

     79  

Glossary of Terms Used in this Report

     83  

 

 

  3


Municipal Market Overview  For the Reporting Period Ended July 31, 2021

 

Municipal Market Conditions

Municipal bonds posted positive total returns during the period despite rising interest rates as the economy normalized from the pandemic-induced economic shutdown. The asset class benefited from favorable supply and demand dynamics and improved credit fundamentals amid considerable fiscal stimulus and a quicker-than-expected rebound in state and local government revenues. As a result, municipal bonds generated substantial excess returns versus duration-matched U.S. Treasuries, and longer duration and lower credit quality strategies outperformed. Despite broad strength, the market contended with brief periods of volatility surrounding U.S. election uncertainty as well as a temporary valuation-based market correction in late February.

 

Technical support was strong throughout the period as robust demand outpaced supply. During the 12 months ended July 31, 2021, municipal bond funds experienced net inflows totaling $98 billion, with January 2021 producing the largest monthly net inflow on record (based on data from the Investment Company Institute). For the same period, the market absorbed $471 billion in issuance, notably elevated compared to the $450 billion issued during the prior       

 

S&P Municipal Bond Index

    Total Returns as of July 31, 2021        

      6 months: 1.38%

    12 months: 3.47%

12-month period. However, taxable municipal issuance, which typically draws a different and
unique buyer base, was proportionally elevated, making supply less onerous on the
traditional tax-exempt market.

A Closer Look at Yields

 

 

LOGO  

 

  

  

From July 31, 2020 to July 31, 2021, yields on AAA-rated 30-year municipal bonds increased by 2 basis points (“bps”) from 1.37% to 1.39%, while ten-year rates increased by 17 bps from 0.65% to 0.82% and five-year rates increased by 13 bps from 0.23% to 0.36% (as measured by Thomson Municipal Market Data). As a result, the municipal yield curve steepened over the 12-month period with the spread between two- and 30-year maturities steepening by 9 bps, led by 24 bps of steepening between two- and ten-year maturities.

 

Consistent municipal outperformance has resulted in stretched valuations. After dislocating at the height of the pandemic, municipal-to-U.S. Treasury ratios posted all-time lows in February 2021 and remained well below historical averages.

Financial Conditions of Municipal Issuers

The COVID-19 pandemic has been an unprecedented shock to the system impacting nearly every sector in the municipal market. Fortunately, most states and municipalities were in excellent fiscal health before the crisis, and the federal government delivered another $350 billion injection. Direct state and local government aid has provided additional support to own-source government tax receipts, which continue to outperform the dire predictions made in early 2020. Essential public services such as power, water, and sewer remain protected segments. State housing authority bonds, flagship universities, and strong national and regional health systems have absorbed the impact of the economic shock. While some segments still confront financial pressures, the combination of new federal stimulus and vaccine distribution is boosting economic activity and, consequently, increasing revenue receipts in these sectors as well. Critical providers (safety net hospitals, mass transit systems, airports) with limited resources may still experience fiscal strain but the additional aid and the re-opening of the economy will continue to support operating results in the second half of 2021, despite the surging delta variant of the coronavirus. BlackRock anticipates that a small subset of the market, mainly non-rated stand-alone projects, will remain susceptible to credit deterioration. However, the risk of new mandated lockdowns is significantly diminished, and we expect limited impact on the high fundamental quality of state and local governments as well as essential service providers. While credit fundamentals have improved noticeably across the municipal space, BlackRock advocates careful credit selection as the market must still navigate near-term uncertainty.

The opinions expressed are those of BlackRock as of July 31, 2021 and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. Investing involves risk including loss of principal. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to Alternative Minimum Tax (“AMT”). Capital gains distributions, if any, are taxable.

The S&P Municipal Bond Index, a broad, market value-weighted index, seeks to measure the performance of the U.S. municipal bond market. All bonds in the index are exempt from U.S. federal income taxes or subject to the AMT. Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index.

 

 

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The Benefits and Risks of Leveraging

 

The Funds may utilize leverage to seek to enhance the distribution rate on, and net asset value (“NAV”) of, their common shares (“Common Shares”). However, there is no guarantee that these objectives can be achieved in all interest rate environments.

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 income earned by a 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 assets obtained 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 (after paying the leverage costs) is paid to shareholders in the form of dividends, and the value of these portfolio holdings (less the leverage liability) is reflected in the per share NAV.

To illustrate these concepts, assume a Fund’s Common Shares capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, a Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by a Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, a Fund’s financing cost of leverage is significantly lower than the income earned on a Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit Common Shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed a Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if a Fund had not used leverage. Furthermore, the value of the Funds’ portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the amount of each Fund’s obligations under its respective leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Funds’ NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that a Fund’s intended leveraging strategy will be successful.

The use of leverage also generally causes greater changes in each Fund’s NAV, market price and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of a Fund’s Common Shares than if the Fund were not leveraged. In addition, each Fund may be required to sell portfolio securities at inopportune 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 leverage instruments, which may cause the Fund 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 hedging strategies. Each Fund incurs expenses in connection with the use of leverage, all of which are borne by Common Shareholders and may reduce income to the Common Shares. Moreover, to the extent the calculation of each Fund’s investment advisory fees includes assets purchased with the proceeds of leverage, the investment advisory fees payable to the Funds’ investment adviser will be higher than if the Funds did not use leverage.

To obtain leverage, each Fund has issued Variable Rate Demand Preferred Shares (“VRDP Shares”) or Variable Rate Muni Term Preferred Shares (“VMTP Shares”) (collectively, “Preferred Shares”) and/or leveraged its assets through the use of tender option bond trusts (“TOB Trusts”) as described in the Notes to Financial Statements.

Under the Investment Company Act of 1940, as amended (the “1940 Act”), each Fund is permitted to issue debt up to 33 1/3% of its total managed assets or equity securities (e.g., Preferred Shares) up to 50% of its total managed assets. A Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act. In addition, a Fund may also be subject to certain asset coverage, leverage or portfolio composition requirements imposed by the Preferred Shares’ governing instruments or by agencies rating the Preferred Shares, which may be more stringent than those imposed by the 1940 Act.

If a Fund segregates or designates on its books and records cash or liquid assets having a value not less than the value of a Fund’s obligations under the TOB Trust (including accrued interest), then the TOB Trust is not considered a senior security and is not subject to the foregoing limitations and requirements imposed by the 1940 Act.

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 assets without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation 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 be assured. 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 investment and/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.

 

 

T H E   B E N E F I T S   A N D   R I S K S   O F   L E V E R A G I N G   /   D E R I V A T I V E   F I N A N C I A L   I N S T R U M E N T S

  5


Fund Summary  as of July 31, 2021    BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

Investment Objective

BlackRock MuniHoldings California Quality Fund, Inc.’s (MUC) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income taxes and California personal income taxes. The Fund seeks to achieve its investment objective by investing primarily in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and California personal income taxes. Under normal market conditions, the Fund invests at least 80% of its assets in investment grade municipal obligations with remaining maturities of one year or more at the time of investment. The municipal obligations in which the Fund primarily invests are either rated investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on New York Stock Exchange

  MUC

Initial Offering Date

    February 27, 1998  

Yield on Closing Market Price as of July 31, 2021 ($16.09)(a)

  4.10%

Tax Equivalent Yield(b)

  8.93%

Current Monthly Distribution per Common Share(c)

  $0.0550

Current Annualized Distribution per Common Share(c)

  $0.6600

Leverage as of July 31, 2021(d)

  38%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance is not an indication of future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 54.1%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VMTP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VMTP Shares and TOB Trusts, minus the sum of its accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/21      07/31/20      Change        High      Low  

Closing Market Price

  $ 16.09      $ 14.67        9.68      $   16.22        $   13.89  

Net Asset Value

    16.16        15.95        1.32        16.24        15.50  

TOTAL RETURN BASED ON A $10,000 INVESTMENT

 

LOGO

 

(a) 

Represents the Fund’s closing market price on the NYSE and reflects the reinvestment of dividends and/or distributions at actual reinvestment prices.

(b) 

A broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market.

 

 

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Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

Performance Summary for the Period Ended July 31, 2021

Returns for the period ended July 31, 2021 were as follows:

 

    Average Annual Total Returns  
     1 Year      5 Years      10 Years  

Fund at NAV(a)(b)

    5.78      4.14      6.60

Fund at Market Price(a)(b)

    14.52        4.34        7.42  

Lipper California Municipal Debt Funds at NAV(c)

    5.82        4.23        7.01  

Lipper California Municipal Debt Funds at Market Price(c)

    11.62        3.53        7.64  

S&P® Municipal Bond Index

    3.47        3.34        4.29  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices. Performance results reflect the Fund’s use of leverage.

 
  (b) 

The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is not an indication of future results.

More information about the Fund’s historical performance can be found in the “Closed End Funds” section of blackrock.com.

The following discussion relates to the Fund’s absolute performance based on NAV:

Despite rising yields (and falling prices) for U.S. Treasuries, municipal bonds produced healthy gains in the past 12 months. Tax-exempt bonds continued to rally off of their pandemic-driven lows due to the release of multiple coronavirus vaccines, better-than-expected growth, improving municipal finances and robust investor demand. The prospect of substantial fiscal stimulus and higher taxes were additional tailwinds for the market. These factors led to a decline in yield spreads versus U.S. Treasuries, fueling positive returns for municipal debt.

Following the outbreak of the pandemic in early 2020, the consensus expectation was that state and local issuers in California would be challenged by a sizable decline in revenues. Instead, the state’s credit rating stabilized at a strong AA level, reflecting its diversified economy, rising property values and strong performance for the equity market. The outward migration of residents and businesses looking to flee the state’s higher taxes did not result in credit deterioration. Instead, many wealthy residents looked to reduce their tax burdens by purchasing tax-exempt California municipal bonds of all credit qualities. The resulting record inflows into municipal bond funds created a dramatic imbalance in demand relative to the available supply of securities. In this favorable environment, yields declined (as prices rose) and yield spreads tightened significantly.

Positions in bonds with maturities of 20 years and above benefited performance, as longer-term debt outpaced short-term issues. The Fund was also helped by its positions in high yield and BBB rated securities, particularly its holdings in the tobacco sector and Puerto Rico sales tax debt.

The Fund’s use of leverage, which augmented income and amplified the effect of rising prices, was a further contributor. The Fund actively sought to manage interest rate risk using U.S. Treasury futures. Since Treasury yields rose, as prices fell, this strategy contributed to results.

Reinvestment risk remained a headwind since the proceeds from bonds that matured or were called needed to be reinvested at lower yields compared with bonds that were issued when yields were higher.

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.

 

 

F U N D   S U M M A R Y

  7


Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

Overview of the Fund’s Total Investments

 

SECTOR ALLOCATION

 

Sector(a)(b)   07/31/21     07/31/20  

County/City/Special District/School District

    38     36

Health

    19       18  

Transportation

    13       14  

Education

    9       9  

Utilities

    8       11  

Tobacco

    5       5  

Housing

    4       2  

State

    4       5  

Corporate

    (c)      (c) 

CALL/MATURITY SCHEDULE

 

Calendar Year Ended December 31,(a)(d)   Percentage  

2021

    2

2022

    2  

2023

    3  

2024

    3  

2025

    3  

CREDIT QUALITY ALLOCATION

 

Credit Rating(a)(e)   07/31/21     07/31/20  

AAA/Aaa

    14     14

AA/Aa

    54       56  

A

    17       18  

BBB/Baa

    3       2  

BB/Ba

    1       1  

B

    (c)      (c) 

N/R(f)

    11       9  
 

 

(a) 

Excludes short-term securities.

(b) 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

(c) 

Rounds to less than 1% of total investments.

(d) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

(e) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service, Inc. 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 are credit 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 are subject to change.

(f) 

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 and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2021 and July 31, 2020, the market value of unrated securities deemed by the investment adviser to be investment grade each represents less than 1% of the Fund’s total investments.

 

 

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Fund Summary  as of July 31, 2021    BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

Investment Objective

BlackRock MuniHoldings New Jersey Quality Fund, Inc.’s (MUJ) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income tax and New Jersey personal income taxes. The Fund seeks to achieve its investment objective by investing primarily in long-term, investment grade municipal obligations exempt from U.S federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and New Jersey personal income taxes. The municipal obligations in which the Fund primarily invests are either rated investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. Under normal market conditions, the Fund invests at least 80% of its assets in municipal obligations with remaining maturities of one year or more at the time of investment. The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on New York Stock Exchange

  MUJ

Initial Offering Date

    March 11, 1998  

Yield on Closing Market Price as of July 31, 2021 ($15.63)(a)

  4.84%

Tax Equivalent Yield(b)

  9.99%

Current Monthly Distribution per Common Share(c)

  $0.0630

Current Annualized Distribution per Common Share(c)

  $0.7560

Leverage as of July 31, 2021(d)

  38%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance is not an indication of future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 51.55%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of its accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/21      07/31/20      Change      High      Low  

Closing Market Price

  $ 15.63      $ 14.21        9.99      $   16.06        $   13.52  

Net Asset Value

    16.29        15.83        2.91        16.37        15.50  

TOTAL RETURN BASED ON A $10,000 INVESTMENT

 

LOGO

 

(a) 

Represents the Fund’s closing market price on the NYSE and reflects the reinvestment of dividends and/or distributions at actual reinvestment prices.

(b) 

A broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market.

 

 

F U N D   S U M M A R Y

  9


Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

Performance Summary for the Period Ended July 31, 2021

Returns for the period ended July 31, 2021 were as follows:

 

    Average Annual Total Returns  
     1 Year      5 Years      10 Years  

Fund at NAV(a)(b)

    8.22      4.86      6.76

Fund at Market Price(a)(b)

    15.67        4.54        7.06  

Lipper New Jersey Municipal Debt Funds at NAV(c)

    7.75        4.58        6.50  

Lipper New Jersey Municipal Debt Funds at Market Price(c)

    16.76        4.44        7.33  

S&P® Municipal Bond Index

    3.47        3.34        4.29  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices. Performance results reflect the Fund’s use of leverage.

 
  (b) 

The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is not an indication of future results.

More information about the Fund’s historical performance can be found in the “Closed End Funds” section of blackrock.com.

The following discussion relates to the Fund’s absolute performance based on NAV:

Despite rising yields (and falling prices) for U.S. Treasuries, municipal bonds produced healthy gains in the past 12 months. Tax-exempt bonds continued to rally off of their pandemic-driven lows due to the release of multiple coronavirus vaccines, better-than-expected growth, improving municipal finances and robust investor demand. The prospect of substantial fiscal stimulus and higher taxes were additional tailwinds for the market. These factors led to a decline in yield spreads versus U.S. Treasuries, fueling positive returns for municipal debt.

New Jersey outperformed the broader national market in the period, as fundamentals strengthened due in large part to the American Rescue Plan and the fact that revenues came in higher than originally projected in the early days of the pandemic. The state recently announced an estimated $10 billion surplus at fiscal year-end 2021 (June 30) due to $4 billion in better-than-expected state tax collections and an allocation of $6 billion in aid from the federal American Rescue Plan.

Holdings in the state tax-backed sector made the largest contribution to performance, led by Puerto Rico. Revenue sectors, including transportation, also experienced meaningful price appreciation.

Positions in lower-rated issues, especially in the BBB category, outpaced higher-rated securities. Longer-dated securities—particularly those with maturities of 20 years and above—delivered strong returns, as well.

The Fund’s use of leverage, which augmented income and amplified the effect of rising prices, was a further contributor. The Fund actively sought to manage interest rate risk using U.S. Treasury futures. Since Treasury yields rose, as prices fell, this strategy contributed to results.

Reinvestment risk remained a headwind since the proceeds from bonds that matured or were called needed to be reinvested at lower yields compared to those issued when yields were higher.

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.

 

 

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Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

Overview of the Fund’s Total Investments

 

SECTOR ALLOCATION

 

Sector(a)(b)   07/31/21     07/31/20  

State

    28     19

Transportation

    27       29  

Education

    15       15  

County/City/Special District/School District

    10       12  

Health

    6       9  

Utilities

    5       8  

Housing

    4       4  

Tobacco

    4       3  

Corporate

    1       1  

CALL/MATURITY SCHEDULE

 

Calendar Year Ended December 31,(a)(c)   Percentage  

2021

    2

2022

    2  

2023

    8  

2024

    8  

2025

    4  

CREDIT QUALITY ALLOCATION

 

Credit Rating(a)(d)   07/31/21     07/31/20  

AAA/Aaa

    5     6

AA/Aa

    36       37  

A

    22       18  

BBB/Baa

    31       30  

BB/Ba

    3       3  

B

    (e)       

N/R(f)

    3       6  
 

 

(a) 

Excludes short-term securities.

(b) 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

(c) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

(d) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service, Inc. 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 are credit 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 are subject to change.

(e) 

Rounds to less than 1% of total investments.

(f) 

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 and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2021 and July 31, 2020, the market value of unrated securities deemed by the investment adviser to be investment grade each represents less than 1% of the Fund’s total investments.

 

 

F U N D   S U M M A R Y

  11


Fund Summary  as of July 31, 2021    BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

Investment Objective

BlackRock MuniYield Michigan Quality Fund, Inc.’s (MIY) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Michigan income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and Michigan income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on New York Stock Exchange

  MIY

Initial Offering Date

    October 30, 1992  

Yield on Closing Market Price as of July 31, 2021 ($15.80)(a)

  4.25%

Tax Equivalent Yield(b)

  7.73%

Current Monthly Distribution per Common Share(c)

  $0.0560

Current Annualized Distribution per Common Share(c)

  $0.6720

Leverage as of July 31, 2021(d)

  37%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance is not an indication of future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 45.05%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of its accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/21      07/31/20      Change      High      Low  

Closing Market Price

  $ 15.80      $ 14.24        10.96      $   15.80        $   13.53  

Net Asset Value

    16.04        15.88        1.01        16.16        15.52  

TOTAL RETURN BASED ON A $10,000 INVESTMENT

 

LOGO

 

(a) 

Represents the Fund’s closing market price on the NYSE and reflects the reinvestment of dividends and/or distributions at actual reinvestment prices.

(b) 

A broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market.

 

 

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Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

Performance Summary for the Period Ended July 31, 2021

Returns for the period ended July 31, 2021 were as follows:

 

    Average Annual Total Returns  
     1 Year      5 Years      10 Years  

Fund at NAV(a)(b)

    5.61      4.52      6.63

Fund at Market Price(a)(b)

    16.02        5.50        7.42  

Lipper Other States Municipal Debt Funds at NAV(c)

    5.78        3.85        5.53  

Lipper Other States Municipal Debt Funds at Market Price(c)

    13.91        3.85        6.44  

S&P® Municipal Bond Index

    3.47        3.34        4.29  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices. Performance results reflect the Fund’s use of leverage.

 
  (b) 

The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is not an indication of future results.

More information about the Fund’s historical performance can be found in the “Closed End Funds” section of blackrock.com.

The following discussion relates to the Fund’s absolute performance based on NAV:

Despite rising yields (and falling prices) for U.S. Treasuries, municipal bonds produced healthy gains in the past 12 months. Tax-exempt bonds continued to rally off of their pandemic-driven lows due to the release of multiple coronavirus vaccines, better-than-expected growth, improving municipal finances and robust investor demand. The prospect of substantial fiscal stimulus and higher taxes were additional tailwinds for the market. These factors led to a decline in yield spreads versus U.S. Treasuries, fueling positive returns for municipal debt.

Michigan’s economy has improved and diversified since the recession of the late 2000s, albeit with continued dependance on the auto industry. While COVID-19 disrupted economic progress, Michigan’s unemployment rate has since improved, and net migration has stayed positive. The state’s rainy-day fund, after declining due to the revenue shortfall caused by the pandemic, has recovered and is projected to recapture its pre-coronavirus levels in the 2021 fiscal year.

The Fund’s positions in sectors that were most affected by COVID-19 in early 2020—including education and health care—contributed strongly to performance as yield spreads narrowed considerably. Within the state tax-backed segment, Puerto Rico sales tax securities performed particularly well. The Fund’s holdings in lower-rated bonds also aided performance amid investors’ ongoing search for yield.

The Fund’s use of leverage, which augmented income and amplified the effect of rising prices, was a further contributor. Holdings on both the longer and front ends of the municipal yield curve aided performance as these areas performed the best. Conversely, positions in intermediate-term debt detracted, since yields rose in this area. The ongoing loss of higher-yielding bonds due to calls and maturities also detracted by leading to a reduction in income.

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.

 

 

F U N D   S U M M A R Y

  13


Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

Overview of the Fund’s Total Investments

 

SECTOR ALLOCATION

 

Sector(a)(b)   07/31/21     07/31/20  

Education

    28     24

Health

    21       22  

State

    16       18  

County/City/Special District/School District

    16       16  

Utilities

    7       10  

Housing

    5       4  

Transportation

    4       4  

Corporate

    2       2  

Tobacco

    1        

CALL/MATURITY SCHEDULE

 

Calendar Year Ended December 31,(a)(c)   Percentage  

2021

    1

2023

    3  

2024

    5  

2025

    2  

2026

    4  

CREDIT QUALITY ALLOCATION

 

Credit Rating(a)(d)   07/31/21     07/31/20  

AAA/Aaa

    2     2

AA/Aa

    61       63  

A

    28       26  

BBB/Baa

    4       4  

BB/Ba

    (e)       

N/R(f)

    5       5  
 

 

(a) 

Excludes short-term securities.

(b) 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

(c) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

(d) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service, Inc. 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 are credit 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 are subject to change.

(e) 

Rounds to less than 1% of total investments.

(f) 

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 and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2021 and July 31, 2020, the market value of unrated securities deemed by the investment adviser to be investment grade each represents less than 1% of the Fund’s total investments.

 

 

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Fund Summary  as of July 31, 2021    BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

Investment Objective

BlackRock MuniYield Pennsylvania Quality Fund’s (MPA) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Pennsylvania income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and Pennsylvania income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on New York Stock Exchange

  MPA

Initial Offering Date

    October 30, 1992  

Yield on Closing Market Price as of July 31, 2021 ($16.23)(a)

  4.07%

Tax Equivalent Yield(b)

  7.25%

Current Monthly Distribution per Common Share(c)

  $0.0550

Current Annualized Distribution per Common Share(c)

  $0.6600

Leverage as of July 31, 2021(d)

  36%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance is not an indication of future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 43.87%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of its accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/21      07/31/20      Change      High      Low  

Closing Market Price

  $ 16.23      $ 14.09        15.19      $   16.25        $   13.60  

Net Asset Value

    16.64        16.09        3.42        16.66        15.66  

TOTAL RETURN BASED ON A $10,000 INVESTMENT

 

LOGO

 

(a) 

Represents the Fund’s closing market price on the NYSE and reflects the reinvestment of dividends and/or distributions at actual reinvestment prices.

(b) 

A broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market.

 

 

F U N D   S U M M A R Y

  15


Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

Performance Summary for the Period Ended July 31, 2021

Returns for the period ended July 31, 2021 were as follows:

 

    Average Annual Total Returns  
     1 Year      5 Years      10 Years  

Fund at NAV(a)(b)

    8.09      4.65      6.59

Fund at Market Price(a)(b)

    20.40        5.00        7.08  

Lipper Pennsylvania Municipal Debt Funds at NAV(c)

    7.66        4.18        6.12  

Lipper Pennsylvania Municipal Debt Funds at Market Price(c)

    15.18        4.60        6.84  

S&P® Municipal Bond Index

    3.47        3.34        4.29  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices. Performance results reflect the Fund’s use of leverage.

 
  (b) 

The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is not an indication of future results.

More information about the Fund’s historical performance can be found in the “Closed End Funds” section of blackrock.com.

The following discussion relates to the Fund’s absolute performance based on NAV:

Despite rising yields (and falling prices) for U.S. Treasuries, municipal bonds produced healthy gains in the past 12 months. Tax-exempt bonds continued to rally off of their pandemic-driven lows due to the release of multiple coronavirus vaccines, better-than-expected growth, improving municipal finances and robust investor demand. The prospect of substantial fiscal stimulus and higher taxes were additional tailwinds for the market. These factors led to a decline in yield spreads versus U.S. Treasuries, fueling positive returns for municipal debt. Pennsylvania outperformed the broader national market in the period, as fundamentals strengthened due in large part to the American Rescue Plan and the fact that revenues came in higher than originally projected in the early days of the pandemic.

The Fund benefited from its positions in the education and state tax-backed sectors. Puerto Rico was a particularly strong contributor in the latter category. Positions in lower-rated issues, especially in the BBB and non-rated categories, outpaced higher-rated securities. This trend was partially a reflection of federal aid packages that supported the financial system and helped municipalities better navigate the pandemic.

The Fund’s use of leverage, which augmented income and amplified the effect of rising prices, was a further contributor. The Fund actively sought to manage interest rate risk using U.S. Treasury futures. Since Treasury yields rose, as prices fell, this strategy contributed to results.

Reinvestment risk remained a headwind since the proceeds from bonds that matured or were called needed to be reinvested at lower yields compared to those issued when yields were higher.

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.

 

 

16  

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Fund Summary  as of July 31, 2021 (continued)    BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

Overview of the Fund’s Total Investments

 

SECTOR ALLOCATION

 

Sector(a)(b)   07/31/21     07/31/20  

Health

    27     19

County/City/Special District/School District

    18       18  

Education

    18       24  

Transportation

    11       12  

State

    10       12  

Utilities

    10       6  

Tobacco

    3       3  

Housing

    2       4  

Corporate

    1       2  

CALL/MATURITY SCHEDULE

 

Calendar Year Ended December 31,(a)(c)   Percentage  

2021

    2

2022

    4  

2023

    2  

2024

    6  

2025

    9  

CREDIT QUALITY ALLOCATION

 

Credit Rating(a)(d)   07/31/21     07/31/20  

AAA/Aaa

    %(e)      3

AA/Aa

    49       46  

A

    29       27  

BBB/Baa

    6       8  

BB/Ba

    3       3  

B

    1       1  

CCC/Caa

    1        

N/R(f)

    11       12  
 

 

(a) 

Excludes short-term securities.

(b) 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

(c) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

(d) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service, Inc. 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 are credit 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 are subject to change.

(e) 

Rounds to less than 1% of total investments.

(f) 

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 and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2021 and July 31, 2020, the market value of unrated securities deemed by the investment adviser to be investment grade represents 2% and 2%, respectively, of the Fund’s total investments.

 

 

F U N D   S U M M A R Y

  17


Schedule of Investments

July 31, 2021

  

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds

 

California — 103.3%

 

Corporate — 0.3%  

California Municipal Finance Authority, RB, Series A, AMT, 4.00%, 07/15/29

  $ 1,920     $ 2,238,336  
   

 

 

 
County/City/Special District/School District — 37.8%  

California Municipal Finance Authority, RB, 5.00%, 06/01/43

    2,000       2,505,900  

California Statewide Communities Development Authority, SAB

   

Series B, 4.00%, 09/02/40

    605       660,448  

Series B, 4.00%, 09/02/50

    735       797,137  

Series C, 4.00%, 09/02/40

    2,160       2,362,565  

Series C, 4.00%, 09/02/50

    1,550       1,679,285  

California Statewide Communities Development Authority, SAB, S/F Housing

   

5.00%, 09/02/39

    535       665,738  

5.00%, 09/02/40

    400       492,600  

5.00%, 09/02/44

    615       756,013  

5.00%, 09/02/49

    900       1,090,017  

4.00%, 09/02/50

    320       355,258  

5.00%, 09/02/50

    320       388,157  

Series C, 5.00%, 09/02/44

    130       159,808  

Series C, 5.00%, 09/02/49

    640       774,995  

California Statewide Communities Development Authority, ST

   

4.00%, 09/01/41

    295       342,312  

4.00%, 09/01/51

    565       643,558  

Centinela Valley Union High School District, GO, Series A, 5.75%, 08/01/21(a)

    9,120       9,120,000  

Chabot-Las Positas Community College District, GO, Series A, 4.00%, 08/01/47

    1,500       1,726,455  

Chaffey Joint Union High School District, GO, CAB(b)

   

Series C, 0.00%, 08/01/32

    250       189,768  

Series C, 0.00%, 08/01/33

    500       363,265  

Series C, 0.00%, 08/01/34

    510       354,430  

Series C, 0.00%, 08/01/35

    545       362,403  

Series C, 0.00%, 08/01/36

    500       317,720  

Series C, 0.00%, 08/01/37

    650       394,700  

Series C, 0.00%, 08/01/38

    625       363,150  

Series C, 0.00%, 08/01/39

    750       416,348  

Series C, 0.00%, 08/01/40

    1,855       984,448  

Series C, 0.00%, 08/01/41

    305       154,760  

Series C, 0.00%, 02/01/42

    350       173,453  

ChiNo.Valley Unified School District, GO, Series B, 5.00%, 08/01/55

    1,285       1,638,465  

City of Dixon California, ST, 4.00%, 09/01/45

    535       616,373  

City of Roseville California, ST, 4.00%, 09/01/50

    365       413,439  

City of Sacramento California Transient Occupancy Tax Revenue, RB, Series A, 5.00%, 06/01/43

    1,230       1,477,906  

Coronado Community Development Agency Successor Agency, Refunding TA, Series A, 5.00%, 09/01/33

    1,785       2,093,091  

County of Santa Clara California, GO, Series B, 4.00%, 08/01/43

    10,225       10,581,034  

El Dorado Irrigation District, Refunding RB, Series A, (AGM), 5.25%, 03/01/24(a)

    10,000       11,316,300  

Elk Grove Unified School District, GO, 4.00%, 08/01/46

    10,000       11,385,500  
Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

Fremont Union High School District, Refunding GO, 4.00%, 08/01/40

  $ 2,500     $ 2,766,250  

Garden Grove Unified School District, GO, Series C, 5.25%, 08/01/23(a)

    5,500       6,066,280  

Gavilan Joint Community College District, GO(a)

   

Series D, 5.50%, 08/01/21

    2,170       2,170,000  

Series D, 5.75%, 08/01/21

    8,400       8,400,000  

Glendale Community College District, GO, Series A, 4.00%, 08/01/46

    8,000       9,366,800  

Hayward Unified School District, GO, Series A, (BAM), 4.00%, 08/01/48

    2,000       2,315,500  

Kern Community College District, GO(a)

   

Series C, 5.25%, 11/01/23

    5,715       6,368,510  

Series C, 5.75%, 11/01/23

    12,085       13,602,272  

Los Alamitos Unified School District, Refunding GO, 5.25%, 08/01/23

    3,700       4,080,952  

Los Angeles County Facilities, Inc., RB, Series A, 5.00%, 12/01/51

    18,270       22,853,212  

Los Angeles County Metropolitan Transportation Authority, Refunding RB, Series A, 5.00%, 07/01/44

    2,000       2,547,560  

Los Angeles County Public Works Financing Authority, Refunding RB, Series D, 5.00%, 12/01/45

    1,430       1,679,978  

Mount San Jacinto Community College District, GO, Series A, 5.00%, 08/01/35

    3,565       4,202,458  

Natomas Unified School District, GO, (BAM), 4.00%, 08/01/42

    5,000       5,663,400  

Orange County Community Facilities District, ST 4.00%, 08/15/40

    345       398,082  

4.00%, 08/15/50

    320       365,795  

Rio Elementary School District, GO, Series A, (AGM), 5.25%, 08/15/25(a)

    5,865       7,019,291  

Riverside County Public Financing Authority, Refunding TA, Series A, (BAM), 4.00%, 10/01/40

    4,045       4,660,811  

San Benito High School District, GO, 4.00%, 08/01/48

    5,000       5,760,050  

San Bernardino County Transportation Authority, RB, Series A, 5.25%, 03/01/40

    4,545       5,114,625  

San Diego Unified School District, GO, Series B, 3.25%, 07/01/48

    6,000       6,546,720  

San Diego Unified School District, GO, CAB(b)

   

Series K-2, 0.00%, 07/01/38

    2,755       1,641,236  

Series K-2, 0.00%, 07/01/39

    3,340       1,904,401  

Series K-2, 0.00%, 07/01/40

    4,285       2,339,096  

San Jose Financing Authority, RB, 5.75%, 05/01/42

    4,500       4,517,010  

San Jose Financing Authority, Refunding RB, Series A, 5.00%, 06/01/23(a)

    5,800       6,316,084  

San Luis Obispo County Community College District, Refunding GO, Series B, 4.00%, 08/01/43

    3,555       4,223,909  

San Marcos Redevelopment Agency Successor Agency, Refunding TA

   

Series A, 5.00%, 10/01/32

    1,700       2,011,253  

Series A, 5.00%, 10/01/33

    1,125       1,329,952  

Santa Clara Unified School District, GO, 4.00%, 07/01/48

    10,000       11,430,400  

Santa Clarita Community College District, Refunding GO, 4.00%, 08/01/46

    10,000       11,494,000  

Washington Township Health Care District, GO, Series B, 5.50%, 08/01/38

    1,625       1,864,980  
 

 

 

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

West Contra Costa Unified School District, GO(a)

   

Series A, (AGM), 5.25%, 08/01/21

  $ 5,390     $ 5,390,000  

Series A, 5.50%, 08/01/23

    2,500       2,769,850  

Series B, 5.50%, 08/01/23

    3,195       3,539,868  
   

 

 

 
      250,837,384  
Education — 10.5%  

California Educational Facilities Authority, RB, Series V-1, 5.00%, 05/01/49

    5,800       9,394,550  

California Enterprise Development Authority, RB

   

Series A, 5.00%, 08/01/50

    650       797,290  

Series A, 5.00%, 08/01/57

    600       735,210  

California Enterprise Development Authority, Refunding RB(c)

   

4.00%, 06/01/51

    625       711,488  

4.00%, 06/01/61

    345       388,970  

California Municipal Finance Authority, RB 6.00%, 01/01/22(a)

    2,750       2,817,072  

Series A, 5.50%, 08/01/34(c)

    250       271,180  

Series A, 5.00%, 10/01/39(c)

    285       327,573  

Series A, 5.00%, 10/01/49(c)

    480       539,731  

Series A, 5.00%, 10/01/57(c)

    940       1,046,981  

California Municipal Finance Authority, Refunding RB

   

5.00%, 08/01/39

    1,105       1,261,678  

Series B, 5.00%, 01/01/42

    1,750       2,072,648  

California School Finance Authority, RB(c)
5.00%, 06/01/40

    355       404,654  

5.00%, 06/01/50

    555       620,046  

5.00%, 06/01/59

    885       980,173  

Series A, 5.00%, 07/01/49

    850       1,050,643  

Series A, 5.00%, 06/01/58

    4,135       4,557,089  

Series A, 5.00%, 07/01/59

    1,380       1,576,277  

Series A, 4.00%, 06/01/61

    850       901,485  

Series B, 4.00%, 07/01/45

    560       560,465  

Hastings Campus Housing Finance Authority, RB

   

Series A, 5.00%, 07/01/45

    785       956,012  

Series A, 5.00%, 07/01/61

    4,720       5,625,532  

University of California, RB, Series M, 5.00%, 05/15/47

    15,000       18,478,800  

University of California, Refunding RB

   

Series AO, 5.00%, 05/15/40

    5,430       6,353,914  

Series AZ, 4.00%, 05/15/48

    6,000       7,054,860  
   

 

 

 
      69,484,321  
Health — 13.9%  

California Health Facilities Financing Authority, RB 4.00%, 11/15/47

    825       947,653  

Series A, 5.00%, 11/15/35

    1,960       2,451,686  

Series A, 4.00%, 11/15/42

    450       524,232  

California Health Facilities Financing Authority, Refunding RB

   

Series A, 5.00%, 10/01/24(a)

    4,745       5,464,057  

Series A, 5.00%, 07/01/37

    10,000       10,880,500  

Series A, 5.00%, 10/01/38

    6,225       7,098,554  

Series A, 5.25%, 11/01/41

    8,000       8,101,200  

Series B, 5.00%, 11/15/26(a)

    3,385       4,191,205  

Series B, 5.00%, 11/15/46

    4,910       5,946,648  

California Municipal Finance Authority, Refunding RB

   

Series A, 5.00%, 02/01/37

    3,110       3,785,368  

Series A, 5.00%, 11/01/39(c)

    250       289,803  

Series A, 5.00%, 02/01/42

    5,250       6,372,607  
Security   Par
(000)
    Value  
Health (continued)  

California Municipal Finance Authority, Refunding RB (continued)

   

Series A, 5.00%, 11/01/49(c)

  $ 280     $ 319,329  

California Public Finance Authority, RB(c) 5.00%, 11/15/36

    150       177,785  

5.00%, 11/15/46

    150       174,441  

5.00%, 11/15/51

    150       173,802  

5.00%, 11/15/56

    150       173,168  

California Statewide Communities Development Authority, RB

   

4.00%, 08/01/45

    2,500       2,621,975  

4.00%, 07/01/48

    2,220       2,475,522  

California Statewide Communities Development Authority, Refunding RB

   

5.00%, 12/01/21(a)

    6,235       6,335,633  

4.00%, 04/01/42

    3,005       3,325,183  

4.00%, 04/01/47

    2,655       2,895,915  

5.00%, 04/01/47

    2,995       3,497,351  

Series A, 5.00%, 08/15/51

    1,635       1,961,199  

Series A, 5.00%, 12/01/53

    1,000       1,233,430  

Series A, 4.00%, 12/01/57

    3,250       3,428,522  

Series A, 5.00%, 12/01/57

    1,750       2,164,382  

Regents of the University of California Medical Center Pooled Revenue, Refunding RB, Series L, 5.00%, 05/15/47

    4,000       4,790,360  
   

 

 

 
      91,801,510  
Housing — 6.6%  

California Community Housing Agency, RB, M/F Housing(c)

   

4.00%, 08/01/46

    860       962,804  

3.00%, 08/01/56

    1,560       1,628,609  

Series A, 5.00%, 04/01/49

    3,840       4,400,909  

Series A, 4.00%, 02/01/56

    4,615       5,047,420  

California Housing Finance, RB, M/F Housing

   

Series 2, Class A, 4.00%, 03/20/33

    4,030       4,793,753  

Series 2021-1, Class A, 3.50%, 11/20/35

    2,344       2,792,067  

Series A, 4.25%, 01/15/35

    933       1,156,256  

CSCDA Community Improvement Authority, RB, M/F Housing(c)

   

2.65%, 12/01/46

    1,825       1,887,561  

4.00%, 07/01/56

    1,490       1,627,214  

4.00%, 08/01/56

    1,905       2,126,133  

3.00%, 12/01/56

    1,500       1,557,390  

Series A, 5.00%, 07/01/51

    1,325       1,571,848  

Series A-2, 4.00%, 09/01/56

    2,700       3,022,191  

Freddie Mac Multifamily ML Certificates, RB, M/F Housing, Series CA, Class A, 3.35%, 11/25/33

    9,634       11,030,475  
   

 

 

 
      43,604,630  
State — 1.5%  

California State Public Works Board, RB, Series I, 5.50%, 11/01/33

    2,015       2,249,526  

California State Public Works Board, Refunding RB, Series C, 5.75%, 10/01/31

    1,205       1,216,001  

City of Roseville California, ST, 4.00%, 09/01/45

    100       113,517  

State of California, Refunding GO, 5.00%, 08/01/45

    5,690       6,641,539  
   

 

 

 
      10,220,583  

 

 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  19


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Tobacco — 7.3%  

California County Tobacco Securitization Agency, Refunding RB

   

4.00%, 06/01/49

  $ 320     $ 380,874  

Series A, 4.00%, 06/01/49

    465       554,833  

California County Tobacco Securitization Agency, Refunding RB, CAB(b)

   

0.00%, 06/01/55

    3,185       804,690  

Series B-2, Subordinate, 0.00%, 06/01/55

    4,780       974,260  

Golden State Tobacco Securitization Corp., Refunding RB

   

Series A, (AGM-CR SAP), 5.00%, 06/01/40

    9,765       11,380,717  

Series A-1, 5.00%, 06/01/31

    7,560       9,505,566  

Series A-1, 3.50%, 06/01/36

    6,930       7,057,304  

Series A-1, 5.00%, 06/01/47

    11,350       11,731,474  

Series A-2, 5.00%, 06/01/47

    1,645       1,700,288  

Tobacco Securitization Authority of Southern California, Refunding RB, 5.00%, 06/01/48

    1,130       1,385,391  

Tobacco Securitization Authority of Southern California, Refunding RB, CAB, 0.00%, 06/01/54(b)

    13,750       2,736,250  
   

 

 

 
      48,211,647  
Transportation — 15.4%  

Alameda Corridor Transportation Authority, Refunding RB, Series B, Sub Lien, 5.00%, 10/01/35

    1,500       1,793,025  

Bay Area Toll Authority, Refunding RB, 4.00%, 04/01/42

    5,000       5,777,850  

California Municipal Finance Authority, ARB, AMT, Senior Lien, 4.00%, 12/31/47

    13,915       15,704,052  

City of Los Angeles Department of Airports, ARB

   

Series A, AMT, 5.00%, 05/15/40

    3,830       4,433,148  

Series D, AMT, 5.00%, 05/15/35

    2,000       2,322,440  

Series D, AMT, 5.00%, 05/15/36

    1,500       1,740,630  

Sub-Series A, AMT, 5.00%, 05/15/47

    6,725       8,124,809  

City of Los Angeles Department of Airports, Refunding ARB, 5.00%, 05/15/43

    7,000       9,107,840  

County of Sacramento California Airport System Revenue, Refunding RB

   

Series A, 5.00%, 07/01/41

    2,500       3,013,550  

Sub-Series B, 5.00%, 07/01/41

    1,250       1,514,700  

Norman Y Mineta San Jose International Airport SJC, Refunding RB

   

Series A, AMT, 5.00%, 03/01/41

    3,075       3,701,377  

Series A, AMT, 5.00%, 03/01/47

    11,770       14,027,486  

Port of Los Angeles, Refunding ARB, Series A, AMT, 5.00%, 08/01/44

    500       563,170  

San Diego County Regional Airport Authority, Refunding ARB, Series A, 5.00%, 07/01/42

    4,275       5,293,903  

San Francisco City & County Airport Comm-San Francisco International Airport, Refunding ARB

   

Series A, AMT, 5.00%, 05/01/29

    6,435       6,660,354  

Series A, AMT, 5.00%, 05/01/44

    5,000       6,236,250  

Series A, AMT, 5.00%, 05/01/47

    5,000       6,020,550  

Series B, AMT, 5.00%, 05/01/41

    5,000       5,932,850  
   

 

 

 
      101,967,984  
Utilities — 10.0%  

City of Riverside California Electric Revenue, Refunding RB, Series A, 5.00%, 10/01/43

    3,500       4,463,060  
Security   Par
(000)
    Value  
Utilities (continued)  

City of San Francisco California Public Utilities Commission Water Revenue, RB, Series A, 5.00%, 11/01/39

  $ 5,245     $ 6,130,933  

East Bay Municipal Utility District Water System Revenue, RB

   

Series A, 4.00%, 06/01/45

    4,585       5,331,209  

Series A, 5.00%, 06/01/49

    11,190       14,359,344  

Los Angeles Department of Water, RB, Series A, 5.00%, 07/01/42

    8,825       10,840,718  

San Diego Public Facilities Financing Authority, Refunding RB, Series A, Subordinate, 5.00%, 08/01/43

    9,655       12,134,597  

San Francisco City & County Public Utilities Commission Wastewater Revenue, Refunding RB, Series B, 4.00%, 10/01/42

    3,000       3,124,590  

San Juan Water District, Refunding RB, Series A, 5.25%, 02/01/33

    7,325       7,512,300  

San Mateo Foster City Public Financing Authority, RB, 4.00%, 08/01/44

    2,000       2,398,000  
   

 

 

 
      66,294,751  
   

 

 

 

Total Municipal Bonds in California

      684,661,146  

Puerto Rico — 4.7%

   
State — 4.7%            

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB

   

Series A-1, Restructured, 4.75%, 07/01/53

    8,317       9,567,461  

Series A-1, Restructured, 5.00%, 07/01/58

    11,280       13,142,667  

Series A-2, Restructured, 4.33%, 07/01/40

    2,677       3,040,671  

Series A-2, Restructured, 4.78%, 07/01/58

    553       635,839  

Series B-1, Restructured, 4.75%, 07/01/53

    848       975,497  

Series B-2, Restructured, 4.78%, 07/01/58

    822       945,637  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, CAB, Series A-1, Restructured, 0.00%, 07/01/46(b)

    8,705       2,908,166  
   

 

 

 

Total Municipal Bonds in Puerto Rico

      31,215,938  
   

 

 

 

Total Municipal Bonds — 108.0%
(Cost: $642,530,857)

      715,877,084  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(d)

 

California — 48.9%  
County/City/Special District/School District — 21.5%  

Foothill-De Anza Community College District, GO, Series C, 5.00%, 08/01/40

    40,000       40,000,000  

Palomar Community College District, GO, Series C, 5.00%, 08/01/25(a)

    15,140       17,972,543  

Riverside County Public Financing Authority, RB, 5.25%, 11/01/45

    10,000       11,869,999  

Sacramento Area Flood Control Agency, Refunding SAB, Series A, 5.00%, 10/01/43

    9,990       12,068,619  

San Luis Obispo County Community College District, Refunding GO, Series A, 4.00%, 08/01/40

    6,585       7,486,879  

San Mateo County Community College District, GO, Series A, 5.00%, 09/01/25(a)

    17,615       20,971,001  
 

 

 

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

Southwestern Community College District, GO, Series D, 5.00%, 08/01/25(a)

  $ 10,820     $ 12,844,314  

West Valley-Mission Community College District, GO, Series B, 4.00%, 08/01/40

    17,000       19,336,650  
   

 

 

 
      142,550,005  
Education — 3.6%  

California State University, Refunding RB, Series A, 5.00%, 11/01/43

    6,001       7,106,850  

University of California, RB, Series AM, 5.25%, 05/15/44

    10,210       11,593,710  

University of California, Refunding RB, Series AF, 5.00%, 05/15/39

    5,000       5,421,900  
   

 

 

 
      24,122,460  
Health — 15.7%  

California Health Facilities Financing Authority, RB

   

5.00%, 11/15/49(e)

    5,000       5,961,300  

5.00%, 11/15/56

    6,000       7,470,000  

Series A, 5.00%, 08/15/23(a)

    14,520       15,969,241  

Series B, 5.00%, 08/15/55

    4,500       5,429,835  

California Health Facilities Financing Authority, Refunding RB

   

Series A, 5.00%, 08/15/25(a)

    19,425       23,090,487  

Series A, 4.00%, 10/01/47

    4,997       5,670,401  

Sub-Series A-2, 4.00%, 11/01/44

    17,720       20,612,258  

California Statewide Communities Development Authority, RB, Series A, 5.00%, 04/01/42

    19,070       19,663,649  
   

 

 

 
      103,867,171  
Transportation — 5.7%  

Bay Area Toll Authority, Refunding RB, 4.00%, 04/01/49(e)

    10,005       11,451,823  

City of Los Angeles Department of Airports, ARB

   

Series A, AMT, 5.00%, 05/15/40

    5,500       6,366,140  

Series B, AMT, 5.00%, 05/15/41

    3,645       4,339,706  

Series D, AMT, 5.00%, 05/15/41

    13,332       15,422,777  
   

 

 

 
      37,580,446  
Utilities — 2.4%  

City of Los Angeles California Wastewater System Revenue, RB, Series A, 5.00%, 06/01/44

    13,790       16,081,484  
   

 

 

 

Total Municipal Bonds in California

 

    324,201,566  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option
Bond Trusts — 48.9%
(Cost: $297,728,507)

 

    324,201,566  
   

 

 

 

Total Long-Term Investments — 156.9%
(Cost: $940,259,364)

 

    1,040,078,650  
   

 

 

 
Security   Shares     Value  
Short-Term Securities  
Money Market Funds — 2.9%  

BlackRock Liquidity Funds California Money Fund, Institutional Class, 0.01%(f)(g)

    19,379,575     $ 19,391,202  
   

 

 

 

Total Short-Term Securities — 2.9%
(Cost: $19,383,437)

 

    19,391,202  
   

 

 

 

Total Investments — 159.8%
(Cost: $959,642,801)

 

    1,059,469,852  

Other Assets Less Liabilities — 1.5%

 

    9,610,086  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (23.0)%

 

    (152,188,225

VMTP Shares at Liquidation Value — (38.3)%

 

    (254,000,000
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 662,891,713  
   

 

 

 

 

(a) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(b) 

Zero-coupon bond.

(c) 

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 to qualified institutional investors.

(d) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(e) 

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 the agreements, which expire between April 1, 2025 to May 15, 2025, is $10,754,131. See Note 4 of the Notes to Financial Statements for details.

(f) 

Affiliate of the Fund.

(g) 

Annualized 7-day yield as of period end.

 

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  21


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended July 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer    Value at
07/31/20
     Purchases
at Cost
     Proceeds
from Sales
     Net
Realized
Gain (Loss)
     Change in
Unrealized
Appreciation
(Depreciation)
     Value at
07/31/21
     Shares
Held at
07/31/21
     Income      Capital Gain
Distributions
from
Underlying
Funds
 

BlackRock Liquidity Funds California Money Fund, Institutional Class

   $ 1,871,730      $ 17,508,920 (a)     $      $ 2,710      $ 7,842      $ 19,391,202        19,379,575      $ 2,216      $  
           

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 

Derivative Financial Instruments Categorized by Risk Exposure

For the year ended July 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from

 

                 

Futures contracts

   $      $      $      $      $ 1,456,642      $      $ 1,456,642  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts

        

Average notional value of contracts — short

   $ 16,960,281  

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 valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

      Level 1        Level 2        Level 3        Total  

Assets

                 

Investments

                 

Long-Term Investments

                 

Municipal Bonds

   $        $ 715,877,084        $        $ 715,877,084  

Municipal Bonds Transferred to Tender Option Bond Trusts

              324,201,566                   324,201,566  

Short-Term Securities

                 

Money Market Funds

     19,391,202                            19,391,202  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $      19,391,202        $ 1,040,078,650        $             —        $ 1,059,469,852  
  

 

 

      

 

 

      

 

 

      

 

 

 

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, such assets and/or liabilities are categorized within the fair value hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities

                 

TOB Trust Certificates

   $        $ (152,144,550      $        $ (152,144,550

VMTP Shares at Liquidation Value

              (254,000,000                 (254,000,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $             —        $ (406,144,550      $             —        $ (406,144,550
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

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


Schedule of Investments

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds

 

Guam — 0.2%

 

Utilities — 0.2%  

Guam Government Waterworks Authority, RB, Series A, 5.00%, 01/01/50

  $ 1,015     $ 1,255,281  
   

 

 

 

New Jersey — 119.2%

 

Corporate — 1.5%  

New Jersey Economic Development Authority, RB(a)

   

Series A, (NPFGC), 5.25%, 07/01/25

    535       637,634  

Series A, (NPFGC), 5.25%, 07/01/26

    1,415       1,746,195  

New Jersey Economic Development Authority, Refunding RB

   

3.38%, 04/01/38

    2,230       2,334,342  

3.50%, 04/01/42

    1,675       1,752,016  

Series A, AMT, 2.20%, 10/01/39(b)

    850       908,472  
   

 

 

 
      7,378,659  
County/City/Special District/School District — 10.3%  

Casino Reinvestment Development Authority, Inc., Refunding RB

   

5.25%, 11/01/39

    11,130       12,460,146  

5.25%, 11/01/44

    3,755       4,158,287  

City of Bayonne New Jersey, Refunding GO, (BAM SAW), 5.00%, 07/01/26(c)

    3,340       4,088,995  

County of Essex New Jersey, GO, Series B, (SCH BD RES FD), 3.00%, 09/01/46

    1,700       1,771,672  

Essex County Improvement Authority, RB, (GTD), 4.00%, 11/01/49

    575       654,833  

Essex County Improvement Authority, Refunding RB

   

(NPFGC GTD), 5.50%, 10/01/27

    250       324,848  

(NPFGC GTD), 5.50%, 10/01/28

    4,840       6,479,502  

Ewing Township Board of Education, GO 4.00%, 07/15/38

    1,470       1,742,567  

4.00%, 07/15/39

    1,330       1,573,829  

Hudson County Improvement Authority, RB, 4.00%, 10/01/51

    2,800       3,347,344  

Hudson County Improvement Authority, RB, CAB, Series A-1, (NPFGC GTD), 0.00%, 12/15/32(d)

    1,000       823,060  

Mercer County Refunding GO, 2.38%, 02/15/30

    1,640       1,784,468  

New Jersey Economic Development Authority, RB 5.00%, 06/15/23(c)

    3,065       3,344,405  

Series KK, 5.00%, 09/01/22(c)

    325       342,193  

Series QQQ, 4.00%, 06/15/50

    2,070       2,439,785  

Newark Board of Education Refunding GO

   

(BAM SCH BD RES FD), 3.00%, 07/15/38

    700       768,131  

(BAM SCH BD RES FD), 3.00%, 07/15/39

    120       131,474  

(BAM SCH BD RES FD), 3.00%, 07/15/41

    1,500       1,638,030  

Newark Board of Education, Refunding GO, Sustainability Bonds, (BAM), 3.00%, 07/15/42

    485       527,995  

Township of Irvington New Jersey, Refunding GO, Series A, (AGM), 5.00%, 07/15/33

    1,175       1,325,271  

Union County Utilities Authority, Refunding RB, Series A, AMT, (GTD), 5.25%, 12/01/31

    650       660,263  
   

 

 

 
      50,387,098  
Education — 16.8%  

Atlantic County Improvement Authority, RB, Series A, (AGM), 4.00%, 07/01/46

    1,300       1,429,649  

Gloucester County Improvement Authority, RB 5.00%, 07/01/44

    1,985       2,294,839  

(BAM), 4.00%, 07/01/46

    465       547,258  
Security   Par
(000)
    Value  
Education (continued)  

Gloucester County Improvement Authority, RB (continued)

   

(BAM), 4.00%, 07/01/51

  $ 645     $ 756,940  

Series A, 5.00%, 07/01/31

    1,950       2,272,939  

Series A, 5.00%, 07/01/32

    1,775       2,067,396  

Series A, 5.00%, 07/01/33

    2,250       2,618,775  

Series A, 5.00%, 07/01/34

    1,200       1,395,744  

New Jersey Economic Development Authority, RB

   

Series A, 5.00%, 01/01/35

    2,000       2,147,020  

Series A, 5.00%, 07/01/38

    190       227,033  

Series A, 5.00%, 07/01/47

    795       853,345  

Series A, 5.00%, 01/01/48

    2,000       2,115,380  

Series A, 5.00%, 07/01/50

    495       579,828  

Series A, 5.25%, 11/01/54(e)

    2,235       2,419,767  

Series WW, 5.25%, 06/15/25(c)

    460       548,196  

New Jersey Economic Development Authority, Refunding RB

   

(AGM), 5.00%, 06/01/37

    3,990       4,803,481  

(AGM), 5.00%, 06/01/42

    810       968,485  

New Jersey Educational Facilities Authority, RB

   

Series A, 5.00%, 07/01/45

    1,345       1,717,161  

Series C, (AGM), 3.25%, 07/01/49

    585       626,593  

Series C, (AGM), 4.00%, 07/01/50

    495       565,300  

New Jersey Educational Facilities Authority, Refunding RB

   

Series A, (BAM), 5.00%, 07/01/28

    1,135       1,353,068  

Series A, 5.00%, 07/01/39

    15,555       17,453,488  

Series A, 5.00%, 07/01/44

    3,540       3,961,862  

Series A, 4.00%, 07/01/47

    1,145       1,305,163  

Series D, 5.00%, 07/01/38

    500       541,810  

Series D, 5.00%, 07/01/43

    600       648,504  

New Jersey Higher Education Student Assistance Authority Refunding RB, Series B, AMT, 3.00%, 12/01/32

    3,435       3,657,382  

New Jersey Higher Education Student Assistance Authority, RB

   

Series 1A, AMT, 4.00%, 12/01/28

    385       400,643  

Series 1A, AMT, 4.50%, 12/01/28

    1,015       1,062,928  

Series 1A, AMT, 4.00%, 12/01/29

    255       265,312  

Series 1A, AMT, 4.50%, 12/01/29

    1,280       1,340,186  

Series 1A, AMT, 4.63%, 12/01/30

    1,255       1,315,842  

Series 1A, AMT, 4.00%, 12/01/31

    410       426,425  

Series 1A, AMT, 4.13%, 12/01/35

    250       257,928  

Series 1A-1, AMT, 4.00%, 12/01/29

    2,185       2,334,651  

Series 1A-1, AMT, 4.25%, 12/01/32

    790       847,472  

Series 1A-1, AMT, 4.50%, 12/01/36

    690       735,098  

Sub-Series C, AMT, 4.00%, 12/01/48

    1,760       1,934,874  

New Jersey Higher Education Student Assistance Authority, Refunding RB

   

1st Series, AMT, 5.50%, 12/01/26

    585       592,792  

Series 1, AMT, 5.38%, 12/01/24

    485       491,266  

New Jersey Institute of Technology, RB, Series A, 5.00%, 07/01/45

    7,500       8,688,075  

Rutgers The State University of New Jersey, Refunding RB, Series L, 5.00%, 05/01/23(c)

    1,565       1,698,948  
   

 

 

 
      82,268,846  
Health — 7.7%  

Camden County Improvement Authority, Refunding RB, 5.00%, 02/15/33

    2,000       2,216,720  
 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  23


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Health (continued)  

Middlesex County Improvement Authority, RB, AMT, (AMBAC), 5.50%, 09/01/30

  $ 490     $ 491,573  

New Jersey Economic Development Authority, Refunding RB

   

5.00%, 01/01/34

    675       806,719  

5.00%, 01/01/39

    675       804,452  

New Jersey Health Care Facilities Financing Authority, RB

   

5.00%, 07/01/42

    2,270       2,782,044  

4.00%, 07/01/44

    2,175       2,548,969  

Series A, 5.50%, 07/01/43

    7,105       7,776,778  

New Jersey Health Care Facilities Financing Authority, Refunding RB

   

5.00%, 07/01/25

    1,000       1,044,390  

5.00%, 07/01/26

    3,720       3,885,019  

5.00%, 07/01/28

    3,000       3,335,760  

5.00%, 07/01/29

    715       795,044  

5.00%, 07/01/34

    1,330       1,607,544  

5.00%, 07/01/39

    1,825       2,196,150  

4.00%, 07/01/41

    1,600       1,761,488  

Series A, 4.00%, 07/01/43

    1,865       2,115,563  

Series A, 5.00%, 07/01/43

    3,080       3,701,914  
   

 

 

 
      37,870,127  
Housing — 6.9%  

New Jersey Housing & Mortgage Finance Agency, RB, Series A, (AGM), 5.00%, 05/01/27

    2,260       2,266,238  

New Jersey Housing & Mortgage Finance Agency, RB, M/F Housing, Series A, 4.55%, 11/01/43

    4,710       4,738,731  

New Jersey Housing & Mortgage Finance Agency, RB, S/F Housing, Series B, 4.50%, 10/01/21(c)

    4,855       4,889,519  

New Jersey Housing & Mortgage Finance Agency, RB, Social Bonds(f)

   

Series H, 2.15%, 10/01/41

    1,710       1,703,399  

Series H, 2.30%, 10/01/46

    1,285       1,279,577  

Series H, 2.40%, 04/01/52

    1,285       1,279,140  

New Jersey Housing & Mortgage Finance Agency, Refunding RB

   

Series 2, AMT, 4.60%, 11/01/38

    3,120       3,235,503  

Series 2, AMT, 4.75%, 11/01/46

    3,795       3,906,270  

New Jersey Housing & Mortgage Finance Agency, Refunding RB, M/F Housing

   

Series A, (HUD SECT 8), 2.45%, 11/01/45

    475       475,988  

Series A, 4.00%, 11/01/48

    370       404,684  

Series A, (HUD SECT 8), 2.55%, 11/01/50

    430       431,238  

Series A, 4.10%, 11/01/53

    220       239,811  

Series A, (HUD SECT 8), 2.63%, 11/01/56

    430       432,782  

Series D, AMT, 4.25%, 11/01/37

    490       532,855  

Series D, AMT, 4.35%, 11/01/42

    1,000       1,081,640  

New Jersey Housing & Mortgage Finance Agency, Refunding RB, S/F Housing

   

Series A, 3.75%, 10/01/35

    3,575       3,956,667  

Series E, 2.25%, 10/01/40

    1,615       1,642,229  

Series E, 2.40%, 10/01/45

    1,245       1,264,721  
   

 

 

 
      33,760,992  
State — 33.5%  

Garden State Preservation Trust, RB, CAB(d)

   

Series B, (AGM), 0.00%, 11/01/23

    15,725       15,570,109  

Series B, (AGM), 0.00%, 11/01/25

    10,000       9,590,000  

Garden State Preservation Trust, Refunding RB, Series C, (AGM), 5.25%, 11/01/21

    7,705       7,798,616  
Security   Par
(000)
    Value  
State (continued)  

New Jersey Economic Development Authority, RB 4.00%, 06/15/49

  $ 2,930     $ 3,390,186  

Series A, (NPFGC), 5.25%, 07/01/24

    1,785       2,040,416  

Series A, (NPFGC), 5.25%, 07/01/25

    4,465       5,306,652  

Series A, (NPFGC), 5.25%, 07/01/26

    7,415       9,084,784  

Series B, 5.00%, 06/15/43

    1,235       1,527,300  

Series EEE, 5.00%, 06/15/43

    5,395       6,701,723  

Series WW, 5.25%, 06/15/33

    380       445,447  

Series WW, 5.00%, 06/15/34

    5,500       6,389,460  

Series WW, 5.00%, 06/15/36

    3,115       3,612,528  

Series WW, 5.25%, 06/15/40

    7,915       9,200,475  

New Jersey Economic Development Authority, Refunding RB

   

5.00%, 06/15/24

    5,000       5,195,350  

5.00%, 06/15/26

    1,250       1,298,800  

5.00%, 06/15/28

    2,430       2,510,579  

5.00%, 06/15/29

    3,195       3,319,637  

4.00%, 07/01/46

    2,770       3,187,882  

Series N-1, (AMBAC), 5.50%, 09/01/26

    800       991,240  

Series N-1, (NPFGC), 5.50%, 09/01/27

    1,000       1,274,500  

Series NN, 5.00%, 03/01/29

    5,000       5,372,150  

Sub-Series A, 4.00%, 07/01/32

    5,000       5,653,050  

Sub-Series A, 5.00%, 07/01/33

    3,875       4,617,799  

Sub-Series A, 4.00%, 07/01/34

    7,300       8,207,536  

New Jersey Educational Facilities Authority, RB

   

Series A, 4.00%, 09/01/28

    9,705       10,756,925  

Series A, 5.00%, 09/01/33

    5,370       6,089,311  

New Jersey Sports & Exposition Authority, Refunding RB, (NPFGC), 5.50%, 03/01/22(a)

    4,200       4,329,990  

South Jersey Port Corp., ARB

   

Series B, AMT, 5.00%, 01/01/42

    3,000       3,566,400  

Series B, AMT, 5.00%, 01/01/48

    1,500       1,769,760  

State of New Jersey, GO

   

2.00%, 06/01/32

    1,900       1,972,238  

2.00%, 06/01/37

    3,225       3,227,741  

Series A, 4.00%, 06/01/32

    7,755       10,046,680  
   

 

 

 
      164,045,264  
Tobacco — 5.4%  

Tobacco Settlement Financing Corp., Refunding RB

   

Series A, 5.00%, 06/01/46

    3,000       3,619,950  

Series A, 5.25%, 06/01/46

    1,960       2,406,488  

Sub-Series B, 5.00%, 06/01/46

    17,315       20,738,349  
   

 

 

 
      26,764,787  
Transportation — 30.0%  

New Brunswick Parking Authority, Refunding RB, Series B, (AGM MUN GOVT GTD), 3.00%, 09/01/39

    2,500       2,636,925  

New Jersey Economic Development Authority, RB

   

AMT, 5.13%, 01/01/34

    2,290       2,514,237  

AMT, 5.38%, 01/01/43

    7,730       8,495,193  

New Jersey Transportation Trust Fund Authority, RB

   

Series A, (NPFGC), 5.75%, 06/15/24

    1,205       1,391,944  

Series A, 5.00%, 06/15/30

    2,250       2,684,813  

Series A, 5.00%, 06/15/42

    5,000       5,206,400  

Series AA, 5.00%, 06/15/33

    3,000       3,127,560  

Series AA, 5.25%, 06/15/33

    5,690       6,201,474  

Series AA, 5.25%, 06/15/34

    1,305       1,528,455  

Series AA, 5.00%, 06/15/38

    2,340       2,623,912  

Series AA, 4.00%, 06/15/50

    6,300       7,409,241  

Series B, 5.00%, 06/15/33

    1,340       1,684,996  
 

 

 

24  

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Transportation (continued)  

New Jersey Transportation Trust Fund Authority, RB (continued)

   

Series BB, 4.00%, 06/15/50

  $ 3,325     $ 3,814,074  

Series D, 5.00%, 06/15/32

    3,300       3,781,536  

New Jersey Transportation Trust Fund Authority, RB, CAB(d)

   

Series A, 0.00%, 12/15/35

    6,000       4,463,940  

Series C, (AGM), 0.00%, 12/15/32

    8,800       7,199,280  

Series C, (AMBAC), 0.00%, 12/15/35

    4,160       3,161,725  

Series C, (AMBAC), 0.00%, 12/15/36

    7,210       5,332,155  

New Jersey Transportation Trust Fund Authority, Refunding RB

   

4.00%, 12/15/39

    165       193,015  

Series A, 5.00%, 06/15/26

    400       482,824  

Series A, 5.00%, 06/15/31

    7,480       9,026,722  

Series A, 5.00%, 06/15/32

    750       1,001,108  

Series A, 5.00%, 12/15/32

    4,285       5,396,786  

Series A, 4.00%, 06/15/34

    1,950       2,380,580  

Series A, 4.00%, 06/15/35

    2,950       3,583,778  

Series A, 5.00%, 12/15/35

    1,095       1,369,265  

New Jersey Turnpike Authority, RB

   

Series A1, 5.00%, 01/01/35

    1,440       1,764,086  

Series E, 5.00%, 01/01/45

    8,000       9,144,240  

New Jersey Turnpike Authority, Refunding RB

   

Series A, (AGM), 5.25%, 01/01/29

    4,000       5,302,200  

Series A, (BHAC-CR AGM), 5.25%, 01/01/29

    500       662,775  

Series A, (AGM), 5.25%, 01/01/30

    4,000       5,427,880  

Series B, 5.00%, 01/01/34

    2,300       2,885,787  

Series B, 5.00%, 01/01/40

    5,740       7,168,399  

Series G, 5.00%, 01/01/36

    5,000       6,251,500  

Series G, 4.00%, 01/01/43

    3,320       3,842,601  

Port Authority of New York & New Jersey, Refunding ARB, Consolidated, 206th Series, AMT, 5.00%, 11/15/47

    3,475       4,244,643  

South Jersey Transportation Authority, RB, Series A, 5.00%, 11/01/45

    2,865       3,635,456  
   

 

 

 
      147,021,505  
Utilities — 7.1%  

Essex County Utilities Authority, Refunding RB, (AGC GTD), 4.13%, 04/01/22

    2,000       2,004,740  

New Jersey Infrastructure Bank, RB 2.00%, 09/01/42

    1,320       1,326,653  

2.00%, 09/01/43

    915       919,694  

2.25%, 09/01/50

    2,245       2,269,470  

Passaic Valley Sewerage Commission, Refunding RB

   

Series J, (AGM), 3.00%, 12/01/40

    1,140       1,237,744  

Series J, (AGM), 3.00%, 12/01/41

    1,170       1,268,081  

Series J, (AGM), 3.00%, 12/01/42

    1,190       1,286,997  

Series J, (AGM), 3.00%, 12/01/43

    1,220       1,316,575  

Series J, (AGM), 3.00%, 12/01/44

    1,250       1,346,388  

Series J, (AGM), 3.00%, 12/01/45

    1,275       1,371,568  

Rahway Valley Sewerage Authority, RB, CAB(d)

   

Series A, (NPFGC), 0.00%, 09/01/26

    4,100       3,910,457  

Series A, (NPFGC), 0.00%, 09/01/28

    6,600       6,056,028  
Security   Par
(000)
    Value  
Utilities (continued)  

Rahway Valley Sewerage Authority, RB, CAB(d) (continued)

   

Series A, (NPFGC), 0.00%, 09/01/29

  $ 9,650     $ 8,626,521  

Series A, (NPFGC), 0.00%, 09/01/33

    2,350       1,889,658  
   

 

 

 
      34,830,574  
   

 

 

 

Total Municipal Bonds in New Jersey

 

    584,327,852  

New York — 5.6%

 

Transportation — 5.6%  

Port Authority of New York & New Jersey, ARB

   

Consolidated, 93rd Series, 6.13%, 06/01/94

    1,000       1,162,220  

Consolidated, 218th Series, AMT, 4.00%, 11/01/34

    1,640       1,972,543  

Consolidated, 218th Series, AMT, 4.00%, 11/01/47

    2,485       2,875,766  

Consolidated, 221st Series, AMT, 4.00%, 07/15/45

    2,165       2,542,749  

Port Authority of New York & New Jersey, Refunding ARB

   

Consolidated, 206th Series, AMT, 5.00%, 11/15/42

    3,110       3,815,472  

Series 178th, AMT, 5.00%, 12/01/33

    4,005       4,422,201  

Series 223, AMT, 4.00%, 07/15/51

    2,960       3,494,606  

Port Authority of New York & New Jersey, Refunding RB

   

Consolidated, 200th Series, 5.00%, 09/01/36

    3,090       4,017,896  

Consolidated, 212th Series, 4.00%, 09/01/37

    2,460       2,978,470  
   

 

 

 

Total Municipal Bonds in New York

 

    27,281,923  

Pennsylvania — 2.6%

 

Transportation — 2.6%  

Delaware River Port Authority Refunding RB, 5.00%, 01/01/27

    785       838,733  

Delaware River Port Authority, RB 5.00%, 01/01/29

    2,000       2,226,160  

5.00%, 01/01/37

    8,830       9,785,848  
   

 

 

 

Total Municipal Bonds in Pennsylvania

 

    12,850,741  

Puerto Rico — 4.7%

 

State — 4.7%  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB

   

Series A-1, Restructured, 4.75%, 07/01/53

    583       670,654  

Series A-1, Restructured, 5.00%, 07/01/58

    3,462       4,033,680  

Series A-2, Restructured, 4.33%, 07/01/40

    11,732       13,325,792  

Series A-2, Restructured, 4.78%, 07/01/58

    878       1,009,525  

Series B-1, Restructured, 4.75%, 07/01/53

    638       733,923  

Series B-2, Restructured, 4.78%, 07/01/58

    618       710,953  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, CAB, Series A-1, Restructured, 0.00%, 07/01/46(d)

    7,564       2,526,981  
   

 

 

 

Total Municipal Bonds in Puerto Rico

 

    23,011,508  
   

 

 

 

Total Municipal Bonds — 132.3%
(Cost: $580,409,396)

 

    648,727,305  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(g)

 

New Jersey — 21.1%

 

County/City/Special District/School District — 5.9%  

Hudson County Improvement Authority, RB, 5.25%, 05/01/51

    3,120       3,735,482  
 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  25


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

Union County Utilities Authority, Refunding RB

   

Series A, 5.00%, 06/15/41

  $ 7,573     $ 7,598,308  

Series A, AMT, 5.25%, 12/01/31

    17,300       17,573,167  
   

 

 

 
      28,906,957  
Education — 7.1%  

New Jersey Economic Development Authority, Refunding RB

   

AMT, 3.00%, 08/01/41

    9,749       9,920,422  

AMT, 3.00%, 08/01/43(h)

    14,021       14,267,573  

Rutgers The State University of New Jersey, Refunding RB, Series L, 5.00%, 05/01/23(c)

    10,000       10,849,900  
   

 

 

 
      35,037,895  
Health — 1.4%  

New Jersey Health Care Facilities Financing Authority, RB, 4.00%, 07/01/47

    6,133       6,996,516  
   

 

 

 
State — 4.7%  

Garden State Preservation Trust, RB, Series A, 5.75%, 11/01/28

    12,460       15,665,958  

New Jersey Economic Development Authority, Refunding RB, Series NN, 5.00%, 03/01/29(h)

    6,698       7,196,718  
   

 

 

 
      22,862,676  
Transportation — 2.0%  

New Jersey Turnpike Authority, RB, Series A, 5.00%, 07/01/22(c)(h)

    9,300       9,716,082  
   

 

 

 

Total Municipal Bonds in New Jersey

 

    103,520,126  
   

 

 

 
New York — 2.1%  
Transportation — 2.1%  

Port Authority of New York & New Jersey, Refunding ARB, AMT, Consolidated, 169th Series, 5.00%, 10/15/41

    10,000       10,091,000  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond Trusts — 23.2%
(Cost: $107,642,433)

 

    113,611,126  
   

 

 

 

Total Long-Term Investments — 155.5%
(Cost: $688,051,829)

 

    762,338,431  
   

 

 

 
Short-Term Securities  
Commercial Paper — 1.0%  

Port Authority of New York & New Jersey, Refunding ARB, 0.16%, 10/01/21

    5,100       5,100,419  
   

 

 

 
      5,100,419  
   

 

 

 
Security       
Shares
    Value  
Money Market Funds — 4.6%            

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.01%(i)(j)

    22,332,938     $ 22,337,405  
   

 

 

 

Total Short-Term Securities — 5.6%
(Cost: $27,437,405)

 

    27,437,824  
   

 

 

 

Total Investments — 161.1%
(Cost: $715,489,234)

 

    789,776,255  

Liabilities in Excess of Other Assets — (0.2)%

 

    (1,435,000

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (12.6)%

 

    (61,552,078

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (48.3)%

 

    (236,685,959
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 490,103,218  
   

 

 

 

 

(a) 

Security is collateralized by municipal bonds or U.S. Treasury obligations.

(b) 

Variable rate security. Interest rate resets periodically. The rate shown is the effective interest rate as of period end. Security description also includes the reference rate and spread if published and available.

(c) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(d) 

Zero-coupon bond.

(e)

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 to qualified institutional investors.

(f)

When-issued security.

(g) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(h) 

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 the agreements, which expire between January 1, 2022 to February 1, 2037, is $24,100,690. See Note 4 of the Notes to Financial Statements for details.

(i)

Affiliate of the Fund.

(j) 

Annualized 7-day yield as of period end.

 

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

 

 

26  

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended July 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer   Value at
07/31/20
    Purchases
at Cost
    Proceeds
from Sales
    Net
Realized
Gain (Loss)
    Change in
Unrealized
Appreciation
(Depreciation)
    Value at
07/31/21
    Shares
Held at
07/31/21
    Income     Capital Gain
Distributions
from
Underlying
Funds
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

  $ 871,428     $ 21,465,717 (a)    $     $ 625     $ (365   $ 22,337,405       22,332,938     $ 854     $  
       

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description    Number of
Contracts
       Expiration
Date
       Notional
Amount (000)
       Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

                 

10-Year U.S. Treasury Note

     111          09/21/21        $ 14,933        $ (281,534

U.S. Long Bond

     52          09/21/21          8,578          (450,231

5-Year U.S. Treasury Note

     100          09/30/21          12,448          (116,602
                 

 

 

 
                  $ (848,367
                 

 

 

 

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:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Liabilities — Derivative Financial Instruments

                    

Futures contracts

                    

Unrealized depreciation on futures contracts(a)

   $      $      $      $      $ 848,367      $      $ 848,367  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, 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 July 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from

                    

Futures contracts

   $      $      $      $      $ 886,497      $      $ 886,497  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Net Change in Unrealized Appreciation (Depreciation) on                                                 

Futures contracts

   $      $      $      $      $ (848,367    $      $ (848,367
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts        

Average notional value of contracts — short

   $ 28,182,008  

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  27


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

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 valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

      Level 1        Level 2        Level 3        Total  

Assets

                 

Investments

                 

Long-Term Investments

                 

Municipal Bonds

   $        $ 648,727,305        $        $ 648,727,305  

Municipal Bonds Transferred to Tender Option Bond Trusts

              113,611,126                   113,611,126  

Short-Term Securities

                 

Commercial Paper

              5,100,419                   5,100,419  

Money Market Funds

     22,337,405                            22,337,405  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $   22,337,405        $ 767,438,850        $        $ 789,776,255  
  

 

 

      

 

 

      

 

 

      

 

 

 

Derivative Financial Instruments(a)

                 

Liabilities

                 

Interest Rate Contracts

   $ (848,367      $        $             —        $ (848,367
  

 

 

      

 

 

      

 

 

      

 

 

 

 

  (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, such assets and/or liabilities are categorized within the fair value hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities

                 

TOB Trust Certificates

   $        $ (61,534,134      $        $ (61,534,134

VRDP Shares at Liquidation Value

              (237,100,000                 (237,100,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $             —        $ (298,634,134      $             —        $ (298,634,134
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

28  

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


Schedule of Investments

July 31, 2021

  

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds

   

Michigan — 134.1%

   
Corporate — 3.3%            

Monroe County Economic Development Corp., Refunding RB, Series AA, (NPFGC), 6.95%, 09/01/22

  $ 14,500     $ 15,541,535  
   

 

 

 
County/City/Special District/School District — 24.6%  

Battle Creek School District, Refunding GO, (Q-SBLF), 5.00%, 05/01/37

    1,170       1,401,719  

Berkley School District, GO, (Q-SBLF), 5.00%, 05/01/35

    2,965       3,441,327  

Byron Center Public Schools, GO

   

Series I, (Q-SBLF), 5.00%, 05/01/43

    4,475       5,465,810  

Series I, (Q-SBLF), 5.00%, 05/01/47

    740       898,952  

Columbia School District, GO, (Q-SBLF), 5.00%, 11/01/23(a)

    5,185       5,754,261  

County of Saginaw Michigan, GO, 4.00%, 11/01/42

    2,000       2,302,660  

Dearborn Brownfield Redevelopment Authority, GO, Series A, (AGC), 5.50%, 05/01/39

    5,300       5,319,133  

Dearborn School District, GO

   

Series A, (Q-SBLF), 5.00%, 11/01/23(a)

    1,500       1,664,685  

Series A, (Q-SBLF), 5.00%, 05/01/33

    1,600       1,764,160  

Series A, (Q-SBLF), 5.00%, 05/01/34

    1,200       1,322,508  

Dowagiac Union School District, GO, (Q-SBLF), 5.00%, 05/01/41

    1,140       1,358,321  

East Lansing School District, GO, Series I, (Q-SBLF), 5.00%, 05/01/42

    1,000       1,222,610  

Farmington Public School District, Refunding GO

   

(AGM), 5.00%, 05/01/33

    1,500       1,748,505  

(AGM), 5.00%, 05/01/34

    1,500       1,747,320  

(AGM), 5.00%, 05/01/35

    1,000       1,164,140  

Fraser Public School District, Refunding GO

   

(Q-SBLF), 5.00%, 05/01/43

    2,000       2,440,220  

(Q-SBLF), 5.00%, 05/01/47

    3,225       3,914,150  

Gibraltar School District, GO, (Q-SBLF), 5.00%, 05/01/36

    750       944,220  

Grandville Public Schools, GO

   

Series I, (AGM), 4.00%, 05/01/38

    910       1,094,803  

Series II, (AGM), 5.00%, 05/01/40

    3,250       3,749,947  

Gull Lake Community School District, GO, Series I, (Q-SBLF), 5.00%, 05/01/45

    4,000       5,023,520  

Hudsonville Public Schools, GO

   

Series I, (Q-SBLF), 4.00%, 05/01/43

    1,875       2,228,756  

Series I, (Q-SBLF), 4.00%, 05/01/44

    1,950       2,313,889  

Series I, (Q-SBLF), 4.00%, 05/01/45

    2,040       2,418,808  

Jackson Public Schools, GO, (Q-SBLF), 5.00%, 05/01/42

    4,000       4,992,520  

Kentwood Public Schools, GO

   

5.00%, 05/01/41

    1,120       1,339,027  

5.00%, 05/01/44

    1,815       2,163,081  

Livonia Public Schools, GO, Series I, (AGM), 5.00%, 05/01/23(a)

    5,000       5,429,200  

Mattawan Consolidated School District, GO, Series I, (Q-SBLF), 5.00%, 05/01/25(a)

    3,375       3,971,734  

Michigan Finance Authority, RB

   

5.00%, 11/01/34

    215       271,683  

5.00%, 11/01/38

    2,500       3,149,175  

5.00%, 11/01/43

    4,000       5,020,080  

Series H-1, 5.00%, 10/01/39(a)

    5,400       6,145,686  
Security   Par
(000)
    Value  
County/City/Special District/School District (continued)            

Mona Shores Public Schools, GO

   

Series I, (Q-SBLF), 5.00%, 05/01/42

  $ 1,000     $ 1,275,800  

Series I, (Q-SBLF), 5.00%, 05/01/43

    1,025       1,306,691  

Series I, (Q-SBLF), 5.00%, 05/01/44

    1,525       1,942,393  

Swartz Creek Community Schools, GO, (Q-SBLF), 5.00%, 05/01/44

    4,270       5,386,818  

Troy School District, GO, (Q-SBLF), 5.00%, 11/01/23(a)

    2,000       2,219,580  

Walled Lake Consolidated School District, GO, (Q-SBLF), 5.00%, 11/01/23(a)

    7,010       7,779,628  

Zeeland Public Schools, GO

   

Series A, (AGM), 5.00%, 05/01/25(a)

    2,000       2,353,510  

Series A, (AGM), 5.00%, 05/01/33

    1,000       1,162,240  
   

 

 

 
      116,613,270  
Education — 30.1%            

Grand Valley State University, RB, 5.00%, 12/01/43

    1,600       1,984,064  

Lake Superior State University, RB, (AGM), 5.00%, 01/15/48

    3,750       4,570,575  

Michigan Finance Authority, Refunding RB 4.00%, 02/01/29

    700       776,783  

5.00%, 02/01/33

    830       952,359  

4.00%, 12/01/33

    1,720       1,843,204  

5.00%, 12/01/36

    1,550       1,693,452  

5.00%, 09/01/40

    1,000       1,151,220  

5.00%, 12/01/40

    2,900       3,114,310  

5.00%, 12/01/45

    4,400       4,700,344  

4.00%, 09/01/46

    1,750       2,046,835  

Series 25-A, AMT, 4.00%, 11/01/29

    5,900       6,148,154  

Series 25-A, AMT, 4.00%, 11/01/30

    2,850       2,969,301  

Series 25-A, AMT, 4.00%, 11/01/31

    3,150       3,281,166  

Michigan State University, Refunding RB, Series A, 5.00%, 08/15/38

    10,000       10,940,500  

Michigan Technological University, RB, Series A, 5.00%, 10/01/45

    1,800       2,102,544  

Michigan Technological University, Refunding RB 5.00%, 10/01/31

    1,080       1,473,617  

5.00%, 10/01/32

    1,250       1,697,112  

5.00%, 10/01/33

    1,325       1,790,234  

5.00%, 10/01/34

    1,400       1,881,964  

Oakland University, RB

   

5.00%, 03/01/32

    400       411,152  

5.00%, 03/01/41

    3,635       4,316,781  

Series A, 5.00%, 03/01/38

    5,490       5,886,598  

Series A, 5.00%, 03/01/43

    16,845       18,027,182  

University of Michigan, RB, Series A, 5.00%, 04/01/39

    3,425       3,843,090  

Wayne State University, RB, Series A, 5.00%, 11/15/40

    13,000       14,341,470  

Western Michigan University, RB, Series A, (AGM), 5.00%, 11/15/51

    5,000       6,397,850  

Western Michigan University, Refunding RB 5.25%, 11/15/21(a)

    3,500       3,551,380  

(AGM), 5.00%, 11/15/23(a)

    1,750       1,945,317  

5.25%, 11/15/23(a)

    8,475       9,469,202  

(AGM), 5.25%, 11/15/23(a)

    1,000       1,117,310  

5.00%, 11/15/44

    5,650       7,176,121  

5.00%, 11/15/49

    8,680       11,024,815  
   

 

 

 
      142,626,006  
Health — 33.1%            

Grand Traverse County Hospital Finance Authority, RB

 

 

Series A, 5.00%, 07/01/44

    4,230       4,754,012  

Series A, 5.00%, 07/01/47

    2,200       2,469,082  

Series A, 5.00%, 07/01/49

    2,610       3,244,204  
 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  29


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Health (continued)            

Grand Traverse County Hospital Finance Authority, RB (continued)

   

Series B, 4.00%, 07/01/49

  $ 2,000     $ 2,305,840  

Grand Traverse County Hospital Finance Authority, Refunding RB

   

5.00%, 07/01/32

    2,135       2,899,415  

5.00%, 07/01/33

    1,125       1,520,831  

5.00%, 07/01/34

    1,180       1,587,619  

Kalamazoo Economic Development Corp., Refunding RB

   

5.00%, 05/15/32

    865       970,271  

5.00%, 05/15/42

    425       468,486  

Kent Hospital Finance Authority, Refunding RB, Series A, 5.00%, 11/15/21(a)

    7,500       7,604,850  

Kentwood Economic Development Corp., RB, 4.00%, 11/15/45

    750       837,390  

Kentwood Economic Development Corp., Refunding RB, 5.00%, 11/15/41

    2,335       2,730,479  

Michigan Finance Authority, RB

   

5.00%, 11/15/36

    2,500       2,648,450  

Series S, 4.00%, 11/01/46

    1,025       1,143,808  

Michigan Finance Authority, Refunding RB 5.00%, 12/01/21(a)

    16,690       16,959,877  

5.00%, 06/01/24(a)

    1,500       1,705,155  

5.00%, 11/01/32

    4,000       4,237,080  

5.00%, 11/15/37

    3,000       3,647,370  

5.00%, 11/15/41

    1,000       1,205,420  

5.00%, 11/15/45

    3,750       4,327,350  

5.00%, 12/01/45(a)

    19,735       23,642,897  

4.00%, 11/15/46

    8,500       9,578,140  

Series S, 5.00%, 05/15/32

    1,000       1,158,040  

Series S, 5.00%, 05/15/33

    2,000       2,314,320  

Series S, 5.00%, 05/15/34

    6,500       7,515,690  

Series S, 5.00%, 05/15/35

    4,945       5,713,156  

Michigan State Hospital Finance Authority, Refunding RB

   

Series A, 5.00%, 06/01/35

    2,250       2,334,398  

Series C, 4.00%, 06/01/22(a)

    5,300       5,472,303  

Michigan Strategic Fund, Refunding RB, 5.00%, 11/15/43

    1,220       1,411,516  

Royal Oak Hospital Finance Authority, Refunding RB, Series D, 5.00%, 09/01/39

    27,365       30,482,694  
   

 

 

 
      156,890,143  
Housing — 7.0%            

Michigan State Housing Development Authority, RB, M/F Housing

   

Series A, 4.45%, 10/01/34

    1,000       1,058,500  

Series A, 4.63%, 10/01/39

    3,490       3,681,217  

Series A, 4.30%, 10/01/40

    3,320       3,614,119  

Series A, 4.00%, 10/01/43

    7,420       8,208,672  

Series A, 4.75%, 10/01/44

    5,000       5,232,150  

Series A, 2.45%, 10/01/46

    5,000       4,966,900  

AMT, (GNMA), 4.75%, 04/20/37

    2,910       2,913,957  

Michigan State Housing Development Authority, RB, S/F Housing, Series A, 4.00%, 12/01/44

    3,390       3,574,382  
   

 

 

 
      33,249,897  
Security   Par
(000)
    Value  
State — 19.4%            

Flint Economic Development Corp., RB, 5.25%, 10/01/41

  $ 4,950     $ 4,989,600  

Michigan Finance Authority, RB

   

Series F, 5.00%, 04/01/31

    1,000       1,007,880  

Series F, 5.25%, 10/01/41

    8,595       8,663,760  

Michigan State Building Authority, Refunding RB

   

Series I, 5.00%, 04/15/41

    4,750       5,678,768  

Series I, 4.00%, 10/15/46

    5,000       6,084,500  

Series I-A, 5.50%, 10/15/21(a)

    2,000       2,021,720  

Michigan Strategic Fund, RB

   

Series A, 5.25%, 10/15/40

    3,000       3,542,100  

AMT, (AGM), 4.25%, 12/31/38

    14,000       16,766,120  

AMT, 5.00%, 12/31/43

    15,000       18,250,650  

Michigan Strategic Fund, Refunding RB, 5.25%, 10/15/31

    7,000       7,071,610  

State of Michigan Trunk Line Revenue, RB 5.00%, 11/15/33

    3,000       3,041,790  

5.00%, 11/15/36

    5,345       5,418,814  

Series B, 4.00%, 11/15/45

    5,000       6,044,000  

State of Michigan, COP, (AMBAC), 0.00%, 06/01/22(b)(c)

    3,000       2,991,570  
   

 

 

 
      91,572,882  
Tobacco — 1.8%            

Michigan Finance Authority, Refunding RB, Series A, Class 1, 4.00%, 06/01/40

    1,250       1,499,162  

Michigan Finance Authority, Refunding RB, CAB, Series B-2, Class 2, 0.00%, 06/01/65(c)

    50,000       6,795,000  
   

 

 

 
      8,294,162  
Transportation — 6.6%            

Wayne County Airport Authority, ARB

   

Series A, 5.00%, 12/01/42

    1,000       1,244,480  

Series A, 5.00%, 12/01/46

    2,000       2,651,240  

Series D, 5.00%, 12/01/35

    3,850       4,578,574  

Series D, 5.00%, 12/01/45

    7,500       8,842,650  

Series B, AMT, 5.00%, 12/01/42

    1,000       1,222,350  

Series B, AMT, 5.00%, 12/01/47

    1,250       1,521,938  

Series C, AMT, 5.00%, 12/01/39

    1,475       1,679,361  

Wayne County Airport Authority, Refunding ARB, Series F, AMT, 5.00%, 12/01/34

    8,000       9,432,480  
   

 

 

 
      31,173,073  
Utilities — 8.2%            

City of Detroit Michigan Sewage Disposal System Revenue, Refunding RB, Series A, Senior Lien, 5.25%, 07/01/22(a)

    2,655       2,780,369  

City of Detroit Michigan Water Supply System Revenue, RB, Series A, Senior Lien, (NPFGC), 5.00%, 07/01/34

    10       10,033  

City of Grand Rapids Michigan Sanitary Sewer System Revenue, Refunding RB, Series A, (NPFGC), 5.50%, 01/01/22

    280       286,121  

City of Port Huron Michigan Water Supply System Revenue, RB

   

5.25%, 10/01/31

    500       503,895  

5.63%, 10/01/40

    1,500       1,512,270  

Downriver Utility Wastewater Authority, Refunding RB, (AGM), 5.00%, 04/01/43

    1,000       1,208,710  

Great Lakes Water Authority Water Supply System Revenue, RB, Series B, 2nd Lien, 5.00%, 07/01/46

    10,000       11,826,100  
 

 

 

30  

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Utilities (continued)            

Karegnondi Water Authority, Refunding RB 5.00%, 11/01/41

  $ 2,750     $ 3,401,063  

5.00%, 11/01/45

    3,000       3,710,040  

Michigan Finance Authority, Refunding RB

   

Series D-1, 5.00%, 07/01/34

    2,000       2,339,180  

Series D-1, 5.00%, 07/01/35

    750       876,540  

Series C-3, Senior Lien, (AGM), 5.00%, 07/01/31

    1,000       1,131,110  

Series C-3, Senior Lien, (AGM), 5.00%, 07/01/32

    5,250       5,934,495  

Series C-3, Senior Lien, (AGM), 5.00%, 07/01/33

    3,000       3,388,890  
   

 

 

 
      38,908,816  
   

 

 

 

Total Municipal Bonds in Michigan

      634,869,784  
Puerto Rico — 4.6%            
State — 4.6%            

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB

   

Series A-1, Restructured, 4.75%, 07/01/53

    534       614,287  

Series A-1, Restructured, 5.00%, 07/01/58

    825       961,232  

Series A-2, Restructured, 4.33%, 07/01/40

    1,109       1,259,658  

Series A-2, Restructured, 4.78%, 07/01/58

    103       118,429  

Series B-1, Restructured, 4.75%, 07/01/53

    616       708,616  

Series B-1, Restructured, 5.00%, 07/01/58

    7,451       8,673,634  

Series B-2, Restructured, 4.33%, 07/01/40

    5,880       6,675,035  

Series B-2, Restructured, 4.78%, 07/01/58

    597       686,795  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, CAB, Series A-1, Restructured, 0.00%, 07/01/46(c)

    6,295       2,103,034  
   

 

 

 

Total Municipal Bonds in Puerto Rico

      21,800,720  
   

 

 

 

Total Municipal Bonds — 138.7%
(Cost: $603,186,675)

      656,670,504  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(d)

 

Michigan — 17.2%

   
Education — 13.2%            

Eastern Michigan University, RB, Series A, 4.00%, 03/01/44

    10,000       11,612,600  

Michigan Finance Authority, RB, Series A, 5.00%, 11/01/44

    10,002       11,746,220  

Michigan Finance Authority, Refunding RB, AMT, Series 25-A, 4.00%, 11/01/28

    8,750       9,120,035  

Michigan State University, Refunding RB, Series B, 5.00%, 02/15/44(e)

    5,750       7,328,719  

University of Michigan, Refunding RB, 5.00%, 04/01/46

    10,000       11,981,701  

Wayne State University, RB, Series A, 5.00%, 11/15/43(e)

    8,530       10,791,557  
   

 

 

 
      62,580,832  
Security   Par
(000)
    Value  
State — 1.3%            

Michigan State Building Authority, Refunding RB, Series I, 5.00%, 10/15/45

  $ 5,150     $ 6,055,988  
   

 

 

 
Utilities — 2.7%            

Lansing Board of Water & Light, Refunding RB, Series A, 5.00%, 07/01/44

    10,000       12,737,796  
   

 

 

 

Total Municipal Bonds in Michigan

      81,374,616  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond Trusts — 17.2%
(Cost: $73,130,361)

      81,374,616  
   

 

 

 

Total Long-Term Investments — 155.9%
(Cost: $676,317,036)

      738,045,120  
   

 

 

 
     Shares         
Short-Term Securities            
Money Market Funds — 0.6%            

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.01%(f)(g)

    2,854,205       2,854,776  
   

 

 

 

Total Short-Term Securities — 0.6%
(Cost: $2,853,807)

      2,854,776  
   

 

 

 

Total Investments — 156.5%
(Cost: $679,170,843)

      740,899,896  

Other Assets Less Liabilities — 1.1%

      5,351,746  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (8.7)%

 

    (41,281,586

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (48.9)%

 

    (231,506,549
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 473,463,507  
   

 

 

 

 

(a) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(b) 

Security is collateralized by municipal bonds or U.S. Treasury obligations.

(c) 

Zero-coupon bond.

(d) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(e) 

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 the agreements, which expire between November 15, 2026 to February 15, 2027, is $9,881,917. See Note 4 of the Notes to Financial Statements for details.

(f) 

Affiliate of the Fund.

(g) 

Annualized 7-day yield as of period end.

 

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  31


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended July 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer    Value at
07/31/20
     Purchases
at Cost
     Proceeds
from Sales
     Net
Realized
Gain (Loss)
     Change in
Unrealized
Appreciation
(Depreciation)
     Value at
07/31/21
     Shares
Held at
07/31/21
     Income      Capital Gain
Distributions
from
Underlying
Funds
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

   $ 3,877,972      $      $ (1,023,485 )(a)     $ 775      $ (486    $ 2,854,776        2,854,205      $ 395      $  
           

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 

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 valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

      Level 1        Level 2        Level 3        Total  

Assets

                 

Investments

                 

Long-Term Investments

                 

Municipal Bonds

   $        $ 656,670,504        $        $ 656,670,504  

Municipal Bonds Transferred to Tender Option Bond Trusts

              81,374,616                   81,374,616  

Short-Term Securities

                 

Money Market Funds

     2,854,776                            2,854,776  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $     2,854,776        $ 738,045,120        $             —        $ 740,899,896  
  

 

 

      

 

 

      

 

 

      

 

 

 

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, such assets and/or liabilities are categorized within the fair value hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities

                 

TOB Trust Certificates

   $        $ (41,267,055      $        $ (41,267,055

VRDP Shares at Liquidation Value

              (231,900,000                 (231,900,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $             —        $ (273,167,055      $             —        $ (273,167,055
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

32  

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


Schedule of Investments

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds

 

Guam — 0.3%

 

Utilities — 0.3%  

Guam Government Waterworks Authority, RB, Series A, 5.00%, 01/01/50

  $ 460     $ 568,896  
   

 

 

 

Pennsylvania — 115.4%

 

Corporate — 2.2%  

Pennsylvania Economic Development Financing Authority, RB

   

Series A, AMT, 0.58%, 08/01/37(a)

    2,755       2,755,000  

Series A, AMT, 3.25%, 08/01/39(b)

    1,950       2,026,050  

Pennsylvania Economic Development Financing Authority, Refunding RB, AMT, 5.50%, 11/01/44

    135       144,297  
   

 

 

 
      4,925,347  
County/City/Special District/School District — 29.0%  

Allentown Neighborhood Improvement Zone Development Authority, Refunding RB

   

Series A, 5.00%, 05/01/35

    190       196,756  

Series A, 5.00%, 05/01/42

    450       466,006  

Altoona Area School District, GO

   

(BAM SAW), 5.00%, 12/01/36

    125       147,270  

(BAM SAW), 5.00%, 12/01/45

    600       698,328  

Series A, (AGM, SAW), 5.00%, 12/01/36

    1,180       1,390,229  

Bethlehem Area School District, GO

   

Series A, (BAM SAW), 5.00%, 08/01/34

    1,610       1,879,755  

Series A, (BAM SAW), 5.00%, 08/01/35

    1,210       1,411,840  

Borough of West Chester Pennsylvania, Refunding GO, 3.50%, 11/15/35

    1,095       1,215,187  

Boyertown Area School District, GO

   

(SAW), 5.00%, 10/01/36

    610       681,821  

(SAW), 5.00%, 10/01/38

    920       1,027,033  

Bristol Township School District, GO

   

(SAW), 5.00%, 06/01/40

    775       839,387  

(BAM SAW), 5.00%, 06/01/42

    1,685       2,067,832  

Chester County Industrial Development Authority, SAB(b)

   

4.25%, 03/01/35

    715       743,822  

4.75%, 03/01/50

    1,525       1,587,128  

City of Lancaster Pennsylvania, GO, (BAM), 4.00%, 11/01/42

    1,705       2,002,966  

City of Philadelphia Pennsylvania, Refunding GO, Series A, 5.00%, 08/01/37

    1,360       1,684,782  

City of Pittsburgh Pennsylvania, GO, Series B, 5.00%, 09/01/22(c)

    1,095       1,152,619  

Coatesville School District, GO, CAB(d)

   

Series A, (BAM SAW), 0.00%, 10/01/34

    160       111,470  

Series A, (BAM SAW), 0.00%, 10/01/35

    1,435       955,308  

Series A, (BAM SAW), 0.00%, 10/01/37

    1,395       848,355  

Coatesville School District, Refunding GO, CAB(d)

   

Series B, (BAM SAW), 0.00%, 10/01/33

    275       200,370  

Series B, (BAM SAW), 0.00%, 10/01/34

    550       383,179  

Series C, (BAM SAW), 0.00%, 10/01/33

    360       270,529  

Council Rock School District, GO, (SAW), 2.00%, 08/15/40

    1,310       1,282,438  

Dallastown Area School District, Refunding GO, (SAW), 5.00%, 04/15/34

    1,235       1,432,822  

East Pennsboro Area School District, GO

   

(BAM SAW), 4.00%, 10/01/40

    355       413,745  

(BAM SAW), 4.00%, 10/01/44

    840       973,972  

Fox Chapel Area School District, GO (SAW), 5.00%, 02/01/39

    1,345       1,649,737  
Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

Fox Chapel Area School District, GO (continued)

   

(SAW), 5.00%, 02/01/42

  $ 1,250     $ 1,514,362  

Governor Mifflin School District, GO

   

Series A, (SAW), 4.00%, 04/01/39

    360       421,679  

Series A, (SAW), 4.00%, 04/01/40

    225       263,036  

Series A, (SAW), 4.00%, 04/01/42

    640       745,485  

Series A, (SAW), 4.00%, 04/01/43

    570       663,024  

Series A, (SAW), 4.00%, 04/01/46

    665       768,348  

Manheim Township School District, GO

   

Series A, (SAW), 3.00%, 02/01/34

    100       112,083  

Series A, (SAW), 4.00%, 02/01/34

    260       313,251  

Series A, (SAW), 4.00%, 02/01/35

    510       613,326  

Series A, (SAW), 4.00%, 02/01/36

    345       413,376  

Marple Newtown School District, GO, (SAW), 3.00%, 06/01/40

    1,375       1,508,210  

Monroe County, GO

   

Series A, 4.00%, 07/15/30

    455       560,747  

Series A, 4.00%, 07/15/31

    530       649,971  

Series A, 4.00%, 07/15/32

    695       848,602  

Northampton County Industrial Development Authority, TA, 7.00%, 07/01/32

    140       150,118  

Shaler Area School District, GO, CAB, (XLCA SAW), 0.00%, 09/01/30(d)

    6,145       5,373,249  

Springfield School District/Delaware County, GO

   

(SAW), 5.00%, 03/01/36

    870       1,093,451  

(SAW), 5.00%, 03/01/37

    890       1,117,270  

(SAW), 5.00%, 03/01/40

    1,025       1,283,597  

(SAW), 5.00%, 03/01/43

    775       967,952  

State Public School Building Authority, RB, CAB(d)

   

(AGM, SAW), 0.00%, 12/15/22

    1,640       1,631,193  

(AGM, SAW), 0.00%, 12/15/23

    1,980       1,956,082  

(AGM, SAW), 0.00%, 12/15/24

    1,980       1,932,401  

(AGM, SAW), 0.00%, 12/15/25

    1,770       1,698,811  

Township of Lower Paxton Pennsylvania, GO 5.00%, 04/01/24(c)

    1,870       2,110,034  

Series A, 4.00%, 04/01/39

    400       474,192  

Series A, 4.00%, 04/01/40

    150       177,405  

Series A, 4.00%, 04/01/42

    315       371,265  

Series A, 4.00%, 04/01/50

    395       459,630  

Tredyffrin Easttown School District, GO, (SAW), 5.00%, 02/15/39

    695       856,803  

West Shore School District, GO

   

(SAW), 5.00%, 11/15/43

    2,095       2,604,253  

(SAW), 4.00%, 11/15/45

    715       850,843  

(SAW), 4.00%, 11/15/48

    360       427,752  

(SAW), 5.00%, 11/15/48

    1,200       1,475,196  
   

 

 

 
      64,121,683  
Education — 17.8%  

Berks County Municipal Authority, Refunding RB 5.00%, 10/01/39

    160       179,112  

5.00%, 10/01/49

    430       477,558  

City of Erie Higher Education Building Authority, Refunding RB

   

4.00%, 05/01/36

    105       123,162  

5.00%, 05/01/47

    335       415,959  

Commonwealth of Pennsylvania, GO, First Series, 5.00%, 06/01/22(c)

    2,460       2,559,458  

Delaware County Authority, RB

   

5.00%, 08/01/40

    1,205       1,404,259  

5.00%, 08/01/45

    1,610       1,850,470  
 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  33


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Education (continued)  

Delaware County Authority, Refunding RB, CAB, 5.00%, 07/01/47

  $ 2,480     $ 2,868,641  

East Hempfield Township Industrial Development Authority, RB(c)

   

5.00%, 07/01/23

    785       858,193  

5.00%, 07/01/25

    1,255       1,484,752  

Latrobe Industrial Development Authority, Refunding RB, 4.00%, 03/01/46

    285       316,367  

Lehigh County Industrial Development Authority, Refunding RB, 4.00%, 05/01/51

    840       908,057  

Northampton County General Purpose Authority, Refunding RB, 4.00%, 11/01/38

    1,160       1,377,222  

Pennsylvania Higher Education Assistance Agency, RB

   

Series A, 5.00%, 06/01/26

    165       196,437  

Series A, 5.00%, 06/01/27

    185       225,180  

Series A, 5.00%, 06/01/28

    195       242,176  

Series A, 5.00%, 06/01/29

    190       239,961  

Series A, 5.00%, 06/01/30

    140       179,494  

Series A, 2.63%, 06/01/42

    1,250       1,274,012  

Series B, AMT, Subordinate, 3.13%, 06/01/48

    350       355,173  

Pennsylvania Higher Educational Facilities Authority, RB, Series AT-1, 4.00%, 06/15/34

    2,000       2,309,880  

Pennsylvania Higher Educational Facilities Authority, Refunding RB

   

5.00%, 05/01/37

    1,325       1,356,906  

Series A, 5.25%, 07/15/23(c)

    1,580       1,738,016  

Series A, 5.50%, 07/15/23(c)

    385       425,375  

Philadelphia Authority for Industrial Development, RB 4.00%, 06/15/29

    280       301,669  

5.00%, 06/15/39

    335       367,987  

5.00%, 11/01/42

    2,710       3,174,115  

5.00%, 06/15/49

    935       1,007,734  

5.00%, 06/15/50

    575       623,105  

Philadelphia Authority for Industrial Development, Refunding RB

   

5.00%, 05/01/30

    440       513,638  

5.00%, 05/01/40

    375       426,405  

5.00%, 06/15/40(b)

    320       382,070  

4.00%, 05/01/42

    2,985       3,108,370  

4.00%, 11/01/45

    740       854,138  

5.00%, 05/01/50

    1,120       1,247,378  

5.00%, 06/15/50(b)

    610       715,646  

Series 2015, 5.00%, 04/01/45

    2,170       2,499,102  

Swarthmore Borough Authority, Refunding RB, 5.00%, 09/15/38

    830       910,128  
   

 

 

 
      39,497,305  
Health — 23.7%  

Allegheny County Hospital Development Authority, RB, Series B, (NPFGC), 6.00%, 07/01/26

    2,000       2,525,780  

Allegheny County Hospital Development Authority, Refunding RB

   

Series A, 4.00%, 04/01/37

    1,700       1,992,808  

Series A, (AGM-CR), 4.00%, 04/01/44

    3,440       3,970,964  

Series A, 5.00%, 04/01/47

    700       864,934  

Bucks County Industrial Development Authority, RB, 4.00%, 07/01/51

    1,000       1,127,660  

Bucks County Industrial Development Authority, Refunding RB, 5.00%, 10/01/37

    940       1,065,443  

Centre County Hospital Authority, RB, 7.00%, 11/15/21(c)

    2,410       2,457,067  
Security   Par
(000)
    Value  
Health (continued)  

Cumberland County Municipal Authority, Refunding RB

 

 

5.00%, 01/01/25(c)

  $ 255     $ 296,259  

4.00%, 01/01/36

    395       458,105  

4.13%, 01/01/38

    160       186,366  

5.00%, 01/01/38

    2,345       2,649,194  

5.00%, 01/01/39

    760       936,472  

DuBois Hospital Authority, Refunding RB, 4.00%, 07/15/48

    2,060       2,343,291  

Franklin County Industrial Development Authority, RB 5.00%, 12/01/29

    70       78,072  

5.00%, 12/01/39

    135       148,164  

5.00%, 12/01/49

    100       108,152  

5.00%, 12/01/54

    365       393,284  

Geisinger Authority, Refunding RB, Series A-2, 5.00%, 02/15/39

    4,050       4,961,696  

Lancaster County Hospital Authority, Refunding RB, 5.00%, 11/01/35

    575       651,596  

Lancaster Industrial Development Authority, RB 4.00%, 12/01/44

    420       473,747  

5.00%, 12/01/44

    665       786,994  

4.00%, 12/01/49

    565       635,738  

Lancaster Industrial Development Authority, Refunding RB(c)

   

5.38%, 05/01/23

    520       567,658  

5.75%, 05/01/23

    865       949,934  

Montgomery County Higher Education and Health Authority, Refunding RB

   

Series A, 5.00%, 09/01/37

    840       1,042,734  

Series A, 5.00%, 09/01/48

    1,500       1,838,400  

Montgomery County Industrial Development Authority, RB

   

Series C, 4.00%, 11/15/43

    200       233,380  

Series C, 5.00%, 11/15/45

    915       1,134,737  

Montgomery County Industrial Development Authority, Refunding RB

   

5.00%, 05/15/22(c)

    1,420       1,474,344  

5.25%, 01/01/40

    220       232,340  

Mount Lebanon Hospital Authority, RB, 4.00%, 07/01/48

    2,345       2,656,815  

Northampton County General Purpose Authority, Refunding RB

   

5.00%, 08/15/46

    1,000       1,193,750  

5.00%, 08/15/48

    1,125       1,394,370  

Pennsylvania Higher Educational Facilities Authority, RB, Series A, 5.75%, 08/15/21(c)

    1,000       1,001,970  

Pennsylvania Higher Educational Facilities Authority, Refunding RB, Series A, 5.00%, 09/01/45

    2,000       2,291,100  

Pottsville Hospital Authority, Refunding RB, Series B, 5.00%, 07/01/41

    3,000       3,659,370  

Union County Hospital Authority, Refunding RB, 7.00%, 08/01/21(c)

    460       460,000  

Wayne County Hospital & Health Facilities Authority, RB, Series A, (CNTY GTD), 4.00%, 07/01/46

    1,595       1,772,412  

West Cornwall Township Municipal Authority, Refunding RB

   

Series A, 4.00%, 11/15/36

    230       265,411  

Series A, 4.00%, 11/15/41

    225       256,541  

Series A, 4.00%, 11/15/46

    335       379,079  

Westmoreland County Industrial Development Authority, Refunding RB, Series A, 4.00%, 07/01/37

    360       432,464  
   

 

 

 
      52,348,595  
Housing — 2.1%  

Pennsylvania Housing Finance Agency, RB, M/F Housing

   

Series A, 4.25%, 10/01/35.

    385       317,067  

Series A, 4.50%, 10/01/40

    400       328,008  
 

 

 

34  

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Housing (continued)  

Pennsylvania Housing Finance Agency, RB, S/F Housing, Series 128B, AMT, 4.00%, 10/01/47

  $ 955     $ 1,022,156  

Philadelphia Authority for Industrial Development, RB, M/F Housing

   

Series A, 3.50%, 12/01/36

    810       555,619  

Series A, 4.00%, 12/01/46

    2,970       1,955,775  

Series A, 4.00%, 12/01/51

    805       520,384  
   

 

 

 
      4,699,009  
State — 8.5%  

Commonwealth Financing Authority, RB 5.00%, 06/01/34

    4,175       5,243,174  

5.00%, 06/01/35

    1,295       1,623,580  

Commonwealth Financing Authority, Refunding RB, Series A, 5.00%, 06/01/28

    1,000       1,281,740  

Pennsylvania Economic Development Financing Authority, RB, AMT, 5.00%, 06/30/42

    7,000       8,145,130  

Pennsylvania Turnpike Commission, RB, Sub-Series B, 5.25%, 12/01/48

    1,930       2,467,428  
   

 

 

 
      18,761,052  
Tobacco — 4.6%  

Commonwealth Financing Authority, RB, 5.00%, 06/01/33

    3,575       4,497,994  

Commonwealth of Pennsylvania, GO

   

First Series, 5.00%, 05/15/28

    1,300       1,673,451  

First Series, 5.00%, 05/15/29

    3,000       3,949,950  
   

 

 

 
      10,121,395  
Transportation — 14.8%  

City of Philadelphia Pennsylvania Airport Revenue, Refunding ARB

   

AMT, (AGM), 4.00%, 07/01/46

    610       726,650  

Series B, AMT, 5.00%, 07/01/37

    1,100       1,338,667  

Series B, AMT, 5.00%, 07/01/47

    2,105       2,529,431  

Delaware River Joint Toll Bridge Commission, RB, 5.00%, 07/01/42

    1,500       1,835,340  

Delaware River Port Authority, RB

   

5.00%, 01/01/29

    475       528,713  

5.00%, 01/01/37

    2,285       2,532,351  

Pennsylvania Economic Development Financing Authority, RB, AMT, 0.42%, 06/01/41(a)

    1,665       1,681,071  

Pennsylvania Economic Development Financing Authority, Refunding RB, Series A, AMT, 5.00%, 11/01/41

    6,025       6,330,648  

Pennsylvania Turnpike Commission RB 5.00%, 12/01/29

    260       343,949  

5.00%, 12/01/30

    325       438,266  

5.00%, 12/01/31

    590       809,964  

3.00%, 12/01/51

    1,720       1,849,722  

Pennsylvania Turnpike Commission, RB, Sub-Series B-1, 5.00%, 06/01/42

    2,345       2,871,968  

Pennsylvania Turnpike Commission, RB, CAB(d)

   

Sub-Series A-3, (AGM), 0.00%, 12/01/40

    1,275       849,584  

Sub-Series A-3, 0.00%, 12/01/42

    4,760       2,846,337  

Pennsylvania Turnpike Commission, Refunding RB, Series A-1, 5.25%, 12/01/45

    3,270       3,878,384  

Southeastern Pennsylvania Transportation Authority, RB, 5.00%, 06/01/32

    1,075       1,416,237  
   

 

 

 
      32,807,282  
Security   Par
(000)
    Value  
Utilities — 12.7%  

Allegheny County Sanitary Authority, RB, (BAM), 5.25%, 12/01/41

  $ 1,410     $ 1,560,447  

Bucks County Water and Sewer Authority, RB

   

Series A, (AGM), 5.00%, 12/01/37

    780       894,371  

Series A, (AGM), 5.00%, 12/01/40

    1,000       1,143,650  

City of Philadelphia Pennsylvania Water & Wastewater Revenue, RB

   

Series A, 5.00%, 10/01/43

    3,040       3,843,168  

Series A, 5.00%, 11/01/45

    1,790       2,318,426  

Series A, 5.25%, 10/01/52

    810       1,011,706  

Delaware County Regional Water Quality Control Authority, RB, 5.00%, 05/01/23(c)

    420       455,658  

Falls Township Authority, Refunding RB, (MUN GOVT GTD), 5.00%, 12/01/37

    1,270       1,290,066  

New Kensington Municipal Sanitary Authority, RB, (AGM), 3.25%, 12/01/47

    1,195       1,245,549  

Oxford Area Sewer Authority Refunding RB

   

(BAM), 4.00%, 07/01/22

    100       103,434  

(BAM), 4.00%, 07/01/23

    135       144,594  

(BAM), 3.00%, 07/01/25

    100       109,633  

(BAM), 4.00%, 07/01/28

    160       193,080  

(BAM), 4.00%, 07/01/29

    165       202,179  

(BAM), 4.00%, 07/01/30

    120       149,026  

(BAM), 4.00%, 07/01/31

    100       125,855  

(BAM), 4.00%, 07/01/33

    100       124,325  

(BAM), 4.00%, 07/01/34

    200       247,560  

(BAM), 3.00%, 07/01/35

    100       112,743  

(BAM), 4.00%, 07/01/37

    220       270,134  

(BAM), 4.00%, 07/01/38

    230       281,745  

(BAM), 4.00%, 07/01/39

    240       293,537  

(BAM), 4.00%, 07/01/41

    260       316,501  

(BAM), 3.00%, 07/01/46

    1,255       1,361,926  

(BAM), 2.38%, 07/01/55

    2,380       2,328,949  

Philadelphia Gas Works Co., Refunding RB 5.00%, 08/01/30

    800       935,992  

5.00%, 08/01/31

    600       701,298  

5.00%, 08/01/32

    800       934,264  

5.00%, 08/01/33

    400       466,708  

5.00%, 08/01/34

    700       816,004  

Pittsburgh Water & Sewer Authority, RB, Series B, (AGM), 4.00%, 09/01/50

    900       1,072,944  

Westmoreland County Municipal Authority, Refunding RB, (BAM), 5.00%, 08/15/36

    2,000       2,466,020  

Williamsport Sanitary Authority, Refunding RB, (BAM), 4.00%, 01/01/40

    580       677,730  
   

 

 

 
      28,199,222  
   

 

 

 

Total Municipal Bonds in Pennsylvania

 

    255,480,890  

Puerto Rico — 4.6%

 

State — 4.6%  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB

   

Series A-1, Restructured, 4.75%, 07/01/53

    265       304,843  

Series A-1, Restructured, 5.00%, 07/01/58

    389       453,236  

Series A-2, Restructured, 4.33%, 07/01/40

    519       589,506  

Series A-2, Restructured, 4.78%, 07/01/58

    46       52,891  

Series B-1, Restructured, 4.75%, 07/01/53

    283       325,549  

Series B-1, Restructured, 5.00%, 07/01/58

    3,423       3,984,680  
 

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  35


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
State (continued)  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB (continued)

   

Series B-2, Restructured, 4.33%, 07/01/40

  $ 2,701     $ 3,066,202  

Series B-2, Restructured, 4.78%, 07/01/58

    274       315,212  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, CAB, Series A-1, Restructured, 0.00%, 07/01/46(d)

    3,618       1,208,701  
   

 

 

 

Total Municipal Bonds in Puerto Rico

      10,300,820  
   

 

 

 

Total Municipal Bonds — 120.3%
(Cost: $242,693,467)

      266,350,606  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(e)

 

Pennsylvania — 37.0%

   
Education — 9.7%            

Northampton County General Purpose Authority, Refunding RB, 5.00%, 11/01/47

    3,900       4,770,051  

Pennsylvania Higher Educational Facilities Authority, RB, Series AR, 4.00%, 06/15/38

    11,335       12,768,537  

Philadelphia Authority for Industrial Development, RB, 4.00%, 12/01/48(f)

    3,300       3,854,598  
   

 

 

 
      21,393,186  
Health — 19.2%            

County of Lehigh Pennsylvania, Refunding RB, Series A, 4.00%, 07/01/49(f)

    2,501       2,911,911  

General Authority of Southcentral Pennsylvania, Refunding RB

   

4.00%, 06/01/49

    5,385       6,244,338  

Series A, 5.00%, 06/01/24(c)

    7,000       7,952,070  

Montgomery County Higher Education and Health Authority, Refunding RB, 4.00%, 09/01/44(f)

    3,100       3,566,116  

Pennsylvania Economic Development Financing Authority, RB, Series B, 4.00%, 03/15/40

    8,000       8,953,280  

Pennsylvania Higher Educational Facilities Authority, RB, Series A, 4.00%, 08/15/39(f)

    7,815       8,121,894  

St Mary Hospital Authority, Refunding RB, 5.00%, 12/01/48

    3,754       4,858,591  
   

 

 

 
      42,608,200  
Housing — 1.1%            

Pennsylvania Housing Finance Agency, RB, S/F Housing, Series 114C, 3.70%, 10/01/42(f)

    2,439       2,447,352  
   

 

 

 
State — 3.2%            

Commonwealth of Pennsylvania, GO, 1st Series, 4.00%, 03/01/38(f)

    6,000       7,036,320  
   

 

 

 
Transportation — 2.0%            

Pennsylvania Turnpike Commission, RB, Sub-Series A, 5.50%, 12/01/42

    1,680       2,082,293  

Pennsylvania Turnpike Commission, Refunding RB, Sub-Series B-2, 5.00%, 06/01/35

    1,850       2,288,413  
   

 

 

 
      4,370,706  
Security   Par
(000)
    Value  
Utilities — 1.8%            

Westmoreland County Municipal Authority, Refunding RB, 5.00%, 08/15/42

  $ 3,493     $ 4,060,758  
   

 

 

 

Total Municipal Bonds in Pennsylvania

      81,916,522  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond Trusts — 37.0%
(Cost: $73,521,054)

      81,916,522  
   

 

 

 

Total Long-Term Investments — 157.3%
(Cost: $316,214,521)

      348,267,128  
   

 

 

 
     Shares         

Short-Term Securities

   

Money Market Funds —

   

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.01%(g)(h)

    25,901       25,907  
   

 

 

 

Total Short-Term Securities — 0.0%
(Cost: $25,907)

      25,907  
   

 

 

 

Total Investments — 157.3%
(Cost: $316,240,428)

      348,293,035  

Liabilities in Excess of Other Assets — (0.2)%

      (551,153

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (19.9)%

 

    (44,023,185

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (37.2)%

 

    (82,334,769
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 221,383,928  
   

 

 

 

 

(a) 

Variable rate security. Interest rate resets periodically. The rate shown is the effective interest rate as of period end. Security description also includes the reference rate and spread 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 to qualified institutional investors.

(c) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(d) 

Zero-coupon bond.

(e) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(f) 

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 the agreements, which expire between February 15, 2022 to October 1, 2042, is $16,004,052. See Note 4 of the Notes to Financial Statements for details.

(g) 

Affiliate of the Fund.

(h) 

Annualized 7-day yield as of period end.

 

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes 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 sector sub-classifications for reporting ease.

 

 

36  

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


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the year ended July 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer    Value at
07/31/20
     Purchases
at Cost
     Proceeds
from Sales
     Net
Realized
Gain (Loss)
     Change in
Unrealized
Appreciation
(Depreciation)
     Value at
07/31/21
     Shares
Held at
07/31/21
     Income     

Capital Gain
Distributions

from
Underlying

Funds

 

BlackRock Liquidity Funds, MuniCash, Institutional Class

   $ 1,880,644      $      $ (1,854,827 )(a)     $ 90      $      $ 25,907        25,901      $ 236      $  
           

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

  (a) 

Represents net amount purchased (sold).

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description    Number of
Contracts
     Expiration
Date
     Notional
Amount (000)
     Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

           

10-Year U.S. Treasury Note

     57        09/21/21      $ 7,668      $ (144,864

U.S. Long Bond

     31        09/21/21        5,114        (271,607

5-Year U.S. Treasury Note

     42        09/30/21        5,228        (48,994
           

 

 

 
            $ (465,465
           

 

 

 

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:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Liabilities — Derivative Financial Instruments

                    

Futures contracts

                    

Unrealized depreciation on futures contracts(a)

   $      $      $      $      $ 465,465      $      $ 465,465  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)

Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, 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 July 31, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from

                    

Futures contracts

   $      $      $      $      $ 520,777      $      $ 520,777  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on

                    

Futures contracts

   $      $      $      $      $ (465,465    $      $ (465,465
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts

        

Average notional value of contracts — short

   $ 14,402,789  

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

 

 

S C H E D U L E  O F  I N V E S T M E N T S

  37


Schedule of Investments  (continued)

July 31, 2021

  

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

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 valuation of financial instruments, refer to the Notes to Financial Statements.

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

 

      Level 1      Level 2      Level 3      Total  

Assets

           

Investments

           

Long-Term Investments

           

Municipal Bonds

   $      $ 266,350,606      $             —      $ 266,350,606  

Municipal Bonds Transferred to Tender Option Bond Trusts

            81,916,522               81,916,522  

Short-Term Securities

           

Money Market Funds

     25,907                      25,907  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $        25,907      $ 348,267,128      $      $ 348,293,035  
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative Financial Instruments(a)

           

Liabilities

           

Interest Rate Contracts.

   $ (465,465    $      $      $ (465,465)  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (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, such assets and/or liabilities are categorized within the fair value hierarchy as follows:

 

      Level 1      Level 2      Level 3      Total  

Liabilities

           

TOB Trust Certificates

   $      $ (44,011,584    $             —      $ (44,011,584

VRDP Shares at Liquidation Value

            (82,600,000             (82,600,000
  

 

 

    

 

 

    

 

 

    

 

 

 
   $             —      $ (126,611,584    $      $ (126,611,584
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

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


 

Statements of Assets and Liabilities

July 31, 2021

 

     MUC      MUJ      MIY      MPA  

ASSETS

 

Investments, at value — unaffiliated(a)

  $   1,040,078,650      $   767,438,850      $   738,045,120      $   348,267,128  

Investments, at value — affiliated(b)

    19,391,202        22,337,405        2,854,776        25,907  

Cash

           11,111               7,157  

Cash pledged for futures contracts

           436,000               232,000  

Receivables:

          

Investments sold

    160,000                       

Dividends — affiliated

    95        106        46        19  

Interest — unaffiliated

    12,838,544        4,901,761        7,362,145        3,010,822  

Prepaid expenses

    6,211        11,699        143,434        84,506  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    1,072,474,702        795,136,932        748,405,521        351,627,539  
 

 

 

    

 

 

    

 

 

    

 

 

 

ACCRUED LIABILITIES

          

Payables:

          

Investments purchased

           4,280,000               2,755,000  

Accounting services fees

    127,799        102,939        99,652        57,745  

Custodian fees

    8,660        7,019        6,585        3,738  

Income dividend distributions — Common Shares

    2,255,640        1,895,492        1,652,534        731,877  

Interest expense and fees

    43,675        17,944        14,531        11,601  

Investment advisory fees

    475,952        333,902        310,199        144,631  

Directors’ and Officer’s fees

    431,748        3,287        3,228        12,709  

Other accrued expenses

    35,584        29,525        32,182        87,422  

Professional fees

    59,381        50,183        49,499        42,655  

Variation margin on futures contracts

           93,330               49,880  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total accrued liabilities

    3,438,439        6,813,621        2,168,410        3,897,258  
 

 

 

    

 

 

    

 

 

    

 

 

 

OTHER LIABILITIES

          

TOB Trust Certificates

    152,144,550        61,534,134        41,267,055        44,011,584  

VRDP Shares, at liquidation value of $100,000 per share, net of deferred offering costs(c)(d)(e)

           236,685,959        231,506,549        82,334,769  

VMTP Shares, at liquidation value of $100,000 per share(c)(d)(e)

    254,000,000                       
 

 

 

    

 

 

    

 

 

    

 

 

 

Total other liabilities

    406,144,550        298,220,093        272,773,604        126,346,353  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

    409,582,989        305,033,714        274,942,014        130,243,611  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

  $ 662,891,713      $ 490,103,218      $ 473,463,507      $ 221,383,928  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF

          

Paid-in capital(f)(g)(h)

  $ 581,443,889      $ 423,146,162      $ 418,118,813      $ 194,000,582  

Accumulated earnings

    81,447,824        66,957,056        55,344,694        27,383,346  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

  $ 662,891,713      $ 490,103,218      $ 473,463,507      $ 221,383,928  
 

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value per Common Share

  $ 16.16      $ 16.29      $ 16.04      $ 16.64  
 

 

 

    

 

 

    

 

 

    

 

 

 

(a) Investments, at cost — unaffiliated

  $ 940,259,364      $ 693,151,829      $ 676,317,036      $ 316,214,521  

(b) Investments, at cost — affiliated

  $ 19,383,437      $ 22,337,405      $ 2,853,807      $ 25,907  

(c) Preferred Shares outstanding

    2,540        2,371        2,319        826  

(d) Preferred Shares authorized

    18,140        10,491        8,919        1,000,000  

(e) Par value per Preferred Share

  $ 0.10      $ 0.10      $ 0.10      $ 0.05  

(f)  Common Shares outstanding

    41,011,636        30,087,169        29,509,535        13,306,848  

(g) Common Shares authorized

    199,981,860        199,989,509        199,991,081        Unlimited  

(h) Par value per Common Share

  $ 0.10      $ 0.10      $ 0.10      $ 0.10  

See notes to financial statements.

 

 

F I N A N C I A L  S T A T E M E N T S

  39


 

Statements of Operations

Year Ended July 31, 2021

 

     MUC     MUJ     MIY     MPA  

INVESTMENT INCOME

       

Dividends — affiliated

  $ 2,216     $ 854     $ 395     $ 236  

Interest — unaffiliated

    36,004,012       28,980,070       26,895,901       12,315,465  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    36,006,228       28,980,924       26,896,296       12,315,701  
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

       

Investment advisory

    5,846,689       3,900,949       3,627,617       1,715,574  

Accounting services

    139,142       112,041       108,488       62,836  

Directors and Officer

    128,553       28,101       27,585       15,814  

Professional

    77,782       76,660       57,618       62,693  

Transfer agent

    40,362       36,810       37,843       29,485  

Registration

    13,982       10,285       10,089       8,323  

Custodian

    9,502       7,548       6,845       2,967  

Liquidity fees

          24,154             675,405  

Remarketing fees on Preferred Shares

          23,694             42,063  

Miscellaneous

    78,115       72,633       73,466       72,375  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses excluding interest expense, fees and amortization of offering costs

    6,334,127       4,292,875       3,949,551       2,687,535  

Interest expense, fees and amortization of offering costs(a)

    3,177,611       2,635,253       2,759,468       503,475  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    9,511,738       6,928,128       6,709,019       3,191,010  

Less:

       

Fees waived and/or reimbursed by the Manager

    (332,199     (4,875     (2,522     (1,537
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed

    9,179,539       6,923,253       6,706,497       3,189,473  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    26,826,689       22,057,671       20,189,799       9,126,228  
 

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS)

       

Net realized gain from:

       

Investments — unaffiliated

    43,918       495,928       325,067       256,640  

Investments — affiliated

    2,710       625       775       90  

Futures contracts

    1,456,642       886,497             520,777  
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,503,270       1,383,050       325,842       777,507  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on:

       

Investments — unaffiliated

    7,305,324       13,647,081       3,731,560       6,591,500  

Investments — affiliated

    7,842       (365     (486      

Futures contracts

          (848,367           (465,465
 

 

 

   

 

 

   

 

 

   

 

 

 
    7,313,166       12,798,349       3,731,074       6,126,035  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain

    8,816,436       14,181,399       4,056,916       6,903,542  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS

  $   35,643,125     $   36,239,070     $   24,246,715     $   16,029,770  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Related to TOB Trusts, VMTP Shares and/or VRDP Shares.

See notes to financial statements.

 

 

 

40  

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Statements of Changes in Net Assets

 

    MUC     MUJ  
    Year Ended July 31,     Year Ended July 31,  
     2021     2020     2021     2020  

INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

       

OPERATIONS

       

Net investment income

  $ 26,826,689     $ 23,910,053     $ 22,057,671     $ 20,766,165  

Net realized gain (loss)

    1,503,270       (14,683,337     1,383,050       (5,204,338

Net change in unrealized appreciation (depreciation)

    7,313,166       29,113,036       12,798,349       216,496  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    35,643,125       38,339,752       36,239,070       15,778,323  
 

 

 

   

 

 

   

 

 

   

 

 

 

DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)

       

Decrease in net assets resulting from distributions to Common Shareholders

    (26,734,123     (22,325,852     (22,445,028     (19,607,452
 

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS

       

Reinvestment of common distributions

    146,828                    

Redemption of shares resulting from share repurchase program (including transaction costs)

                      (886,136
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets derived from capital share transactions

    146,828                   (886,136
 

 

 

   

 

 

   

 

 

   

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

       

Total increase (decrease) in net assets applicable to Common Shareholders

    9,055,830       16,013,900       13,794,042       (4,715,265

Beginning of year

    653,835,883       637,821,983       476,309,176       481,024,441  
 

 

 

   

 

 

   

 

 

   

 

 

 

End of year

  $   662,891,713     $   653,835,883     $   490,103,218     $   476,309,176  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

 

F I N A N C I A L  S T A T E M E N T S

  41


 

Statements of Changes in Net Assets (continued)

 

    MIY     MPA  
    Year Ended July 31,     Year Ended July 31,  
     2021     2020     2021     2020  

INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

       

OPERATIONS

       

Net investment income

  $ 20,189,799     $ 18,741,480     $ 9,126,228     $ 8,621,926  

Net realized gain (loss)

    325,842       (4,427,689     777,507       (3,034,767

Net change in unrealized appreciation (depreciation) .

    3,731,074       8,459,328       6,126,035       2,289,761  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    24,246,715       22,773,119       16,029,770       7,876,920  
 

 

 

   

 

 

   

 

 

   

 

 

 

DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)

       

Decrease in net assets resulting from distributions to Common Shareholders

    (19,535,312     (17,499,956     (8,782,520     (7,602,490
 

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS

       

Redemption of shares resulting from share repurchase program (including transaction costs)

          (886,694     (18,678     (478,011
 

 

 

   

 

 

   

 

 

   

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

       

Total increase (decrease) in net assets applicable to Common Shareholders

    4,711,403       4,386,469       7,228,572       (203,581

Beginning of year

    468,752,104       464,365,635       214,155,356       214,358,937  
 

 

 

   

 

 

   

 

 

   

 

 

 

End of year

  $   473,463,507     $   468,752,104     $   221,383,928     $   214,155,356  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

 

42  

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Statements of Cash Flows

Year Ended July 31, 2021

 

     MUC     MUJ     MIY     MPA  

CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

       

Net increase in net assets resulting from operations

  $ 35,643,125     $ 36,239,070     $ 24,246,715     $ 16,029,770  

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities

       

Proceeds from sales of long-term investments

    59,434,940       110,744,359       54,896,775       48,955,850  

Purchases of long-term investments

    (44,709,631     (75,373,749     (61,166,831     (45,382,953

Net proceeds from sales (purchases) of short-term securities

    (17,508,920     (26,565,717     1,023,485       5,251,326  

Amortization of premium and accretion of discount on investments and other fees

    6,830,957       875,614       4,384,470       1,293,977  

Net realized gain on investments

    (46,628     (496,553     (325,842     (256,730

Net unrealized appreciation on investments

    (7,313,166     (13,646,716     (3,731,074     (6,591,500

(Increase) Decrease in Assets

       

Receivables

       

Dividends — affiliated

    (29     127       97       45  

Interest — unaffiliated

    657,898       635,676       153,669       241,043  

Prepaid expenses

    14,758       25,884       (21,742     24,837  

Increase (Decrease) in Liabilities

       

Payables

       

Accounting services fees

    58,867       47,005       45,610       26,501  

Custodian fees

    1,323       2,838       2,180       (706

Interest expense and fees

    (345,176     (76,067     (45,911     (78,048

Investment advisory fees

    14,198       5,633       4,696       543  

Directors’ and Officer’s fees

    85,961       (15     229       2,420  

Other accrued expenses

    2,546       (4,012     36,905       51,503  

Professional fees

    (30,583     (19,365     (32,016     (16,632

Variation margin on futures contracts

          93,330             49,880  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    32,790,440       32,487,342       19,471,415       19,601,126  
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES

       

Cash dividends paid to Common Shareholders

    (26,422,782     (22,294,592     (19,387,764     (8,783,352

Repayments of TOB Trust Certificates

    (6,367,658     (9,765,607     (95,000     (11,034,997

Repayments of Loan for TOB Trust Certificates

                      (560,000

Net payments on Common Shares redeemed

                      (59,457

Proceeds from TOB Trust Certificates

                      564,999  

Proceeds from Loan for TOB Trust Certificates

                      560,000  

Decrease in bank overdraft

                      (69,468

Amortization of deferred offering costs

          19,968       11,349       20,306  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

    (32,790,440     (32,040,231     (19,471,415     (19,361,969
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH

       

Net increase in restricted and unrestricted cash

          447,111             239,157  

Restricted and unrestricted cash at beginning of year

                       
 

 

 

   

 

 

   

 

 

   

 

 

 

Restricted and unrestricted cash at end of year

  $     $ 447,111     $     $ 239,157  
 

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

       

Cash paid during the year for interest expense

  $ 3,522,787     $ 2,691,352     $ 2,794,030     $ 561,217  
 

 

 

   

 

 

   

 

 

   

 

 

 

NON-CASH FINANCING ACTIVITIES

       

Capital shares issued in reinvestment of distributions paid to Common Shareholders

  $ 146,828     $     $     $  
 

 

 

   

 

 

   

 

 

   

 

 

 

RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE END OF YEAR TO THE STATEMENTS OF ASSETS AND LIABILITIES

       

Cash

  $     $ 11,111     $     $ 7,157  

Cash pledged

       

Futures contracts

          436,000             232,000  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $     $ 447,111     $     $ 239,157  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

 

F I N A N C I A L  S T A T E M E N T S

  43


Financial Highlights

(For a share outstanding throughout each period)

 

    MUC  
    Year Ended July 31,  
     2021      2020      2019      2018      2017  

Net asset value, beginning of year

  $ 15.95      $ 15.56      $ 15.03      $ 15.53      $ 16.51  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.65        0.58        0.57        0.64        0.69  

Net realized and unrealized gain (loss)

    0.21        0.35        0.54        (0.47      (0.93
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    0.86        0.93        1.11        0.17        (0.24
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders(b)

             

From net investment income

    (0.65      (0.54      (0.57      (0.67      (0.74

From net realized gain

                  (0.01              
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions to Common Shareholders

    (0.65      (0.54      (0.58      (0.67      (0.74
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 16.16      $ 15.95      $ 15.56      $ 15.03      $ 15.53  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 16.09      $ 14.67      $ 14.00      $ 13.07      $ 14.75  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

             

Based on net asset value

    5.78      6.55      8.17      1.54      (1.08 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    14.52      8.92      11.92      (7.03 )%       (4.73 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

             

Total expenses

    1.46      2.11      2.58      2.38      2.04
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    1.41      2.05      2.50      2.29      1.96
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and amortization of offering costs(d)

    0.92      0.92      0.92      0.93      0.93
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.11      3.75      3.82      4.20      4.44
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

             

Net assets applicable to Common Shareholders, end of year (000)

  $ 662,892      $ 653,836      $ 637,822      $ 616,387      $ 636,865  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

VMTP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 254,000      $ 254,000      $ 254,000      $ 254,000      $ 254,000  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VMTP Shares at $100,000 liquidation value, end of year

  $ 360,981      $ 357,416      $ 351,111      $ 342,672      $ 350,734  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 152,145      $ 158,512      $ 159,555      $ 185,905      $ 181,685  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    4      16      24      24      19
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VMTP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

See notes to financial statements.

 

 

44  

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Financial Highlights (continued)

(For a share outstanding throughout each period)

 

    MUJ  
    Year Ended July 31,  
     2021      2020      2019      2018      2017  

Net asset value, beginning of year

  $ 15.83      $ 15.95      $ 15.28      $ 15.57      $ 16.55  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.73        0.69        0.66        0.71        0.77  

Net realized and unrealized gain (loss)

    0.48        (0.16      0.64        (0.26      (0.94
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    1.21        0.53        1.30        0.45        (0.17
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.75      (0.65      (0.63      (0.74      (0.81
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 16.29      $ 15.83      $ 15.95      $ 15.28      $ 15.57  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 15.63      $ 14.21      $ 14.43      $ 12.90      $ 14.88  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

             

Based on net asset value

    8.22      3.98      9.44      3.52      (0.57 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    15.67      3.17      17.28      (8.55 )%       (2.44 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

             

Total expenses

    1.44      2.14      2.49      2.23      1.89
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    1.44      2.14      2.49      2.23      1.89
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and amortization of offering costs(d)(e)

    0.89      0.92      0.92      0.93      0.91
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.59      4.39      4.28      4.60      4.95
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

             

Net assets, end of year (000)

  $ 490,103      $ 476,309      $ 481,024      $ 460,727      $ 469,417  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 237,100      $ 237,100      $ 237,100      $ 237,100      $ 237,100  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 306,707      $ 300,890      $ 302,878      $ 294,318      $ 297,983  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 61,534      $ 71,300      $ 59,415      $ 62,747      $ 63,877  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    10      13      8      14      8
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

The total expense ratio after fees waived and/or reimbursed and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees as follows:

 

     Year Ended July 31,  
     2021      2020      2019      2018      2017  

Expense ratios

           0.88             0.91             0.91             0.93             0.91
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

F I N A N C I A L  H I G H L I G H T S

  45


Financial Highlights (continued)

(For a share outstanding throughout each period)

 

    MIY  
    Year Ended July 31,  
     2021      2020      2019      2018      2017  

Net asset value, beginning of year

  $ 15.88      $ 15.70      $ 15.04      $ 15.48      $ 16.36  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.68        0.63        0.62        0.69        0.75  

Net realized and unrealized gain (loss)

    0.14        0.14        0.66        (0.42      (0.86
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    0.82        0.77        1.28        0.27        (0.11
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.66      (0.59      (0.62      (0.71      (0.77
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 16.04      $ 15.88      $ 15.70      $ 15.04      $ 15.48  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 15.80      $ 14.24      $ 14.24      $ 12.89      $ 14.19  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

             

Based on net asset value

    5.61      5.52      9.42      2.37      (0.07 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    16.02      4.31      15.80      (4.29 )%       (2.56 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

             

Total expenses

    1.44      2.07      2.46      2.16      1.88
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    1.44      2.07      2.46      2.16      1.88
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and amortization of offering costs(d)(e)

    0.85      1.20      1.09      0.89      0.89
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.32      4.06      4.11      4.49      4.81
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

             

Net assets applicable to Common Shareholders, end of year (000)

  $ 473,464      $ 468,752      $ 464,366      $ 444,947      $ 457,888  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 231,900      $ 231,900      $ 231,900      $ 231,900      $ 231,900  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 304,167      $ 302,135      $ 300,244      $ 291,870      $ 297,450  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 41,267      $ 41,362      $ 64,527      $ 60,002      $ 52,002  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    7      9      15      8      13
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

The total expense ratio after fees waived and/or reimbursed and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees as follows:

 

     Year Ended July 31,  
     2021      2020      2019      2018      2017  

Expense ratios

           0.85             0.88             0.90             0.89             0.89
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

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Financial Highlights (continued)

(For a share outstanding throughout each period)

 

    MPA  
    Year Ended July 31,  
     2021      2020      2019      2018      2017  

Net asset value, beginning of year

  $ 16.09      $ 16.06      $ 15.27      $ 15.74      $ 16.76  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.69        0.65        0.63        0.71        0.76  

Net realized and unrealized gain (loss)

    0.52        (0.05      0.80        (0.47      (1.03
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    1.21        0.60        1.43        0.24        (0.27
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.66      (0.57      (0.64      (0.71      (0.75
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 16.64      $ 16.09      $ 16.06      $ 15.27      $ 15.74  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 16.23      $ 14.09      $ 14.18      $ 13.26      $ 14.69  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

             

Based on net asset value

    8.09      4.33      10.32      2.09      (1.20 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    20.40      3.47      12.18      (5.01 )%       (3.83 )% 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

             

Total expenses

    1.48      2.13      2.55      2.26      1.91
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    1.48      2.12      2.55      2.26      1.91
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and amortization of offering costs(d)(e)

    1.25      1.23      0.99      0.95      0.94
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.24      4.08      4.11      4.56      4.83
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

             

Net assets applicable to Common Shareholders, end of year (000)

  $ 221,384      $ 214,155      $ 214,359      $ 203,956      $ 210,170  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 82,600      $ 82,600      $ 82,600      $ 82,600      $ 82,600  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 368,019      $ 359,268      $ 359,514      $ 346,921      $ 354,444  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 44,012      $ 54,482      $ 52,814      $ 58,176      $ 55,826  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    13      12      21      21      15
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

The total expense ratio after fees waived and/or reimbursed and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees as follows:

 

     Year Ended July 31,  
    2021      2020      2019      2018      2017  

Expense ratios

           0.92             0.93             0.96             0.95             0.94
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

F I N A N C I A L  H I G H L I G H T S

  47


Notes to Financial Statements

 

1.

ORGANIZATION

The following are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as closed-end management investment companies and are referred to herein collectively as the “Funds”, or individually as a “Fund”:

 

Fund Name   Herein Referred To As      Organized      Diversification
Classification
 

BlackRock MuniHoldings California Quality Fund, Inc.

    MUC        Maryland        Diversified  

BlackRock MuniHoldings New Jersey Quality Fund, Inc.

    MUJ        Maryland        Non-diversified  

BlackRock MuniYield Michigan Quality Fund, Inc.

    MIY        Maryland        Non-diversified  

BlackRock MuniYield Pennsylvania Quality Fund

    MPA        Massachusetts        Non-diversified  

The Boards of Directors and Boards of Trustees of the Funds are collectively referred to throughout this report as the “Board,” and the directors/trustees thereof are collectively referred to throughout this report as “Directors”. The Funds determine and make available for publication the net asset values (“NAVs”) of their Common Shares on a daily basis.

The Funds, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, are included in a complex of non-index fixed-income mutual funds 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 require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities 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 results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment 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. 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 and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts) or certain borrowings (e.g.,TOB Trust transactions) that would be 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 equal to 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-dealer or custodian as collateral for certain investments or obligations.

Distributions: Distributions from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates and made at least annually. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

Distributions to Preferred Shareholders are accrued and determined as described in Note 10.

Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by each Fund’s Board, the directors who are not “interested persons” of the Funds, as defined in the 1940 Act (“Independent Directors”), may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain funds in the BlackRock Fixed-Income Complex.

The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of each Fund, as applicable. Deferred compensation liabilities, if any, are included in the Directors’ and Officer’s fees payable in the Statements of Assets and Liabilities and will remain as a liability of the Funds until such amounts are 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’s maximum 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, are prorated among those funds on the basis of relative net assets or other appropriate methods.

 

 

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Notes to Financial Statements  (continued)

 

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 Fund is 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 transfer a liability in an orderly transaction between market participants at the measurement date. Each Fund determines the fair values of its financial instruments using various independent 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 the fair 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 Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for 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 provided by independent dealers or third party pricing services. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, 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 may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers), market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and 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 be used 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 NAV.

 

   

Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded.

If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in 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 reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might 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 based upon 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 all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

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 value hierarchy 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 similar assets 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 Global Valuation 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 to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs 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 is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds that 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 pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

 

4.

SECURITIES AND OTHER INVESTMENTS

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 may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.

Forward Commitments, When-Issued and Delayed Delivery Securities: The Funds may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Funds may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement

 

 

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

  49


Notes to Financial Statements  (continued)

 

date. Since the value of securities purchased may fluctuate prior to settlement, the Funds may be required to pay more at settlement than the security is worth. In addition, a Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Funds’ maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions.

Municipal Bonds Transferred to TOB Trusts: The Funds leverage their assets through the use of “TOB Trust” transactions. The funds transfer municipal bonds into a special 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 third party 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 any accrued 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 Certificates to 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 funds managed by the investment adviser may also contribute municipal bonds to a TOB Trust into which a fund has contributed bonds. If multiple BlackRock-advised funds participate 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 in the 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 Trust Certificates 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 a Remarketing 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. Any loans 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 on number 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 a termination event, a TOB Trust would be liquidated with the proceeds applied first to any accrued fees owed to the trustee of the TOB Trust, the Remarketing Agent and the Liquidity Provider. Upon certain termination events, TOB Trust Certificates holders will be paid before the TOB Residuals holders (i.e., the Funds) whereas in other termination events, 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 to borrow money for purposes of making investments. MIY and MPA management believes that a fund’s restrictions on borrowings do not apply to the funds’ TOB Trust transactions. Each fund’s transfer of the municipal bonds to a TOB Trust is considered a secured borrowing for financial reporting purposes. 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 cash received in additional municipal bonds.

Accounting for TOB Trusts: The municipal bonds deposited into a TOB Trust are presented in a fund’s Schedule of Investments and the TOB Trust Certificates are shown in Other 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 are shown 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 and Liabilities as TOB Trust Certificates, approximates its fair value.

Interest income, including amortization and accretion of premiums and discounts, from the underlying municipal bonds is recorded by a fund on an accrual basis. Interest expense incurred on the TOB Trust transaction and other expenses related to remarketing, administration, trustee, liquidity and other services to a TOB Trust are shown as interest 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 and are 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 the restructurings 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, fees and amortization of offering costs in the Statements of Operations. Amounts recorded within interest expense, fees and amortization of offering costs in the Statements of Operations are:

 

Fund Name   Interest Expense      Liquidity Fees      Other Expenses      Total  

MUC

  $ 180,481      $ 705,205      $ 210,370      $ 1,096,056  

MUJ

    93,457        226,621        131,659        451,737  

MIY

    69,041        174,098        46,870        290,009  

MPA

    68,950        221,442        66,954        357,346  

For the year ended July 31, 2021, the following table is a summary of each Fund’s TOB Trusts:

 

Fund Name    


Underlying
Municipal Bonds
Transferred to
TOB Trusts
 
 
 
(a) 
    

Liability for
TOB Trust
Certificates

 
(b) 
    



Range of
Interest Rates
on TOB Trust
Certificates at
Period End
 
 
 
 
 
    


Average
TOB Trust
Certificates
Outstanding
 
 
 
 
    



Daily Weighted
Average Rate
of Interest and
Other Expenses
on TOB Trusts
 
 
 
 
 

MUC

  $ 324,201,566      $ 152,144,550        0.04% — 0.12    $ 156,959,546        0.70

MUJ

    113,611,126        61,534,134        0.02 — 0.18        62,102,040        0.73  

MIY

    81,374,616        41,267,055        0.05 — 0.19        41,352,424        0.70  

 

 

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Notes to Financial Statements  (continued)

 

Fund Name    


Underlying
Municipal Bonds
Transferred to
TOB Trusts
 
 
 
(a)  
    

Liability for
TOB Trust
Certificates
 
 
(b) 
    



Range of
Interest Rates
on TOB Trust
Certificates at
Period End
 
 
 
 
 
    


Average
TOB Trust
Certificates
Outstanding
 
 
 
 
    



Daily Weighted
Average Rate
of Interest and
Other Expenses
on TOB Trusts
 
 
 
 
 

MPA

  $ 81,916,522      $ 44,011,584        0.05% — 0.18    $ 52,018,346        0.69

 

  (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 TOB Trust 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 provider in 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 be responsible for reimbursement of any payments of principal and interest made by the credit enhancement provider. The maximum potential amounts owed by the funds, for such reimbursements, 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 a payment 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 TOB Trust. 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 Liquidity Provider 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, these losses will be shared ratably, including the maximum potential amounts owed by a fund at July 31, 2021, in proportion to their participation in the TOB Trust. The recourse TOB Trusts are identified in the Schedules of Investments including the maximum potential amounts owed by a fund at July 31, 2021.

 

For the year ended July 31, 2021, the following table is a summary of each Fund’s Loan for TOB Trust Certificates:

 

Fund Name   Loans
Outstanding
at Period End
     Range of
Interest Rates
on Loans at
Period End
     Average
Loans
Outstanding
     Daily Weighted
Average Rate
of Interest and
Other Expenses
on Loans
 

MPA

  $           $ 1,534        0.71

 

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 certain risks 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 financial instruments categorized by risk exposure are included in the Schedules of Investments. These contracts may be transacted on an exchange or over-the-counter (“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 value of 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 and on 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 a cash 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 in an 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 the Statements 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 market value 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 the difference 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 the risk of an imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.

 

6.

INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Advisory: Each Fund 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 and administrative services. The Manager is responsible for the management of each Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of each Fund.

For such services, each Fund pays the Manager a monthly fee at an annual rate equal to the following percentages of the average daily value of each Fund’s net assets:

 

     MUC      MUJ      MIY      MPA  

Investment advisory fees

    0.55      0.50      0.49      0.49

 

 

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Notes to Financial Statements  (continued)

 

For purposes of calculating these fees, “net assets” mean the total assets of the Fund minus the sum of its accrued liabilities (which does not include liabilities represented by TOB Trusts and the liquidation preference of any outstanding preferred shares). It is understood that the liquidation preference of any outstanding preferred stock (other than accumulated dividends) and TOB Trusts is not considered a liability in determining a Fund’s NAV.

Expense Waivers and Reimbursements: With respect to each Fund, the Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through June 30, 2023. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Directors, or by a vote of a majority of the outstanding voting securities of a Fund. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year ended July 31, 2021, the amounts waived were as follows:

 

Fund Name   Fees Waived and/or Reimbursed
by the Manager
 

MUC

  $ 2,623  

MUJ

    4,875  

MIY

    2,522  

MPA

    1,537  

The Manager contractually agreed to waive its investment advisory fee with respect to any portion of each Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2023. The agreement can be renewed for annual periods thereafter, and may be terminated on 90 days’ notice, each subject to approval by a majority of the Funds’ Independent Directors. For the year ended July 31, 2021, there were no fees waived by the Manager pursuant to this arrangement.

The Manager, for MUC, voluntarily agreed to waive its investment advisory fee on the proceeds of the Preferred Shares and TOB Trusts that exceed 35% of total assets minus the sum of its accrued liabilities (which does not include liabilities represented by TOB Trusts and the liquidation preference of any outstanding preferred shares). The voluntary waiver may be reduced or discontinued at any time without notice. This amount is included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year ended July 31, 2021 the waiver was $329,576.

Directors and Officers: Certain directors and/or officers of the Fund are directors and/or officers of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Funds’ Chief Compliance Officer, which is included in Directors and Officer in the Statements of Operations.

 

7.

PURCHASES AND SALES

For the year ended July 31, 2021, purchases and sales of investments, excluding short-term investments, were as follows:

 

Fund Name   Purchases      Sales  

MUC

  $ 44,709,631      $ 59,484,940  

MUJ

    76,663,749        110,744,359  

MIY

    61,166,831        49,254,180  

MPA

    44,584,044        48,955,850  

 

8.

INCOME TAX INFORMATION

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 distribute substantially 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’s U.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 may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Funds as of July 31, 2021, inclusive of the open tax return years, and does not believe that there 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 no effect on net assets or NAVs per share. As of period end, the following permanent differences attributable to non-deductible expenses were reclassified to the following accounts:

 

Fund Name   Paid-in Capital     Accumulated
Earnings (Loss)
 

MUJ

  $ (19,042   $ 19,042  

MIY

    (11,349     11,349  

MPA

    (12,605     12,605  

 

 

 

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Notes to Financial Statements  (continued)

 

The tax character of distributions paid was as follows:

 

Fund Name   Year Ended
07/31/21
     Year Ended
07/31/20
 

MUC

    

Tax-exempt income(a)

  $ 28,814,428      $ 26,904,686  

Ordinary income(b)

    1,250        13,455  
 

 

 

    

 

 

 
  $ 28,815,678      $ 26,918,141  
 

 

 

    

 

 

 

MUJ

    

Tax-exempt income(a)

  $ 24,607,163        24,161,727  

Ordinary income(b)

    1,413        14,707  
 

 

 

    

 

 

 
  $ 24,608,576      $ 24,176,434  
 

 

 

    

 

 

 

MIY

    

Tax-exempt income(a)

  $ 21,992,740        20,531,184  

Ordinary income(b)

    682        6,950  
 

 

 

    

 

 

 
  $ 21,993,422      $ 20,538,134  
 

 

 

    

 

 

 

MPA

    

Tax-exempt income(a)

  $ 8,903,643        8,566,263  

Ordinary income(b)

    4,700        4,674  
 

 

 

    

 

 

 
  $ 8,908,343      $ 8,570,937  
 

 

 

    

 

 

 

 

  (a) 

The Funds designate these amounts paid during the fiscal year ended July 31, 2021, as exempt-interest dividends.

 
  (b) 

Ordinary income consists primarily of taxable income recognized from market discount and net short-term capital gains. Additionally, all ordinary income distributions are comprised of interest related dividends and qualified short-term capital gain dividends for non-U.S. residents and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

 

As of period end, the tax components of accumulated earnings (loss) were as follows:

 

Fund Name   Undistributed
Tax-Exempt Income
     Undistributed
Ordinary Income
     Non-Expiring
Capital Loss
Carryforwards(a)
    Net Unrealized
Gains (Losses)(b)
     Total  

MUC

  $ 2,789,610      $      $ (19,765,284   $ 98,423,498      $ 81,447,824  

MUJ

    1,855,308        7,045        (8,621,838     73,716,541        66,957,056  

MIY

    2,438,316               (8,035,624     60,942,002        55,344,694  

MPA

    786,117               (5,479,103     32,076,332        27,383,346  

 

  (a) 

Amounts available to offset future realized capital gains.

 
  (b) 

The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the tax deferral of losses on wash sales and straddles, amortization methods of premiums and discounts on fixed income securities, the treatment of residual interests in tender option bond trusts and the deferral of compensation to Directors.

 

During the year ended July 31, 2021, the Funds listed below utilized the following amounts of their respective capital loss carryforward:

 

Fund Name   Amounts  

MUC

  $ 1,748,984  

MUJ

    479,268  

MIY

    205,971  

MPA

    309,030  

As of July 31, 2021, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:

 

Fund Name   Tax Cost      Gross Unrealized
Appreciation
     Gross Unrealized
Depreciation
    Net Unrealized
Appreciation
(Depreciation)
 

MUC

  $ 808,473,339      $ 99,059,878      $ (207,915   $ 98,851,963  

MUJ

    654,525,580        73,937,330        (220,789     73,716,541  

MIY

    638,042,542        61,717,061        (126,762     61,590,299  

MPA

    272,193,924        33,687,521        (1,599,994     32,087,527  

 

9.

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 various risks, 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 also be 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.

 

 

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Notes to Financial Statements  (continued)

 

A Fund 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 risks including, but not limited to, compliance, securities law and operational risks.

Should short-term interest rates rise, the Funds’ investments in the TOB Trusts may adversely affect the Funds’ net investment income and dividends to Common Shareholders. Also, fluctuations in the market value of municipal bonds deposited into the TOB Trust may adversely affect the Funds’ NAVs per share.

The U.S. Securities and Exchange Commission (“SEC”) and various federal banking and housing agencies have adopted credit risk retention rules for securitizations (the “Risk Retention Rules”). The Risk Retention Rules would 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 Rules may adversely affect the Funds’ 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 municipal market and the Funds, including through reduced demand for and liquidity of municipal bonds and increased financing costs for municipal issuers. The ultimate impact of any potential modifications on the TOB Trust market and the overall municipal market is not yet certain.

Each Fund may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. A Fund may not be able to readily dispose of such investments at prices that approximate those at which a Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, a Fund may have to sell other investments or engage in borrowing transactions if necessary to raise funds to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely affecting a Fund’s NAV and ability to make dividend distributions. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.

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 during periods 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 risk that 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 are below 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 bankruptcy of 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. Municipal securities 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 the municipal market related to, taxation, legislative changes or the rights of municipal security holders, including in connection with an issuer insolvency. Municipal securities backed 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 project or 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 publicly available 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 supply chains 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 affect the 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 in substantial 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 with certainty.

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 to unsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations. The Funds manage counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their 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 underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

With exchange-traded futures, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, 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 a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin 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 of margin 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 resulting in 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 investment will 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.

 

 

54  

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Notes to Financial Statements  (continued)

 

Certain Funds invest a substantial amount of their assets in issuers located in a single state or limited number of states. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political or social conditions affecting that state or group of states could have a significant impact on the fund and could affect the income from, or the value or liquidity of, the fund’s portfolio. Investment percentages in specific states or U.S. territories are presented in the Schedules of Investments.

Certain Funds invest a significant portion of their assets in securities within a single or limited number of market sectors. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political and social conditions affecting such sectors may have a significant impact on the Fund and could affect the income from, or the value or liquidity of, the Fund’s portfolio. Investment percentages in specific sectors are presented in the Schedules of Investments.

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 or economic 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 increase as 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.

LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates 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 transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Funds is uncertain.

 

10.

CAPITAL SHARE TRANSACTIONS

MPA is authorized to issue an unlimited number of Common Shares, all of which were initially classified as Common Shares. MUC, MUJ and MIY each is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Fund’s Common Shares is $0.10. The par value for each Fund’s Preferred Shares outstanding is $0.10, except for MPA, which is $0.05. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders. MPA is authorized to issue 1 million Preferred Shares.

Common Shares

For the periods shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:

 

     Year Ended  
Fund Name   07/31/21      07/31/20  

MUC

    9,153         

The Funds participate in an open market share repurchase program (the “Repurchase Program”). From December 1, 2019 through November 30, 2020, each Fund may repurchase up to 5% of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of business on November 30, 2019, subject to certain conditions. From December 1, 2020 through November 30, 2021, each Fund may repurchase up to 5% of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of business on November 30, 2020, subject to certain conditions. There is no assurance that the Funds will purchase shares in any particular amounts.

The total cost of the shares repurchased is reflected in MUJ, MIY and MPA’s Statements of Changes in Net Assets. For the periods shown, shares repurchased and cost, including transaction costs were as follows:

 

     MUJ      MIY      MPA  
     Shares      Amounts      Shares      Amounts      Shares      Amounts  

Year Ended July 31, 2021

         $             $        1,307      $ 18,678  

Year Ended July 31, 2020

    66,696        886,136        68,734        886,694        35,471        478,011  

Preferred Shares

A Fund’s Preferred Shares rank prior to its Common Shares as to the payment of dividends by the Fund and distribution of assets upon dissolution or liquidation of the Fund. The 1940 Act prohibits the declaration of any dividend on Common Shares or the repurchase of Common Shares if the Fund fails to maintain asset coverage of at least 200% of the liquidation preference of the Fund’s outstanding Preferred Shares. In addition, pursuant to the Preferred Shares’ governing instruments, a Fund is restricted from declaring and paying dividends on classes of shares ranking junior to or on parity with its Preferred Shares or repurchasing such shares if the Fund fails to declare and pay dividends on the Preferred Shares, redeem any Preferred Shares required to be redeemed under the Preferred Shares’ governing instruments or comply with the basic maintenance amount requirement of the ratings agencies rating the Preferred Shares.

Holders of Preferred Shares have voting rights equal to the voting rights of holders of Common Shares (one vote per share) and vote together with holders of Common Shares (one vote per share) as a single class on certain matters. Holders of Preferred Shares, voting as a separate class, are also entitled to (i) elect two members of the Board, (ii) elect the full Board if dividends on the Preferred Shares are not paid for a period of two years and (iii) a separate class vote to amend the Preferred Share governing documents. In addition, the 1940 Act requires the approval of the holders of a majority of any outstanding Preferred Shares, voting as a separate class, to (a) adopt any plan of reorganization that would adversely affect the Preferred Shares, (b) change a Fund’s sub-classification as a closed-end investment company or change its fundamental investment restrictions or (c) change its business so as to cease to be an investment company.

 

 

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Notes to Financial Statements  (continued)

 

VRDP Shares

MUJ, MIY and MPA (for purposes of this section, each a “VRDP Fund”) have issued Series W-7 VRDP Shares, $100,000 liquidation preference per share, in one or more privately negotiated offerings to qualified institutional buyers as defined pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The VRDP Shares include a liquidity feature and may be subject to a special rate period. As of period end, the VRDP Shares outstanding were as follows:

 

Fund Name   Issue
Date
     Shares
Issued
     Aggregate
Principal
     Maturity
Date
 

MUJ

    06/30/11        1,727      $ 172,700,000        07/01/41  
    04/13/15        644        64,400,000        07/01/41  

MIY

    04/21/11        1,446        144,600,000        05/01/41  
    09/14/15        873        87,300,000        05/01/41  

MPA

    05/19/11        663        66,300,000        06/01/41  
      04/13/15        163        16,300,000        06/01/41  

Redemption Terms: A VRDP Fund is required to redeem its VRDP Shares on the maturity date, unless earlier redeemed or repurchased. Six months prior to the maturity date, a VRDP Fund is required to begin to segregate liquid assets with the Fund’s custodian to fund the redemption. In addition, a VRDP Fund is required to redeem certain of its outstanding VRDP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.

Subject to certain conditions, the VRDP Shares may also be redeemed, in whole or in part, at any time at the option of a VRDP Fund. The redemption price per VRDP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends.

Liquidity Feature: VRDP Shares are subject to a fee agreement between the VRDP Fund and the liquidity provider that requires a per annum liquidity fee and, in some cases, an upfront or initial commitment fee, payable to the liquidity provider. These fees, if applicable, are shown as liquidity fees in the Statements of Operations. As of period end, the fee agreement is set to expire, unless renewed or terminated in advance, as follows:

 

     MUJ      MIY      MPA  

Expiration date

    04/30/22        07/09/22        07/02/22  

The VRDP Shares are also subject to a purchase agreement in connection with the liquidity feature. In the event a purchase agreement is not renewed or is terminated in advance, and the VRDP Shares do not become subject to a purchase agreement with an alternate liquidity provider, the VRDP Shares will be subject to mandatory purchase by the liquidity provider prior to the termination of the purchase agreement. In the event of such mandatory purchase, a VRDP Fund is required to redeem the VRDP Shares six months after the purchase date. Immediately after such mandatory purchase, the VRDP Fund is required to begin to segregate liquid assets with its custodian to fund the redemption. There is no assurance that a VRDP Fund will replace such redeemed VRDP Shares with any other preferred shares or other form of leverage.

Remarketing: A VRDP Fund may incur remarketing fees on the aggregate principal amount of all its VRDP Shares, which, if any, are included in remarketing fees on Preferred Shares in the Statements of Operations. During any special rate period (as described below), a VRDP Fund may incur nominal or no remarketing fees.

Ratings: As of period end, the VRDP Shares were assigned the following ratings:

 

Fund Name   Moody’s Investors
Service, Inc.
Long-Term
Ratings
     Fitch Ratings, Inc.
Long-Term
Ratings
     Fitch Ratings, Inc.
Short-Term
Ratings
     S&P Global
Short-Term
Ratings
 

MUJ

    Aa2        AA        N/A        N/A  

MIY

    Aa2        AA        N/A        N/A  

MPA

    Aa2        AA        F1+        A-1+  

Any short-term ratings on VRDP Shares are directly related to the short-term ratings of the liquidity provider for such VRDP Shares. Changes in the credit quality of the liquidity provider could cause a change in the short-term credit ratings of the VRDP Shares as rated by Moody’s Investors Service, Inc., Fitch Ratings, Inc. and S&P Global Ratings. The liquidity provider may be terminated prior to the scheduled termination date if the liquidity provider fails to maintain short-term debt ratings in one of the two highest rating categories.

Special Rate Period: A VRDP Fund has commenced a “special rate period” with respect to its VRDP Shares, during which the VRDP Shares will not be subject to any remarketing and the dividend rate will be based on a predetermined methodology. During a special rate period, short-term ratings on VRDP Shares are withdrawn. As of period end, the following VRDP Funds have commenced or are set to commence a special rate period:

 

Fund Name   Commencement
Date
     Expiration Date as
of Period Ended
07/31/21
 

MUJ

    04/17/14        04/15/22  

MIY

    06/25/20        06/25/22  

Prior to the expiration date, the VRDP Fund and the VRDP Shares holder may mutually agree to extend the special rate period. If a special rate period is not extended, the VRDP Shares will revert to remarketable securities upon the termination of the special rate period and will be remarketed and available for purchase by qualified institutional investors.

 

 

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Notes to Financial Statements  (continued)

 

During the special rate period: (i) the liquidity and fee agreements remain in effect, (ii) VRDP Shares remain subject to mandatory redemption by the VRDP Fund on the maturity date, (iii) VRDP Shares will not be remarketed or subject to optional or mandatory tender events, (iv) the VRDP Fund is required to comply with the same asset coverage, basic maintenance amount and leverage requirements for the VRDP Shares as is required when the VRDP Shares are not in a special rate period, (v) the VRDP Fund will pay dividends monthly based on the sum of an agreed upon reference rate and a percentage per annum based on the long-term ratings assigned to the VRDP Shares and (vi) the VRDP Fund will pay nominal or no fees to the liquidity provider and remarketing agent.

Dividends: Except during the Special Rate Period as described above, dividends on the VRDP Shares are payable monthly at a variable rate set weekly by the remarketing agent. Such dividend rates are generally based upon a spread over a base rate and cannot exceed a maximum rate. A change in the short-term credit rating of the liquidity provider or the VRDP Shares may adversely affect the dividend rate paid on such shares, although the dividend rate paid on the VRDP Shares is not directly based upon either short-term rating. In the event of a failed remarketing, the dividend rate of the VRDP Shares will be reset to a maximum rate. The maximum rate is determined based on, among other things, the long-term preferred share rating assigned to the VRDP Shares and the length of time that the VRDP Shares fail to be remarketed.

For the year ended July 31, 2021, the annualized dividend rate for the VRDP Shares were as follows:

 

     MUJ      MIY      MPA  

Dividend rates

    0.91      1.06      0.15

For the year ended July 31, 2021, VRDP Shares issued and outstanding of each VRDP Fund remained constant.

VMTP Shares

MUC (for purposes of this section, a “VMTP Fund”) have issued Series W-7 VMTP Shares, $100,000 liquidation preference per share, in one or more privately negotiated offerings to qualified institutional buyers as defined pursuant to Rule 144A under the Securities Act. The VMTP Shares are subject to certain restrictions on transfer, and a VMTP Fund may also be required to register its VMTP Shares for sale under the Securities Act under certain circumstances. As of period end, the VMTP Shares outstanding and assigned long-term ratings were as follows:

 

Fund Name   Issue
Date
     Shares
Issued
     Aggregate
Principal
     Term
Redemption
Date
     Moody’s
Rating
     Fitch
Rating
 

MUC

    03/22/12        2,540      $ 254,000,000        03/30/22        Aa2        AA  

Redemption Terms: A VMTP Fund is required to redeem its VMTP Shares on the term redemption date, unless earlier redeemed or repurchased or unless extended. There is no assurance that a term will be extended further or that any VMTP Shares will be replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the VMTP Shares. Six months prior to the term redemption date, a VMTP Fund is required to begin to segregate liquid assets with its custodian to fund the redemption. In addition, a VMTP Fund is required to redeem certain of its outstanding VMTP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.

Subject to certain conditions, VMTP Shares may be redeemed, in whole or in part, at any time at the option of the VMTP Fund. The redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends.

Dividends: Dividends on the VMTP Shares are declared daily and payable monthly at a variable rate set weekly at a fixed rate spread to the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index or to a percentage of the one-month LIBOR rate, as set forth in the VMTP Shares governing instrument. The fixed spread is determined based on the long-term preferred share rating assigned to the VMTP Shares by the ratings agencies then rating the VMTP Shares.

The dividend rate on VMTP Shares is subject to a step-up spread if the VMTP Fund fails to comply with certain provisions, including, among other things, the timely payment of dividends, redemptions or gross-up payments, and complying with certain asset coverage and leverage requirements.

For the year ended July 31, 2021, the average annualized dividend rates for the VMTP Shares were as follows:

 

     MUC  

Dividend rates

    0.82

For the year ended July 31, 2021, VMTP Shares issued and outstanding of each VMTP Fund remained constant.

Offering Costs: The Funds incurred costs in connection with the issuance of VRDP and VMTP Shares, which were recorded as a direct deduction from the carrying value of the related debt liability and will be amortized over the life of the VRDP and VMTP Shares with the exception of any upfront fees paid by a VRDP Fund to the liquidity provider which, if any, were amortized over the life of the liquidity agreement. Amortization of these costs is included in interest expense, fees and amortization of offering costs in the Statements of Operations.

Financial Reporting: The VRDP and VMTP Shares are considered debt of the issuer; therefore, the liquidation preference, which approximates fair value of the VRDP and VMTP Shares, is recorded as a liability in the Statements of Assets and Liabilities net of deferred offering costs. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the dividends accrued and paid on the VRDP and VMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the Statements of Operations. The VRDP and VMTP Shares are treated as equity for tax purposes. Dividends paid to holders of the VRDP

 

 

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

  57


Notes to Financial Statements  (continued)

 

and VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes. Dividends and amortization of deferred offering costs on VRDP and VMTP Shares are included in interest expense, fees and amortization of offering costs in the Statements of Operations:

 

Fund Name   Dividends Accrued      Deferred Offering
Costs Amortization
 

MUC

  $ 2,081,555      $  

MUJ

    2,163,548        19,968  

MIY

    2,458,110        11,349  

MPA

    125,823        20,306  

 

11.

SUBSEQUENT EVENTS

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 and the following items were noted:

The Funds declared and paid or will pay distributions to Common Shareholders as follows:

 

Fund Name   Declaration
Date
     Record
Date
     Payable/
Paid Date
     Dividend Per
Common Share
 

MUC

          
    08/02/21        08/16/21        09/01/21      $ 0.055000  
    09/01/21        09/15/21        10/01/21        0.055000  

MUJ

          
    08/02/21        08/16/21        09/01/21        0.063000  
    09/01/21        09/15/21        10/01/21        0.063000  

MIY

          
    08/02/21        08/16/21        09/01/21        0.056000  
    09/01/21        09/15/21        10/01/21        0.056000  

MPA

          
    08/02/21        08/16/21        09/01/21        0.055000  
      09/01/21        09/15/21        10/01/21        0.055000  

The Funds declared distributions to Preferred Shareholders as follows:

 

     Preferred Shares(a)  
Fund Name   Shares      Series      Declared  

MUC

    VMTP        W-7      $  166,109  

MUJ

    VRDP        W-7        169,543  

MIY

    VRDP        W-7        200,133  

MPA

    VRDP        W-7        6,789  

 

  (a) 

Dividends declared for the period August 1, 2021 to August 31, 2021.

 

 

 

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Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors/Trustees of BlackRock MuniHoldings California Quality Fund, Inc., BlackRock MuniHoldings New Jersey Quality Fund, Inc., BlackRock MuniYield Michigan Quality Fund, Inc., and BlackRock MuniYield Pennsylvania Quality Fund:

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statements of assets and liabilities of BlackRock MuniHoldings California Quality Fund, Inc., BlackRock MuniHoldings New Jersey Quality Fund, Inc., BlackRock MuniYield Michigan Quality Fund, Inc., and BlackRock MuniYield Pennsylvania Quality Fund (the “Funds”), including the schedules of investments, as of July 31, 2021, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of July 31, 2021, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged 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 financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2021, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts

September 21, 2021

We have served as the auditor of one or more BlackRock investment companies since 1992.

 

 

R E P O R T  O F  I N D E P E N D E N T  R E G I S T E R E D  P U B L I C  A C C O U N T I N G  F I R M

  59


Disclosure of Investment Advisory Agreement

 

The Boards of Directors/Trustees, as applicable (collectively, the “Board,” the members of which are referred to as “Board Members”) of BlackRock MuniHoldings California Quality Fund, Inc. (“MUC”), BlackRock MuniHoldings New Jersey Quality Fund, Inc. (“MUJ”), BlackRock MuniYield Michigan Quality Fund, Inc. (“MIY”) and BlackRock MuniYield Pennsylvania Quality Fund (“MPA” and together with MUC, MUJ and MIY, the “Funds” and each, a “Fund”) met on May 4, 2021 (the “May Meeting”) and June 8-9, 2021 (the “June Meeting”) to consider the approval to continue the investment advisory agreements (the “Advisory Agreements”) or (the “Agreements”) between each Fund and BlackRock Advisors, LLC (the “Manager” or “BlackRock”), each Fund’s investment advisor.

The Approval Process:

Consistent with the requirements of the Investment Company Act of 1940 (the “1940 Act”), the Board considers the approval of the continuation of the Agreements for each Fund on an annual basis. The Board members whom are not “interested persons” of each Fund, as defined in the 1940 Act, are considered independent Board members (the “Independent Board Members”). The Board’s consideration entailed a year-long deliberative process during which the Board and its committees assessed BlackRock’s various services to each Fund, including through the review of written materials and oral presentations, and the review of additional information provided in response to requests from the Independent Board Members. The Board had four quarterly meetings per year, each typically extending for two days, as well as additional ad hoc meetings and executive sessions throughout the year, as needed. The committees of the Board similarly met throughout the year. The Board also had a fifth one-day meeting to consider specific information surrounding the renewal of the Agreements. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to each Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of each Fund’s service providers; risk management and oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various executive sessions outside of the presence of BlackRock’s management.

During the year, the Board, acting directly and through its committees, considered information that was relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to each Fund and its shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year, and/or since inception periods, as applicable, against peer funds, relevant benchmarks, and other performance metrics, as applicable, as well as BlackRock senior management’s and portfolio managers’ analyses of the reasons for any outperformance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) leverage management, as applicable; (c) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by each Fund for services; (d) Fund operating expenses and how BlackRock allocates expenses to each Fund; (e) the resources devoted to risk oversight of, and compliance reports relating to, implementation of each Fund’s investment objective, policies and restrictions, and meeting regulatory requirements; (f) BlackRock’s and each Fund’s adherence to applicable compliance policies and procedures; (g) the nature, character and scope of non-investment management services provided by BlackRock and its affiliates and the estimated cost of such services, as available; (h) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (i) BlackRock’s implementation of the proxy voting policies approved by the Board; (j) execution quality of portfolio transactions; (k) BlackRock’s implementation of each Fund’s valuation and liquidity procedures; (l) an analysis of management fees paid to BlackRock for products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to each Fund; (m) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; (n) periodic updates on BlackRock’s business; and (o) each Fund’s market discount/premium compared to peer funds.

Prior to and in preparation for the May Meeting, the Board received and reviewed materials specifically relating to the renewal of the Agreements. The Independent Board Members are continuously engaged in a process with their independent legal counsel and BlackRock to review the nature and scope of the information provided to the Board to better assist its deliberations. The materials provided in connection with the May Meeting included, among other things: (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), based on Lipper classifications, regarding each Fund’s fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of each Fund as compared with a peer group of funds (“Performance Peers”); (b) information on the composition of the Expense Peers and Performance Peers and a description of Broadridge’s methodology; (c) information on the estimated profits realized by BlackRock and its affiliates pursuant to the Agreements and a discussion of fall-out benefits to BlackRock and its affiliates; (d) a general analysis provided by BlackRock concerning investment management fees received in connection with other types of investment products, such as institutional accounts, sub-advised mutual funds, closed-end funds, and open-end funds, under similar investment mandates, as applicable; (e) a review of non-management fees; (f) the existence, impact and sharing of potential economies of scale, if any, with each Fund; (g) a summary of aggregate amounts paid by each Fund to BlackRock; and (h) various additional information requested by the Board as appropriate regarding BlackRock’s and each Fund’s operations.

At the May Meeting, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these questions and requests with additional written information in advance of the June Meeting.

At the June Meeting, the Board concluded its assessment of, among other things: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund as compared to its Performance Peers and to other metrics, as applicable; (c) the advisory fee and the estimated cost of the services and estimated profits realized by BlackRock and its affiliates from their relationship with each Fund; (d) each Fund’s fees and expenses compared to its Expense Peers; (e) the existence and sharing of potential economies of scale; (f) any fall-out benefits to BlackRock and its affiliates as a result of BlackRock’s relationship with each Fund; and (g) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, and BlackRock’s services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRock’s personnel to engage in open, candid discussions with the Board. The Board Members did not identify any particular information, or any single factor as determinative, and each Board Member may have attributed different weights to the various items and factors considered.

 

 

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Disclosure of Investment Advisory Agreements  (continued)

 

A. Nature, Extent and Quality of the Services Provided by BlackRock

The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services, and the resulting performance of each Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmarks, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing each Fund’s performance, investment strategies and outlook.

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each Fund’s portfolio management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRock’s overall risk management program, including the continued efforts of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRock’s Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services provided to each Fund. BlackRock and its affiliates provide each Fund with certain administrative, shareholder and other services (in addition to any such services provided to each Fund by third parties) and officers and other personnel as are necessary for the operations of each Fund. In particular, BlackRock and its affiliates provide each Fund with administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of each Fund; (iii) oversight of daily accounting and pricing; (iv) responsibility for periodic filings with regulators and stock exchanges; (v) overseeing and coordinating the activities of third-party service providers including, among others, each Fund’s custodian, fund accountant, transfer agent, and auditor; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing or managing administrative functions necessary for the operation of each Fund, such as tax reporting, expense management, fulfilling regulatory filing requirements, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations. The Board considered the operation of BlackRock’s business continuity plans, including in light of the ongoing COVID-19 pandemic.

B. The Investment Performance of each Fund and BlackRock

The Board, including the Independent Board Members, reviewed and considered the performance history of each Fund throughout the year and at the May Meeting. In preparation for the May Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of each Fund’s performance as of December 31, 2020, as compared to its Performance Peers. The performance information is based on net asset value (NAV), and utilizes Lipper data. Lipper’s methodology calculates a fund’s total return assuming distributions are reinvested on the ex-date at a fund’s ex-date NAV. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to its Performance Peers and a custom peer group of funds as defined by BlackRock (“Customized Peer Group”) and a composite measuring a blend of total return and yield (“Composite”). The Board and its Performance Oversight Committee regularly review and meet with Fund management to discuss the performance of each Fund throughout the year.

In evaluating performance, the Board focused particular attention on funds with less favorable performance records. The Board also noted that while it found the data provided by Broadridge generally useful, it recognized the limitations of such data, including in particular, that notable differences may exist between a fund and its Performance Peers (for example, the investment objectives and strategies). Further, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. The Board also acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance, and that a single investment theme could have the ability to disproportionately affect long-term performance.

The Board noted that for each of the one-, three- and five-year periods reported, MUC ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MUC, and that BlackRock has explained its rationale for this belief to the Board.

The Board noted that for each of the one-, three- and five-year periods reported, MUJ ranked in the first quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MUJ, and that BlackRock has explained its rationale for this belief to the Board.

The Board noted that for each of the one-, three- and five-year periods reported, MIY ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MIY, and that BlackRock has explained its rationale for this belief to the Board.

The Board noted that for the one-, three- and five-year periods reported, MPA ranked in the second, third and first quartiles, respectively, against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MPA, and that BlackRock has explained its rationale for this belief to the Board. The Board and BlackRock reviewed MPA’s underperformance relative to its Customized Peer Group Composite during the applicable period.

 

 

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Disclosure of Investment Advisory Agreements  (continued)

 

C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services and Estimated Profits Realized by BlackRock and its Affiliates from their Relationship with each Fund

The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with those of its Expense Peers. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared each Fund’s total expense ratio, as well as its actual management fee rate as a percentage of managed assets, which is the total assets of each Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of each Fund’s accrued liabilities (other than money borrowed for investment purposes) to those of its Expense Peers. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers, and the actual management fee rate gives effect to any management fee reimbursements or waivers. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to each Fund. The Board reviewed BlackRock’s estimated profitability with respect to each Fund and other funds the Board currently oversees for the year ended December 31, 2020 compared to available aggregate estimated profitability data provided for the prior two years. The Board reviewed BlackRock’s estimated profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at the individual fund level is difficult.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

The Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing each Fund, including in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable.

The Board noted that MUC’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers.

The Board noted that MUJ’s contractual management fee rate ranked first out of three funds, and that the actual management fee rate and total expense ratio ranked second out of three funds and first out of three funds, respectively, relative to the Expense Peers.

The Board noted that MIY’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers.

The Board noted that MPA’s contractual management fee rate ranked first out of three funds, and that the actual management fee rate and total expense ratio each ranked first out of three funds relative to the Expense Peers.

D. Economies of Scale

The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase. The Board also considered the extent to which each Fund benefits from such economies of scale in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable each Fund to more fully participate in these economies of scale. The Board considered each Fund’s asset levels and whether the current fee was appropriate.

Based on the Board’s review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. Closed-end funds are typically priced at scale at a fund’s inception.

E. Other Factors Deemed Relevant by the Board Members

The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from BlackRock’s respective relationships with each Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and its risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to each Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts.

In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

 

 

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Disclosure of Investment Advisory Agreements  (continued)

 

The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that each Fund’s fees and expenses are too high or if they are dissatisfied with the performance of each Fund.

The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communication efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreements between the Manager and each Fund for a one-year term ending June 30, 2022. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.

 

 

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Investment Objectives, Policies and Risks

 

Recent Changes

The following information is a summary of certain changes since July 31, 2020. This information may not reflect all of the changes that have occurred since you purchased the relevant Fund.

During each Fund’s most recent fiscal year, there were no material changes in the Fund’s investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with investment in the Fund.

Investment Objectives and Policies

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

The Fund’s investment objective is to provide stockholders with current income exempt from federal and California income taxes. There can be no assurance that the Fund’s investment objective will be realized. The Fund’s investment objective may not be changed without the approval of the holders of a majority of the outstanding common shares and the outstanding preferred shares voting together as a single class, and of the holders of a majority of the outstanding preferred shares voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding shares, whichever is less.

The Fund’s investment policies provide that it will invest primarily in a portfolio of long-term, investment grade municipal obligations issued by or on behalf of the State of California, its political subdivisions, agencies and instrumentalities and by other qualifying issuers that pay interest which, in the opinion of bond counsel to the issuer, is exempt from federal and California income taxes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) (“California Municipal Bonds”). The Fund’s investment policies provide that, the Fund will seek to achieve its investment objective by seeking to invest substantially all (a minimum of 80%) of its assets in California Municipal Bonds, except at times when, in the judgment of BlackRock Advisors, LLC (the “Manager”), California Municipal Bonds of sufficient quality and quantity are unavailable for investment at suitable prices by the Fund. The Fund’s investment policies provide that at all times, except during temporary defensive periods, the Fund will invest at least 65% of its assets in California Municipal Bonds and at least 80% of its assets in California Municipal Bonds and other long-term municipal obligations exempt from Federal income taxes, but not from California income taxes (“Municipal Bonds”). The Fund’s investment policies provide that, under normal market conditions, the Fund invests at least 80% of its assets in municipal securities with remaining maturities of one year or more at the time of investment. The Fund ordinarily does not intend to realize significant investment income not exempt from Federal and California income taxes. To the extent that suitable California Municipal Bonds are not available for investment by the Fund, as determined by the Manager, the Fund may purchase Municipal Bonds.

The investment grade California Municipal Bonds and Municipal Bonds in which the Fund will primarily invest are those California Municipal Bonds and Municipal Bonds that are rated at the date of purchase in the four highest rating categories of Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings, Inc. (“Fitch”) (currently AAA, AA, A and BBB) or, if unrated, are considered to be of comparable quality by the Manager. In the case of short term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moody’s and F-1+ through F-3 for Fitch. In the case of tax exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody’s and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody’s and BBB and F-3 for Fitch), while considered “investment grade,” may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of California Municipal Bonds and Municipal Bonds with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular California Municipal Bonds and Municipal Bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest. The foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security if a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell a security that a rating agency has downgraded, the Manager may consider such factors as the Manager’s assessment of the credit quality of the issuer of the security, the price at which the security could be sold and the rating, if any, assigned to the security by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade. The Fund may also purchase California Municipal Bonds and Municipal Bonds that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Fund’s income. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares.

The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, which are securities rated Ba or below by Moody’s, BB or below by S&P or Fitch or are considered by the Manager to be of comparable quality, at the time of purchase, subject to the Fund’s other investment policies. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

The Fund may invest in certain tax exempt securities classified as “private activity bonds” (or industrial development bonds, under pre-1986 law) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The percentage of the Fund’s total assets invested in private activity bonds will vary from time to time.

The average maturity of the Fund’s portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Manager. The Fund’s portfolio at any given time may include both long-term, intermediate-term and short-term California Municipal Bonds and Municipal Bonds.

The Fund’s stated expectation is that it will invest in California Municipal Bonds and Municipal Bonds that, in the Manager’s opinion, are underrated or undervalued. Underrated California Municipal Bonds and Municipal Bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness. Undervalued

 

 

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Investment Objectives, Policies and Risks  (continued)

 

California Municipal Bonds and Municipal Bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Fund’s portfolio because they represent a market sector or issuer that the Manager considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar bonds. California Municipal Bonds and Municipal Bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of California Municipal Bonds and Municipal Bonds of the market sector for reasons that do not apply to the particular California Municipal Bonds and Municipal Bonds that are considered undervalued. The Fund’s investment in underrated or undervalued California Municipal Bonds and Municipal Bonds will be based on the Manager’s belief that their yield is higher than that available on bonds bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally result in capital gain distributions subject to federal capital gains taxation. The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital gains.

Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of variable rate muni term preferred shares (“VMTP Shares”) and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.

The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions.

The Fund is authorized to borrow money in amounts of up to 5% of the value of its total assets at the time of such borrowings; provided, however, that the Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common stock pursuant to tender offers or otherwise to redeem or repurchase shares of preferred stock.

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

The Fund’s investment objective is to provide shareholders with current income exempt from federal income tax and New Jersey personal income taxes. The investment objective of the Fund is a fundamental policy that may not be changed without a vote of a majority of the Fund’s outstanding voting securities.

The Fund seeks to achieve its investment objective by investing primarily in a portfolio of municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from federal income tax and New Jersey personal income taxes (“New Jersey Municipal Bonds”). The Fund invests substantially all (at least 80%) of its assets in New Jersey Municipal Bonds, except at times when BlackRock Advisors, LLC (the “Manager”) considers that New Jersey Municipal Bonds of sufficient quantity and quality are unavailable at suitable prices. To the extent that the Manager considers that suitable New Jersey Municipal Bonds are not available for investment, the Fund may purchase municipal obligations exempt from federal income taxes but not New Jersey personal income taxes (“Municipal Bonds”). The Fund may invest directly in such securities or synthetically through the use of derivatives. The Fund will maintain at least 80% of its assets in New Jersey Municipal Bonds, except during interim periods pending investment of the net proceeds of public offerings of its securities and during temporary defensive periods. Under normal circumstances, at least 80% of the Fund’s assets will be invested in municipal obligations with remaining maturities of one year or more. There can be no assurance that the Fund’s investment objective will be realized.

Ordinarily, the Fund does not intend to realize significant investment income subject to federal income tax and New Jersey personal income taxes. The Fund may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds” (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to a federal alternative minimum tax.

The Fund may also invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities pay interest or distributions that are exempt from federal income taxation (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in New Jersey Municipal Bonds and Municipal Bonds, to the extent such investments are permitted by the Investment Company Act of 1940, as amended (the “1940 Act”). Other Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interests in one or more long-term New Jersey Municipal Bonds or Municipal Bonds. Certain Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments. For purposes of the Fund’s investment objective and policies, Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income taxes and New Jersey personal income taxes will be considered “New Jersey Municipal Bonds” and Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income taxes will be considered “Municipal Bonds.”

The Fund invests in investment grade New Jersey Municipal Bonds and Municipal Bonds that are rated at the date of purchase in the four highest rating categories of Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings, Inc. (“Fitch”) (currently AAA, AA, A and BBB) or, if unrated, are considered to be of comparable quality by the Manager. In the case of long-term debt, the investment grade rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for Moody’s. In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG 1 through MIG 3 for Moody’s and F-1+ through F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, P-1 through P-3 for Moody’s and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and P-3 for Moody’s; and BBB and F-3 for Fitch), while considered “investment grade,” may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of New Jersey Municipal Bonds and Municipal Bonds with respect to the foregoing requirements, the Manager takes into account the portfolio insurance as well as the nature of any letters of credit or similar credit enhancement to which particular New Jersey Municipal Bonds and Municipal Bonds are entitled and the creditworthiness of the insurance company or financial institution that provided such insurance or credit enhancements. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its shareholders against losses caused by declines in a bond’s market value. Also, the Fund cannot be certain that any insurance company does not make these payments. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop.

 

 

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Investment Objectives, Policies and Risks  (continued)

 

The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, which are securities rated Ba or below by Moody’s, BB or below by S&P or Fitch or are considered by the Manager to be of comparable quality, at the time of purchase, subject to the Fund’s other investment policies. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

The Fund may invest in variable rate demand obligations (“VRDOs”) and VRDOs in the form of participation interests (“Participating VRDOs”) in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank. The VRDOs in which the Fund may invest are tax-exempt obligations, in the opinion of counsel to the issuer, that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest on a short notice period not to exceed seven days. There is, however, the possibility that because of default or insolvency the demand feature of VRDOs may not be honored. The interest rates are adjustable at intervals (ranging from daily to up to one year) to some prevailing market rate for similar investments, such adjustment formula being calculated to maintain the market value of the VRDOs, at approximately the par value of the VRDOs on the adjustment date. The adjustments typically are based upon SIFMA or some other appropriate interest rate adjustment index. VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest on a notice period exceeding seven days may be deemed to be illiquid securities. Participating VRDOs provide the Fund with a specified undivided interest (up to 100%) in the underlying obligation and the right to demand payment of the unpaid principal balance plus accrued interest on the Participating VRDOs from the financial institution on a specified number of days’ notice, not to exceed seven days.

The average maturity of the Fund’s portfolio securities varies based upon the Manager’s assessment of economic and market conditions. The net asset value of the shares of common stock of a closed-end investment company such as the Fund, which invests primarily in fixed-income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer-term securities generally fluctuate more in response to interest rate changes than do short-term or medium-term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as that used by the Fund.

The Fund invests primarily in long-term New Jersey Municipal Bonds and Municipal Bonds with a maturity of more than ten years. However, the Fund may also invest in intermediate-term New Jersey Municipal Bonds and Municipal Bonds with a maturity of between three years and ten years. The Fund may also invest in short-term tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Investments in such short-term securities or cash will not exceed 20% of the Fund’s total assets, except during interim periods pending investment of the net proceeds from public offerings of the Fund’s securities or in anticipation of the repurchase or redemption of the Fund’s securities and temporary periods when, in the opinion of the Manager, prevailing market or economic conditions warrant. The Fund does not ordinarily intend to realize significant interest income that is subject to federal income tax and New Jersey personal income taxes.

Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of variable rate demand preferred shares (“VRDP Shares”) and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.

The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions.

The Fund is authorized to borrow money in amounts of up to 5% of the value of its total assets at the time of such borrowings; provided, however, that the Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common shares pursuant to tender offers or otherwise to redeem or repurchase preferred shares.

BlackRock MuniYield Michigan Quality Fund (MIY)

The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from federal and Michigan income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in a portfolio of municipal obligations issued by or on behalf of the State of Michigan, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from Michigan income taxes (“Michigan Municipal Bonds”). The Fund also may invest directly in such securities or synthetically through the use of derivatives in municipal obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that is excludable from gross income for federal income tax purposes, in the opinion of bond counsel to the issuer, but is not excludable from gross income for Michigan income tax purposes (“Municipal Bonds”). Unless otherwise noted, the term “Municipal Bonds” also includes Michigan Municipal Bonds. In general, the Fund does not intend for its investments to earn a large amount of interest income that is (i) includable in gross income for federal income tax purposes or (ii) not exempt from Michigan income taxes. From time to time, the Fund may realize taxable capital gains. The Fund’s investment objective and its policy of investing at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in Municipal Bonds are fundamental policies that may not be changed without the approval of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)). There can be no assurance that the Fund’s investment objective will be realized.

The Fund may invest in certain tax-exempt securities classified as “private activity bonds” (or industrial development bonds, under pre-1986 law) (“PABs”) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The percentage of the Fund’s total assets invested in PABs will vary from time to time.

Under normal market conditions, the Fund expects to invest primarily in a portfolio of long-term Municipal Bonds that are commonly referred to as “investment grade” securities, which are obligations rated at the time of purchase within the four highest-quality ratings as determined by either Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings, Inc. (“Fitch”) (currently AAA, AA, A and BBB) or are considered by BlackRock

 

 

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Investment Objectives, Policies and Risks  (continued)

 

Advisors, LLC (the “Manager”) to be of comparable quality. In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG 1 through MIG 3 for Moody’s and F1+ through F3 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody’s and F1+ through F3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and Prime-3 for Moody’s; and BBB and F3 for Fitch), while considered “investment grade,” may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of Municipal Bonds with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular Municipal Bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its shareholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, which are securities rated Ba or below by Moody’s, BB or below by S&P or Fitch or are considered by the Manager to be of comparable quality, at the time of purchase, subject to the Fund’s other investment policies. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated as a result of subsequent market movements or if an investment rating is subsequently downgraded to a rating that would have precluded the Fund’s initial investment in such security. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.

The average maturity of the Fund’s portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Manager. The Fund’s portfolio at any given time may include both long-term and intermediate-term municipal bonds.

The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

For temporary periods or to provide liquidity, the Fund has the authority to invest as much as 20% of its total assets in tax-exempt and taxable money market obligations with a maturity of one year or less (such short-term obligations being referred to herein as “Temporary Investments”). In addition, the Fund reserves the right as a defensive measure to invest temporarily a greater portion of its assets in Temporary Investments, when, in the opinion of the Manager, prevailing market or financial conditions warrant. Taxable money market obligations will yield taxable income. The Fund also may invest in variable rate demand obligations (“VRDOs”) and VRDOs in the form of participation interests (“Participating VRDOs”) in variable rate tax-exempt obligations held by a financial institution. The Fund’s hedging strategies are not fundamental policies and may be modified by the Board of Directors of the Fund without the approval of the Fund’s stockholders. The Fund is also authorized to invest in indexed and inverse floating rate obligations for hedging purposes and to seek to enhance return.

The Fund may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund receives an opinion of counsel to the issuer that such securities pay interest that is excludable from gross income for federal income tax purposes and, if applicable, exempt from Michigan income taxes (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term Municipal Bonds. Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the Fund’s investment restrictions and applicable law. Non-Municipal Tax-Exempt Securities are subject to the same risks associated with an investment in Municipal Bonds as well as many of the risks associated with investments in derivatives. If the Internal Revenue Service were to issue any adverse ruling or take an adverse position with respect to the taxation on these types of securities, there is a risk that the interest paid on such securities would be deemed taxable at the federal level.

The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital gains.

Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a federal income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund.

Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of variable rate demand preferred shares (“VRDP Shares”) and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.

The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions. The Fund may enter into “dollar roll” transactions.

The Fund may leverage its portfolio by entering into one or more credit facilities.

The Fund may enter into derivative transactions that have economic leverage embedded in them.

 

 

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Investment Objectives, Policies and Risks  (continued)

 

The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Pennsylvania income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing, as a fundamental policy, at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred shares) and the proceeds of any borrowings for investment purposes, in a portfolio of municipal obligations issued by or on behalf of the State of Pennsylvania, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from Pennsylvania income taxes (“Pennsylvania Municipal Bonds”). The Fund also may invest in municipal obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that is excludable from gross income for federal income tax purposes, in the opinion of bond counsel to the issuer, but is not excludable from gross income for Pennsylvania income tax purposes (“Municipal Bonds”). Unless otherwise noted, the term “Municipal Bonds” also includes Pennsylvania Municipal Bonds. The Fund may invest directly in such securities or synthetically through the use of derivatives. In general, the Fund does not intend for its investments to earn a large amount of interest income that is (i) includable in gross income for federal income tax purposes or (ii) not exempt from Pennsylvania income taxes. From time to time, the Fund may realize taxable capital gains.

The Fund’s investment objective and its policy of investing at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred shares) and the proceeds of any borrowings for investment purposes, in Pennsylvania Municipal Bonds are fundamental policies that may not be changed without the approval of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)). There can be no assurance that the Fund’s investment objective will be realized.

The Fund may invest in certain tax-exempt securities classified as “private activity bonds” (or industrial development bonds, under pre-1986 law) (“PABs”) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The percentage of the Fund’s total assets invested in PABs will vary from time to time.

Under normal market conditions, the Fund expects to invest primarily in a portfolio of long-term Municipal Bonds that are commonly referred to as “investment grade” securities, which are obligations rated at the time of purchase within the four highest-quality ratings as determined by either Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings (“Fitch”) (currently AAA, AA, A and BBB). In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG 1 through MIG 3 for Moody’s and F1+ through F3 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody’s and F1+ through F3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and Prime-3 for Moody’s; and BBB and F3 for Fitch), while considered “investment grade,” may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of Municipal Bonds with respect to the foregoing requirements, BlackRock Advisors, LLC (the “Manager”) takes into account the nature of any letters of credit or similar credit enhancement to which particular Municipal Bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its shareholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, which are securities rated Ba or below by Moody’s, BB or below by S&P or Fitch or are considered by the Manager to be of comparable quality, at the time of purchase, subject to the Fund’s other investment policies. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated as a result of subsequent market movements or if an investment rating is subsequently downgraded to a rating that would have precluded the Fund’s initial investment in such security. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.

The average maturity of the Fund’s portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Manager. The Fund’s portfolio at any given time may include long-term, intermediate-term and short-term Municipal Bonds.

The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in. response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

For temporary periods or to provide liquidity, the Fund has the authority to invest as much as 20% of its total assets in tax-exempt and taxable money market obligations with a maturity of one year or less (such short-term obligations being referred to herein as “Temporary Investments”). In addition, the Fund reserves the right as a defensive measure to invest temporarily a greater portion of its assets in Temporary Investments, when, in the opinion of the Manager, prevailing market or financial conditions warrant. Taxable money market obligations will yield taxable income. The Fund also may invest in variable rate demand obligations (“VRDOs”) and VRDOs in the form of participation

 

 

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Investment Objectives, Policies and Risks  (continued)

 

interests (“Participating VRDOs”) in variable rate tax-exempt obligations held by a financial institution. The Fund’s hedging strategies are not fundamental policies and may be modified by the Board of Trustees of the Fund without the approval of the Fund’s shareholders. The Fund is also authorized to invest in indexed and inverse floating rate obligations for hedging purposes and to seek to enhance return.

The Fund may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund receives an opinion of counsel to the issuer that such securities pay interest that is excludable from gross income for federal income tax purposes and, if applicable, exempt from Pennsylvania income taxes (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term Municipal Bonds. Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the Fund’s investment restrictions and applicable law. Non-Municipal Tax-Exempt Securities are subject to the same risks associated with an investment in Municipal Bonds as well as many of the risks associated with investments in derivatives. If the Internal Revenue Service were to issue any adverse ruling or take an adverse position with respect to the taxation on these types of securities, there is a risk that the interest paid on such securities would be deemed taxable at the federal level.

The Fund ordinarily does not intend to realize significant investment income not exempt from federal and Pennsylvania income taxes. From time to time, the Fund may realize taxable capital gains.

Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a federal income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund.

Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of variable rate demand preferred shares (“VRDP Shares”) and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.

The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions.

The Fund may enter into derivative transactions that have economic leverage embedded in them.

The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

Risk Factors

This section contains a discussion of the general risks of investing in each Fund. The net asset value and market price of, and dividends paid on, the common shares will fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee that the Fund will meet its investment objective or that the Fund’s performance will be positive for any period of time. Each risk noted below is applicable to each Fund unless the specific Fund or Funds are noted in a parenthetical.

Non-Diversification Risk (MUJ, MIY and MPA): The Fund is a non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, it may be more exposed to the risks associated with and developments affecting an individual issuer than a fund that invests more widely.

Investment and Market Discount Risk: An investment in the Fund’s common shares is subject to investment risk, including the possible loss of the entire amount that you invest. As with any stock, the price of the Fund’s common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or less than the original investment. Common shares are designed for long-term investors and the Fund should not be treated as a trading vehicle. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. This risk is separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities. At any point in time an investment in the Fund’s common shares may be worth less than the original amount invested, even after taking into account distributions paid by the Fund. During periods in which the Fund may use leverage, the Fund’s investment, market discount and certain other risks will be magnified.

Debt Securities Risk: Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, and prepayment risk, among other things.

 

   

Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise.

The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. For example, if interest rates increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Fund’s investments would be expected to decrease by 10%. The magnitude of these fluctuations in the market price of bonds and other fixed-income securities is generally greater for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fund management.

To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating rate debt securities.

 

 

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Investment Objectives, Policies and Risks  (continued)

 

These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faith and credit” of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate in value when interest rates change.

A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large scale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavy redemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and could hurt the Fund’s performance.

 

   

Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not be able to make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.

 

   

Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these obligations to fall.

 

   

Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.

Municipal Securities Risks: Municipal securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks include:

 

   

General Obligation Bonds Risks — Timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax base.

 

   

Revenue Bonds Risks — These payments depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another source.

 

   

Private Activity Bonds Risks — Municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its full faith, credit and taxing power for repayment. The Fund’s investments may consist of private activity bonds that may subject certain shareholders to an alternative minimum tax.

 

   

Moral Obligation Bonds Risks — Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.

 

   

Municipal Notes Risks — Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money.

 

   

Municipal Lease Obligations Risks — In a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.

 

   

Tax-exempt Status Risk — The Fund and its investment manager will rely on the opinion of issuers’ bond counsel and, in the case of derivative securities, sponsors’ counsel, on the tax-exempt status of interest on municipal bonds and payments under derivative securities. Neither the Fund nor its investment manager will independently review the bases for those tax opinions, which may ultimately be determined to be incorrect and subject the Fund and its shareholders to substantial tax liabilities.

State Specific Risk: The Fund invests primarily in municipal bonds issued by or on behalf of its designated state. As a result, the Fund is more exposed to risks affecting issuers of its designated state’s municipal securities than is a fund that invests more widely. Fund management does not believe that the current economic conditions will adversely affect the Fund’s ability to invest in high quality state municipal securities in its designated state.

Taxability Risk: The Fund intends to minimize the payment of taxable income to shareholders by investing in tax-exempt or municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for U.S. federal income tax purposes. Such securities, however, may be determined to pay, or have paid, taxable income subsequent to the Fund’s acquisition of the securities. In that event, the Internal Revenue Service may demand that the Fund pay U.S. federal income taxes on the affected interest income, and, if the Fund agrees to do so, the Fund’s yield could be adversely affected. In addition, the treatment of dividends previously paid or to be paid by the Fund as “exempt interest dividends” could be adversely affected, subjecting the Fund’s shareholders to increased U.S. federal income tax liabilities. Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a federal income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund. In addition, future laws, regulations, rulings or court decisions may cause interest on municipal securities to be subject, directly or indirectly, to U.S. federal income taxation or exempt interest on state municipal securities that are currently exempt to be subject to state or local income taxation, or the value of state municipal securities to be subject to state or local intangible personal property tax, or may otherwise prevent the Fund from realizing the full current benefit of the tax-exempt status of such securities. Any such change could also affect the market price of such securities, and thus the value of an investment in the Fund.

Insurance Risk: Insurance guarantees that interest payments on a municipal security will be made on time and that the principal will be repaid when the security matures. However, insurance does not protect against losses caused by declines in a municipal security’s value. The Fund cannot be certain that any insurance company will make the payments it guarantees. If a municipal security’s insurer fails to fulfill its obligations or loses its credit rating, the value of the security could drop.

Junk Bonds Risk: Although junk bonds generally pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that are considered speculative and may cause income and principal losses for the Fund.

 

 

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Investment Objectives, Policies and Risks  (continued)

 

Indexed and Inverse Securities Risk (MIY and MPA): Indexed and inverse securities provide a potential return based on a particular index of value or interest rates. The Fund’s return on these securities will be subject to risk with respect to the value of the particular index. These securities are subject to leverage risk and correlation risk. Certain indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund management does not anticipate.

U.S. Government Obligations Risk: Certain securities in which the Fund may invest, including securities issued by certain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.

Variable Rate Demand Obligations Risks (MUJ, MIY and MPA): Variable rate demand obligations are floating rate securities that combine an interest in a long term municipal bond with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution is unable to pay, the Fund may lose money.

Repurchase Agreements and Purchase and Sale Contracts Risk (MUJ): If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to repurchase the security in either situation and the market value of the security declines, the Fund may lose money.

Leverage Risk: The Fund uses leverage for investment purposes through the issuance of VRDP Shares or VMTP Shares, as applicable. The Fund also utilizes leverage for investment purposes by entering into reverse repurchase agreements, derivative instruments with leverage embedded in then, such as TOB Residuals and, if applicable, dollar rolls. The Fund’s use of leverage may increase or decrease from time to time in its discretion and the Fund may, in the future, determine not to use leverage.

The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks for the holders of common shares. The Fund cannot assure you that the use of leverage will result in a higher yield on the common shares. Any leveraging strategy the Fund employs may not be successful.

Leverage involves risks and special considerations for common shareholders, including:

 

   

the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a comparable portfolio without leverage;

 

   

the risk that fluctuations in interest rates or dividend rates on any leverage that the Fund must pay will reduce the return to the common shareholders;

 

   

the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the common shares;

 

   

leverage may increase operating costs, which may reduce total return.

Any decline in the net asset value of the Fund’s investments will be borne entirely by the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in the market price for the common shares.

Tender Option Bonds Risk: The Fund’s participation in tender option bond transactions may reduce the Fund’s returns and/or increase volatility. Investments in tender option bond transactions expose the Fund to counterparty risk and leverage risk. An investment in a tender option bond transaction typically will involve greater risk than an investment in a municipal fixed rate security, including the risk of loss of principal. Distributions on TOB Residuals will bear an inverse relationship to short-term municipal security interest rates. Distributions on TOB Residuals paid to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. TOB Residuals generally will underperform the market for fixed rate municipal securities in a rising interest rate environment. The Fund may invest special purpose trusts formed for the purpose of holding municipal bonds contributed by one or more funds (“TOB Trusts”) on either a non-recourse or recourse basis. If the Fund invests in a TOB Trust on a recourse basis, it could suffer losses in excess of the value of its TOB Residuals.

Reverse Repurchase Agreements Risk: Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement to repurchase the securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party may fail to return the securities in a timely manner or at all. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund, including the value of the investments made with cash collateral, is less than the value of the securities. These events could also trigger adverse tax consequences for the Fund. In addition, reverse repurchase agreements involve the risk that the interest income earned in the investment of the proceeds will be less than the interest expense.

Dollar Rolls Risk (MIY): Dollar rolls involve the risk that the market value of the securities that the Fund is committed to buy may decline below the price of the securities the Fund has sold. These transactions may involve leverage.

Illiquid Investments Risk: The Fund may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Fund may not be able to readily dispose of such investments at prices that approximate those at which the Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely affecting the Fund’s net asset value and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage-related securities markets in particular, have in recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.

 

 

I N V E S T M E N T  O B J E C T I V E S ,  P O L I C I E S   A N D  R I S K S

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Investment Objectives, Policies and Risks  (continued)

 

Investment Companies and ETFs Risk (MUJ, MIY and MCA): Subject to the limitations set forth in the Investment Company Act of 1940, as amended (the “1940 Act”), or as otherwise limited by the SEC, the Fund may acquire shares in other investment companies and in exchange-traded funds (“ETFs”), some of which may be affiliated investment companies. The market value of the shares of other investment companies and ETFs may differ from their net asset value. As an investor in investment companies and ETFs, the Fund would bear its ratable share of that entity’s expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and administration fees and other expenses (to the extent not offset by the Manager through waivers). As a result, shareholders will be absorbing duplicate levels of fees with respect to investments in other investment companies and ETFs (to the extent not offset by the Manager through waivers).

The securities of other investment companies and ETFs in which the Fund may invest may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities. An investment in securities of other investment companies and ETFs that use leverage may expose the Fund to higher volatility in the market value of such securities and the possibility that the Fund’s long-term returns on such securities (and, indirectly, the long-term returns of shares of the Fund) will be diminished.

As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies may be limited.

Derivatives Risk: The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/or increase volatility. Derivatives involve significant risks, including:

 

   

Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.

 

   

Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation.

 

   

Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value accurately.

 

   

Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and market makers may be reluctant to purchase complex instruments or quote prices for them.

 

   

Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlying security, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.

 

   

Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements and commodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an underlying asset and may adversely affect the timing, character and amount of income the Fund realizes from its investments.

 

   

Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe, Asia and other non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collect margin from the Fund with respect to such derivatives. Specifically, regulations are now in effect that require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with the Fund. Shares of investment companies (other than certain money market funds) may not be posted as collateral under these regulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certain of their affiliates to include in certain financial contracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. The implementation of these requirements with respect to derivatives, as well as regulations under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as a result, may affect returns to investors in the Fund.

On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.

Market Risk and Selection Risk: Market risk is the risk that one or more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset may decline due to changes in general market conditions, economic trends or events that are not specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of countries, region, market, industry, group of industries, sector or asset class. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues like pandemics or epidemics, recessions, or other events could have a significant impact on the Fund and its investments. Selection risk is the risk that the securities selected by Fund management will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment strategies. This means you may lose money.

 

 

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A recent outbreak of an infectious coronavirus has developed into a global pandemic that has resulted in numerous disruptions in the market and has had significant economic impact leaving general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies of many nations, individual companies and the market in general ways that cannot necessarily be foreseen at the present time.

 

 

I N V E S T M E N T  O B J E C T I V E S ,  P O L I C I E S   A N D  R I S K S

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Automatic Dividend Reinvestment Plan

 

Pursuant to MUC, MUJ, MIY and MPA’s Dividend Reinvestment Plan (the “Reinvestment Plan”), Common Shareholders are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A. (the “Reinvestment Plan Agent”) in the respective Fund’s Common Shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.

After MUC, MUJ, MIY and MPA declare a dividend or determine to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares for the participants’ accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Funds (“newly issued shares”) or (ii) by purchase of outstanding shares on the open market or on the Fund’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset value (“NAV”) per share is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market discount”), the Reinvestment Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent will invest any un-invested portion in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares will substitute for the dividend payment date.

You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting the Reinvestment Plan Agent, at the address set forth below.

Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.

The Reinvestment Plan Agent’s fees for the handling of the reinvestment of distributions will be paid by each Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agent’s open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.

Each Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants in MPA that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission fee. Participants in MUC, MUJ and MIY that request a sale of shares are subject to a $0.02 per share sold brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at computershare.com/blackrock, or in writing to Computershare, P.O. Box 505000, Louisville, KY 40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.

 

 

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Director and Officer Information

 

Independent Directors(a)
         

Name

Year of Birth(b)

  

Position(s) Held

(Length of Service)(c)

   Principal Occupation(s) During Past Five Years   

Number of BlackRock-Advised

Registered Investment Companies

(“RICs”) Consisting of

Investment Portfolios

(“Portfolios”) Overseen

  

Public Company
and Other
Investment
Company
Directorships Held
During

Past Five Years

Richard E. Cavanagh

1946

   Co-Chair of the Board and Director
(Since 2007)
   Director, The Guardian Life Insurance Company of America since 1998; Board Chair, Volunteers of America (a not-for-profit organization) from 2015 to 2018 (board member since 2009); Director, Arch Chemicals (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007 and Executive Dean from 1987 to 1995; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007.    73 RICs consisting of 100 Portfolios    None

Karen P. Robards

1950

   Co-Chair of the Board and Director
(Since 2007)
   Principal of Robards & Company, LLC (consulting and private investing) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Injections, LLC (medical devices) since 2019; Investment Banker at Morgan Stanley from 1976 to 1987.    73 RICs consisting of 100 Portfolios    Greenhill & Co., Inc.; AtriCure, Inc. (medical devices) from 2000 until 2017.

Michael J. Castellano

1946

   Director
(Since 2011)
   Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015 and from 2017 to September 2020; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) from 2015 to July 2020.    73 RICs consisting of 100 Portfolios    None

Cynthia L. Egan

1955

   Director
(Since 2016)
   Advisor, U.S. Department of the Treasury from 2014 to 2015; President, Retirement Plan Services, for T. Rowe Price Group, Inc. from 2007 to 2012; executive positions within Fidelity Investments from 1989 to 2007.    73 RICs consisting of 100 Portfolios    Unum (insurance); The Hanover Insurance Group (Board Chair) (insurance); Huntsman Corporation (chemical products); Envestnet (investment platform) from 2013 until 2016.

Frank J. Fabozzi(d)

1948

   Director
(Since 2007)
   Editor of The Journal of Portfolio Management since 1986; Professor of Finance, EDHEC Business School (France) since 2011; Visiting Professor, Princeton University for the 2013 to 2014 academic year and Spring 2017 semester; Professor in the Practice of Finance, Yale University School of Management from 1994 to 2011 and currently a Teaching Fellow in Yale’s Executive Programs; Board Member, BlackRock Equity-Liquidity Funds from 2014 to 2016; affiliated professor Karlsruhe Institute of Technology from 2008 to 2011; Visiting Professor, Rutgers University for the Spring 2019 semester; Visiting Professor, New York University for the 2019 academic year; Adjunct Professor of Finance, Carnegie Mellon University in fall 2020 semester.    75 RICs consisting of 102 Portfolios    None

 

 

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Director and Officer Information  (continued)

 

Independent Directors(a) (continued)
         

Name

Year of Birth(b)

  

Position(s) Held

(Length of Service)(c)

   Principal Occupation(s) During Past Five Years   

Number of BlackRock-Advised

Registered Investment Companies

(“RICs”) Consisting of

Investment Portfolios

(“Portfolios”) Overseen

  

Public Company
and Other
Investment
Company
Directorships Held
During

Past Five Years

Lorenzo A. Flores

1964

   Director
(Since 2021)
   Vice Chairman, Kioxia, Inc. since 2019; Chief Financial Officer, Xilinx, Inc. from 2016 to 2019; Corporate Controller, Xilinx, Inc. from 2008 to 2016.    73 RICs consisting of 100 Portfolios    None

Stayce D. Harris

1959

   Director
(Since 2021)
   Lieutenant General, Inspector General, Office of the Secretary of the United States Air Force from 2017 to 2019; Lieutenant General, Assistant Vice Chief of Staff and Director, Air Staff, United States Air Force from 2016 to 2017; Major General, Commander, 22nd Air Force, AFRC, Dobbins Air Reserve Base, Georgia from 2014 to 2016; Pilot, United Airlines from 1990 to 2020.    73 RICs consisting of 100 Portfolios    None

J. Phillip Holloman

1955

   Director
(Since 2021)
   President and Chief Operating Officer, Cintas Corporation from 2008 to 2018.    73 RICs consisting of 100 Portfolios    PulteGroup, Inc. (home construction); Rockwell Automation Inc. (industrial automation)

R. Glenn Hubbard

1958

   Director
(Since 2007)
   Dean, Columbia Business School from 2004 to 2019; Faculty member, Columbia Business School since 1988.    73 RICs consisting of 100 Portfolios    ADP (data and information services) 2004-2020; Metropolitan Life Insurance Company (insurance); KKR Financial Corporation (finance) from 2004 until 2014.

W. Carl Kester(d)

1951

   Director
(Since 2007)
   George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008; Deputy Dean for Academic Affairs from 2006 to 2010; Chairman of the Finance Unit, from 2005 to 2006; Senior Associate Dean and Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981.    75 RICs consisting of 102 Portfolios    None

Catherine A. Lynch(d)

1961

   Director
(Since 2016)
   Chief Executive Officer, Chief Investment Officer and various other positions, National Railroad Retirement Investment Trust from 2003 to 2016; Associate Vice President for Treasury Management, The George Washington University from 1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.    75 RICs consisting of 102 Portfolios    None

 

 

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Director and Officer Information  (continued)

 

Interested Directors(a)(e)
         

Name

Year of Birth(b)

  

Position(s) Held

(Length of Service)(c)

   Principal Occupation(s) During Past Five Years   

Number of BlackRock-Advised

Registered Investment Companies

(“RICs”) Consisting of

Investment Portfolios

(“Portfolios”) Overseen

   Public Company
and Other
Investment
Company
Directorships
Held During
Past Five Years

Robert Fairbairn

1965

   Director
(Since 2018)
   Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s Global Executive and Global Operating Committees; Co-Chair of BlackRock’s Human Capital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRock’s Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retail and iShares® businesses from 2012 to 2016.    103 RICs consisting of 252 Portfolios    None

John M. Perlowski(d)

1964

   Director
(Since 2015) President and Chief Executive Officer (Since 2010)
   Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009.    105 RICs consisting of 254 Portfolios    None
(a)

The address of each Director is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.

(b)

Each Independent Director 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 Fund’s by-laws or charter or statute, or until December 31 of the year in which he or she turns 75. Directors who are “interested persons,” as defined in the Investment Company Act serve until their successor is duly elected and qualifies or until their earlier death, resignation, retirement or removal as provided by the Fund’s by-laws or statute, or until December 31 of the year in which they turn 72. The Board may determine to extend the terms of Independent Directors 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 were realigned and consolidated into three new fund boards in 2007. Certain Independent Directors first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; R. Glenn Hubbard, 2004; W. Carl Kester, 1995; and Karen P. Robards, 1998.

(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 1940 Act, of the Fund 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.

 

 

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Director and Officer Information  (continued)

 

Officers Who Are Not Directors(a)
     
Name
Year of Birth(b)
   Position(s) Held
(Length of Service)
   Principal Occupation(s) During Past Five Years

Jonathan Diorio

1980

   Vice President
(Since 2015)
   Managing Director of BlackRock, Inc. since 2015; Director of BlackRock, Inc. from 2011 to 2015.

Trent Walker

1974

   Chief Financial Officer
(Since 2021)
   Managing Director of BlackRock, Inc. since September 2019; Executive Vice President of PIMCO from 2016 to 2019; Senior Vice President of PIMCO from 2008 to 2015; Treasurer from 2013 to 2019 and Assistant Treasurer from 2007 to 2017 of PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series, PIMCO Equity Series VIT, PIMCO Managed Accounts Trust, 2 PIMCO-sponsored interval funds and 21 PIMCO-sponsored closed-end funds.

Jay M. Fife

1970

  

Treasurer

(Since 2007)

   Managing Director of BlackRock, Inc. since 2007.

Charles Park

1967

  

Chief Compliance Officer

(Since 2014)

   Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012.

Janey Ahn

1975

  

Secretary

(Since 2012)

   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 Fund serve at the pleasure of the Board.

 

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.

Effective June 10, 2021, Stayce D. Harris and J. Phillip Holloman were each appointed to serve as a Director of the Funds. Effective July 30, 2021, Lorenzo A. Flores was appointed to serve as a Director of the Funds.

 

 

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Additional Information

 

Proxy Results

The Annual Meeting of Shareholders was held on July 29, 2021 for shareholders of record on June 1, 2021, to elect director nominees for each Fund. There were no broker non-votes with regard to any of the Funds.

 

Fund Name   Michael J. Castellano     Richard E. Cavanagh     Cynthia L. Egan  
  Votes For     Votes Withheld            Votes For     Votes Withheld            Votes For     Votes Withheld         

MUC

    18,684,396       16,362,846         18,718,987       16,328,255         18,840,026       16,207,216    

MUJ

    18,211,623       8,086,215         18,201,018       8,096,820         18,091,446       8,206,392    

MIY

    20,060,516       4,976,275               20,055,185       4,981,606               19,947,885       5,088,906          
                 
Fund Name          Votes Against     Abstain            Votes Against     Abstain            Votes Against     Abstain  

MPA

    10,849,207       357,509       20,940       10,852,451       354,929       20,276       10,773,769       431,165       22,722  
                 
Fund Name   Robert Fairbairn     Stayce Harris     J. Phillip Holloman  
  Votes For     Votes Withheld            Votes For     Votes Withheld            Votes For     Votes Withheld         

MUC

    34,206,893       840,349         34,219,933       827,309         34,082,531       964,711    

MUJ

    25,324,382       973,456         25,391,551       906,287         25,528,791       769,047    

MIY

    24,509,325       527,466               24,392,501       644,290               24,496,647       540,144          
                 
Fund Name          Votes Against     Abstain            Votes Against     Abstain            Votes Against     Abstain  

MPA

    10,981,045       224,714       21,897       10,723,497       485,943       18,216       10,848,196       359,554       19,906  
                 
Fund Name   R. Glenn Hubbard     Catherine A. Lynch     John M. Perlowski  
  Votes For     Votes Withheld            Votes For     Votes Withheld            Votes For     Votes Withheld         

MUC

    18,616,165       16,431,077         34,094,127       953,115         34,114,395       932,847    

MUJ

    18,349,093       7,948,745         25,424,048       873,790         25,312,292       985,546    

MIY

    20,012,522       5,024,269               24,428,526       608,265               24,521,297       515,494          
                 
Fund Name          Votes Against     Abstain            Votes Against     Abstain            Votes Against     Abstain  

MPA

    10,936,290       279,356       12,010       10,899,036       315,422       13,198       10,971,456       245,435       10,765  
                 
Fund Name   Karen P. Robards     Frank J. Fabozzi(a)     W. Carl Kester(a)  
  Votes For     Votes Withheld            Votes For     Votes Withheld            Votes For     Votes Withheld         

MUC

    18,717,244       16,329,998         2,540       0         2,540       0    

MUJ

    18,260,821       8,037,017         2,371       0         2,371       0    

MIY

    19,944,684       5,092,107               2,319       0               2,319       0          
                 
Fund Name          Votes Against     Abstain            Votes Against     Abstain            Votes Against     Abstain  

MPA

    10,741,338       435,621       50,697       826       0       0       826       0       0  

 

(a) 

Voted on by holders of Preferred Shares only.

 

Lorenzo A. Flores was appointed as a Director effective July 30, 2021.

Fund Certification

The Funds are listed for trading on the NYSE and have filed with the NYSE their annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Funds filed with the SEC the certification of its chief executive officer and chief financial officer required by Section 302 of the Sarbanes-Oxley Act.

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 of derivatives 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 senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.

 

 

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Additional Information  (continued)

 

Environmental, Social and Governance (“ESG”) Integration

Although a Fund does not seek to implement a specific ESG, impact or sustainability strategy unless otherwise disclosed, Fund management will consider ESG characteristics as part of the investment process for actively managed Funds. These considerations will vary depending on a Fund’s particular investment strategies and may include consideration of third-party research as well as consideration of proprietary BlackRock research across the ESG risks and opportunities regarding an issuer. Fund management will consider those ESG characteristics it deems relevant or additive when making investment decisions for a Fund. The ESG characteristics utilized in a Fund’s investment process are anticipated to evolve over time and one or more characteristics may not be relevant with respect to all issuers that are eligible for investment. ESG characteristics are not the sole considerations when making investment decisions for a Fund. Further, investors can differ in their views of what constitutes positive or negative ESG characteristics. As a result, a Fund may invest in issuers that do not reflect the beliefs and values with respect to ESG of any particular investor. ESG considerations may affect a Fund’s exposure to certain companies or industries and a Fund may forego certain investment opportunities. While Fund management views ESG considerations as having the potential to contribute to a Fund’s long-term performance, there is no guarantee that such results will be achieved.

Dividend Policy

Each Fund’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of distributions, the Funds may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the distributions paid by the Funds for any particular month may be more or less than the amount of net investment income earned by the Funds during such month. The Funds’ current accumulated but undistributed net investment income, if any, is disclosed as accumulated earnings (loss) in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.

General Information

The Funds do not make available copies of their Statements of Additional Information because the Funds’ shares are not continuously offered, which means that the Statement of Additional Information of each Fund has not been updated after completion of the respective Fund’s offerings and the information contained in each Fund’s Statement of Additional Information may have become outdated.

The following information is a summary of certain changes since July 31, 2020. This information may not reflect all of the changes that have occurred since you purchased the relevant Fund.

Effective October 19, 2020, each of MUC, MUJ and MIY has elected to be subject to the Maryland Control Share Acquisition Act (the “MCSAA”). In general, the MCSAA limits the ability of holders of “control shares” to vote those shares above various threshold levels that start at 10% unless the other stockholders of MUC, MUJ and MIY, as applicable, reinstate those voting rights at a meeting of stockholders as provided in the MCSAA. “Control shares” are generally defined in the MCSAA as shares of stock that, if aggregated with all other shares of stock that are either (i) owned by a person or (ii) as to which that person is entitled to exercise or direct the exercise of voting power, except solely by virtue of a revocable proxy, would entitle that person to exercise voting power in electing directors above various thresholds of voting power starting at 10%. MUC’s, MUJ’s and MIY’s Bylaws also provide that the provisions of the MCSAA shall not apply to the voting rights of the holders of any shares of preferred stock of MUC, MUJ and MIY, but the MCSAA would apply to any common stock held by the same holder.

Except if noted otherwise herein, there were no changes to the Funds’ charters or by-laws that would delay or prevent a change of control of the Funds that were not approved by the shareholders. Except if noted otherwise herein, there have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds’ portfolios.

In accordance with Section 23(c) of the Investment Company Act of 1940, each Fund may from time to time purchase shares of its common stock in the open market or in private transactions.

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 can be 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 does not, and is not intended to, incorporate BlackRock’s website in this report.

Electronic Delivery

Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.

To enroll in electronic delivery:

Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:

Please contact your financial adviser. Please note that not all investment advisers, banks or brokerages may offer this service.

 

 

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Additional Information  (continued)

 

Householding

The Funds will mail only one copy of shareholder documents, annual and semi-annual reports, Rule 30e-3 notices and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedules 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. The Funds’ 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 year available 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 voted proxies 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) 882-0052; (2) on the BlackRock website at blackrock.com; and (3) on the SEC’s website at sec.gov.

Availability of Fund Updates

BlackRock will update performance and certain other data for the Funds on a monthly basis on its website in the “Closed-end Funds” section of blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to check the website for updated performance information and the release of other material information about the Funds. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRock’s website in this report.

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-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain 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 set forth 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, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive 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 respond to 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 only for 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 to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

 

A D D I T I O N A L  I N F O R M A T I O N

  81


Additional Information  (continued)

 

Fund and Service Providers

 

Investment Adviser

BlackRock Advisors, LLC

Wilmington, DE 19809

Accounting Agent and Custodian

State Street Bank and Trust Company

Boston, MA 02111

Transfer Agent

Computershare Trust Company, N.A.

Canton, MA 02021

VRDP Liquidity Provider

Bank of America, N.A.(a)

New York, NY 10036

The Toronto-Dominion Bank(b)

New York, NY 10019

 

(a) 

For MUJ.

(b) 

For MPA and MIY.

VRDP Remarketing Agent

BofA Securities, Inc.(a)

New York, NY 10036

TD Securities (USA) LLC(b)

New York, NY 10019

VRDP Tender and Paying Agent and VMTP Redemption and Paying Agent

The Bank of New York Mellon

New York, NY 10286

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Boston, MA 02116

Legal Counsel

Willkie Farr & Gallagher LLP

New York, NY 10019

Address of the Funds

100 Bellevue Parkway

Wilmington, DE 19809

 

 

 

82  

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


Glossary of Terms Used in this Report

 

Portfolio Abbreviation
AGC    Assured Guaranty Corp.
AGM    Assured Guaranty Municipal Corp.
AGM-CR    AGM Insured Custodial Receipt
AMBAC    AMBAC Assurance Corp.
AMT    Alternative Minimum Tax
ARB    Airport Revenue Bonds
BAM    Build America Mutual Assurance Co.
BHAC-CR    Berkshire Hathaway Assurance Corp. - Custodian Receipt
CAB    Capital Appreciation Bonds
COP    Certificates of Participation
CR    Custodian Receipt
GNMA    Government National Mortgage Association
GO    General Obligation Bonds
GTD    GTD Guaranteed
HUD SECT 8   

U.S. Department of Housing and Urban Development
Section 8

M/F    Multi-Family
NPFGC    National Public Finance Guarantee Corp.
Q-SBLF    Qualified School Bond Loan Fund
RB    Revenue Bond
S/F    Single-Family
SAB    Special Assessment Bonds
SAN    State Aid Notes
SAP    Subject to Appropriations
SAW    State Aid Withholding
SCH BD RES FD    School Board Resolution Fund
ST    Special Tax
TA    Tax Allocation
 

 

 

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

  83


 

Want to know more?

blackrock.com    |    800-882-0052

This report is intended for current holders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Funds have leveraged their Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of NAV and market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and other information herein are as dated and are subject to change.

MQUAL5-07/21-AR

 

 

LOGO    LOGO


(b) Not Applicable

 

Item 2 –

Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, the code of ethics was amended to update certain information and to make other non-material changes. During the period covered by this report, there have been no waivers granted under the code of ethics. The registrant undertakes to provide a copy of the code of ethics to any person upon request, without charge, who calls 1-800-882-0052, option 4.

 

Item 3 –

Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent:

Michael Castellano

Frank J. Fabozzi

Catherine A. Lynch

Karen P. Robards

The registrant’s board of directors has determined that Karen P. Robards qualifies as an audit committee financial expert pursuant to Item 3(c)(4) of Form N-CSR.

Ms. Robards has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Ms. Robards has been President of Robards & Company, a financial advisory firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years where she was responsible for evaluating and assessing the performance of companies based on their financial results. Ms. Robards has over 30 years of experience analyzing financial statements. She also is a member of the audit committee of one publicly held company and a non-profit organization. Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.

 

Item 4 –

Principal Accountant Fees and Services

The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:

 

2


         
     (a) Audit Fees   (b) Audit-Related Fees1   (c) Tax Fees2   (d) All Other Fees
Entity Name   Current
  Fiscal Year    
End
  Previous
  Fiscal Year    
End
  Current
  Fiscal Year    
End
  Previous
  Fiscal Year    
End
  Current
  Fiscal Year    
End
  Previous
  Fiscal Year    
End
  Current
  Fiscal Year    
End
  Previous
  Fiscal Year    
End
BlackRock MuniYield Pennsylvania Quality Fund   $35,653   $36,720   $207   $0   $11,900   $11,900   $0   $0

The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Affiliated Service Providers”):

 

      Current Fiscal Year End    Previous Fiscal Year End

(b) Audit-Related Fees1

   $0    $0

(c) Tax Fees2

   $0    $0

(d) All Other Fees3

   $2,032,000    $1,984,000

1 The nature of the services includes assurance and related services reasonably related to the performance of the audit or review of financial statements not included in Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators.

2 The nature of the services includes tax compliance and/or tax preparation, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, taxable income and tax distribution calculations.

3 Non-audit fees of $2,032,000 and $1,984,000 for the current fiscal year and previous fiscal year, respectively, were paid to the Fund’s principal accountant in their entirety by BlackRock, in connection with services provided to the Affiliated Service Providers of the Fund and of certain other funds sponsored and advised by BlackRock or its affiliates for a service organization review and an accounting research tool subscription. These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Affiliated Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved

 

3


subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees, defined as the sum of the fees shown under “Audit-Related Fees,” “Tax Fees” and “All Other Fees,” paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Affiliated Service Providers were:

 

     Entity Name   

Current Fiscal  

Year End

  

Previous Fiscal  

Year End

    
   BlackRock MuniYield Pennsylvania Quality Fund    $12,107    $11,900

Additionally, the amounts billed by D&T in connection with services provided to the Affiliated Service Providers of the Fund and of other funds sponsored or advised by BlackRock or its affiliates during the current and previous fiscal years for a service organization review and an accounting research tool subscription were:

 

Current Fiscal

Year End

  

Previous Fiscal

Year End

$2,032,000

   $1,984,000

These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Affiliated Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

 

Item 5 –

Audit Committee of Listed Registrant

 

  (a)

The following individuals are members of the registrant’s separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):

Michael Castellano

Frank J. Fabozzi

J. Phillip Holloman

 

4


Catherine A. Lynch

Karen P. Robards

 

  (b)

Not Applicable

 

Item 6 –

Investments

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1(a) of this Form.

(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

 

Item 7 –

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – The board of directors has delegated the voting of proxies for the Fund’s portfolio securities to the Investment Adviser pursuant to the Investment Adviser’s proxy voting guidelines. Under these guidelines, the Investment Adviser will vote proxies related to Fund securities in the best interests of the Fund and its stockholders. From time to time, a vote may present a conflict between the interests of the Fund’s stockholders, on the one hand, and those of the Investment Adviser, or any affiliated person of the Fund or the Investment Adviser, on the other. In such event, provided that the Investment Adviser’s Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Oversight Committee”) is aware of the real or potential conflict or material non-routine matter and if the Oversight Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Oversight Committee may retain an independent fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the Investment Adviser’s clients. If the Investment Adviser determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Oversight Committee shall determine how to vote the proxy after consulting with the Investment Adviser’s Portfolio Management Group and/or the Investment Adviser’s Legal and Compliance Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the Fund’s Proxy Voting Policy and Procedures are attached as Exhibit 99.PROXYPOL, a copy of the Fund’s Global Corporate Governance & Engagement Principles are attached as Exhibit 99.GLOBAL.CORP.GOV and a copy of the Fund’s Corporate Governance and Proxy Voting Guidelines for U.S. Securities are attached as Exhibit 99.US.CORP.GOV. Information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at http://www.sec.gov.

 

Item 8 –

Portfolio Managers of Closed-End Management Investment Companies

(a)(1) As of the date of filing this Report:

The registrant is managed by a team of investment professionals comprised of Phillip Soccio, CFA, Director at BlackRock, Theodore R. Jaeckel, Jr., CFA, Managing Director at BlackRock and Michael Perilli, Director at BlackRock. Each is a member of BlackRock’s municipal tax-exempt management group. Each is jointly responsible for the day-to-day management of the registrant’s portfolio, which includes setting the registrant’s overall investment strategy, overseeing the management of the registrant and/or selection of its

 

5


investments. Messrs. Soccio, Jaeckel and Perilli have been members of the registrant’s portfolio management team since 2008, 2006 and 2018, respectively.

 

   

 

Portfolio Manager

 

  

 

Biography

 

  Theodore R. Jaeckel, Jr., CFA    Managing Director of BlackRock since 2006; Managing Director of Merrill Lynch Investment Managers, L.P. (“MLIM”) from 2005 to 2006; Director of MLIM from 1997 to 2005.
  Phillip Soccio, CFA    Director of BlackRock since 2009; Vice President of BlackRock from 2005 to 2008.
  Michael Perilli    Director of BlackRock since 2021; Vice President of BlackRock from 2017 to 2020; Associate of BlackRock from 2008 to 2016.

(a)(2) As of July 31, 2021:

 

    

(ii) Number of Other Accounts Managed

and Assets by Account Type

 

(iii) Number of Other Accounts and

Assets for Which Advisory Fee is

Performance-Based

(i) Name of

Portfolio Manager

 

Other

Registered

      Investment      

Companies

 

    Other Pooled    

Investment

Vehicles

 

Other

Accounts 

 

Other

Registered

  Investment  

Companies

 

  Other Pooled  

Investment

Vehicles

 

Other

    Accounts    

Theodore R. Jaeckel, Jr., CFA

  23   0   0   0   0   0
    $28.41 Billion   $0   $0   $0   $0   $0

Phillip Soccio, CFA

  11   0   0   0   0   0
    $5.57 Billion   $0   $0   $0   $0   $0

Michael Perilli

  14   0   0   0   0   0
    $7.79 Billion   $0   $0   $0   $0   $0

(iv) Portfolio Manager Potential Material Conflicts of Interest

BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities.

 

6


Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock, Inc.’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for a fund.    It should also be noted that a portfolio manager may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or long only accounts, subject to incentive fees. Such portfolio managers may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of this Fund are not entitled to receive a portion of incentive fees of other accounts.

As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base, as appropriate.

(a)(3) As of July 31, 2021:

Portfolio Manager Compensation Overview

The discussion below describes the portfolio managers’ compensation as of July 31, 2021.

BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.

Base Compensation. Generally, portfolio managers receive base compensation based on their position with the firm.

Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock.    In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s

 

7


compensation based on the performance of the Funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are: a combination of market-based indices (e.g., Standard & Poor’s Municipal Bond Index), certain customized indices and certain fund industry peer groups.

Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash, deferred BlackRock, Inc. stock awards, and/or deferred cash awards that notionally track the return of certain BlackRock investment products.

Portfolio managers receive their annual discretionary incentive compensation in the form of cash. Portfolio managers whose total compensation is above a specified threshold also receive deferred BlackRock, Inc. stock awards annually as part of their discretionary incentive compensation. Paying a portion of discretionary incentive compensation in the form of deferred BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key employees as part of a long-term incentive award to aid in retention, align interests with long-term shareholders and motivate performance. Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have deferred BlackRock, Inc. stock awards.

For certain portfolio managers, a portion of the discretionary incentive compensation is also distributed in the form of deferred cash awards that notionally track the returns of select BlackRock investment products they manage, which provides direct alignment of portfolio manager discretionary incentive compensation with investment product results. Deferred cash awards vest ratably over a number of years and, once vested, settle in the form of cash. Only portfolio managers who manage specified products and whose total compensation is above a specified threshold are eligible to participate in the deferred cash award program.

Other Compensation Benefits. In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:

Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($290,000 for 2021). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is

 

8


closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.

(a)(4) Beneficial Ownership of Securities – As of July 31, 2021.

 

Portfolio Manager      Dollar Range of Equity Securities of    
the Fund Beneficially Owned
Theodore R. Jaeckel, Jr., CFA      None

Phillip Soccio, CFA

     $10,001 - $50,000
Michael Perilli      None

(b) Not Applicable

 

Item 9 –

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers — Not Applicable due to no such purchases during the period covered by this report.

 

Item 10 –

Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

 

Item 11 –

Controls and Procedures

(a) The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12 –

Disclosure of Securities Lending Activities for Closed-End Management Investment Companies –Not Applicable

 

Item 13 –

Exhibits attached hereto

(a)(1) Code of Ethics – See Item 2

(a)(2) Section 302 Certifications are attached

(a)(3) Not Applicable

 

9


(a)(4) Not Applicable

(b) Section 906 Certifications are attached

 

 

10


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company     Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BlackRock MuniYield Pennsylvania Quality Fund

 

  By:      /s/ John M. Perlowski        
       John M. Perlowski
       Chief Executive Officer (principal executive officer) of
       BlackRock MuniYield Pennsylvania Quality Fund

Date: October 4, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

  By:      /s/ John M. Perlowski        
       John M. Perlowski
           Chief Executive Officer (principal executive officer) of
       BlackRock MuniYield Pennsylvania Quality Fund

Date: October 4, 2021

 

  By:      /s/ Trent Walker        
       Trent Walker
           Chief Financial Officer (principal financial officer) of
       BlackRock MuniYield Pennsylvania Quality Fund

Date: October 4, 2021

 

 

11

EX-99.CERT 2 d206286dex99cert.htm CERTIFICATION PURSUANT TO SECTION 302 Certification Pursuant to Section 302

EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, John M. Perlowski, Chief Executive Officer (principal executive officer) of BlackRock MuniYield Pennsylvania Quality Fund, certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock MuniYield Pennsylvania Quality Fund;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 4, 2021

 

/s/ John M. Perlowski        
John M. Perlowski
Chief Executive Officer (principal executive officer) of
BlackRock MuniYield Pennsylvania Quality Fund


EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, Trent Walker, Chief Financial Officer (principal financial officer) of BlackRock MuniYield Pennsylvania Quality Fund, certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock MuniYield Pennsylvania Quality Fund;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 4, 2021

 

/s/ Trent Walker        
Trent Walker
Chief Financial Officer (principal financial officer) of
BlackRock MuniYield Pennsylvania Quality Fund

 

EX-99.906CERT 3 d206286dex99906cert.htm CERTIFICATION PURSUANT TO SECTION 906 Certification Pursuant to Section 906

Exhibit 99.906CERT

Certification Pursuant to Rule 30a-2(b) under the 1940 Act and

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock MuniYield Pennsylvania Quality Fund (the “Registrant”), hereby certifies, to the best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended July 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: October 4, 2021

 

/s/ John M. Perlowski        
John M. Perlowski
Chief Executive Officer (principal executive officer) of
BlackRock MuniYield Pennsylvania Quality Fund

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock MuniYield Pennsylvania Quality Fund (the “Registrant”), hereby certifies, to the best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended July 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: October 4, 2021

 

/s/ Trent Walker        
Trent Walker
Chief Financial Officer (principal financial officer) of
BlackRock MuniYield Pennsylvania Quality Fund

This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission.

EX-99.PROXYPOL 4 d206286dex99proxypol.htm PROXY VOTING POLICY Proxy Voting Policy

Closed-End Fund Proxy Voting Policy

August 1, 2021

 

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  Closed-End Fund Proxy Voting Policy

 

   Procedures Governing Delegation of Proxy Voting to Fund Adviser

 

 

  Effective Date: August 1, 2021

 

 

 

  Applies to the following types of Funds registered under the 1940 Act:

   Open-End Mutual Funds (including money market funds)

   Money Market Funds Only

   iShares and BlackRock ETFs

   Closed-End Funds

   Other

 

 

Objective and Scope

Set forth below is the Closed-End Fund Proxy Voting Policy.

Policy / Document Requirements and Statements

The Boards of Trustees/Directors (the “Directors”) of the closed-end funds advised by BlackRock Advisors, LLC (“BlackRock”) (the “Funds”) have the responsibility for the oversight of voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to delegate that responsibility to BlackRock as part of BlackRock’s authority to manage, acquire and dispose of account assets, all as contemplated by the Funds’ respective investment management agreements.

BlackRock has adopted guidelines and procedures (together and as from time to time amended, the “BlackRock Proxy Voting Guidelines”) governing proxy voting by accounts managed by BlackRock. BlackRock will cast votes on behalf of each of the Funds on specific proxy issues in respect of securities held by each such Fund in accordance with the BlackRock Proxy Voting Guidelines; provided, however, that in the case of underlying closed-end funds (including business development companies and other similarly-situated asset pools) held by the Funds that have, or are proposing to adopt, a classified board structure, BlackRock will typically (a) vote in favor of proposals to adopt classification and against proposals to eliminate classification, and (b) not vote against directors as a result of their adoption of a classified board structure.

BlackRock will report on an annual basis to the Directors on (1) a summary of all proxy votes that BlackRock has made on behalf of the Funds in the preceding year together with a representation that all votes were in accordance with the BlackRock Proxy Voting Guidelines (as modified pursuant to the immediately preceding paragraph), and (2) any changes to the BlackRock Proxy Voting Guidelines that have not previously been reported.

 

 

 

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EX-99.GLOBAL.CORP.GO 5 d206286dex99globalcorpgo.htm GLOBAL CORPORATE GOVERNANCE & ENGAGEMENT PRINCIPLES Global Corporate Governance & Engagement Principles

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BlackRock Investment Stewardship Global Principles Effective as of January 2021


Contents

 

Introduction to BlackRock

    3  

Philosophy on investment stewardship

    3  

Key themes

    4  

Boards and directors

    5  

Auditors and audit-related issues

    7  

Capital structure, mergers, asset sales and other special transactions

    7  

Compensation and benefits

    8  

Environmental and social issues

    9  

General corporate governance matters and shareholder protections

    10  

Shareholder proposals

    10  

BlackRock’s oversight of our investment stewardship activities

    11  

Vote execution

    11  

Conflicts management policies and procedures

    12  

Voting guidelines

    13  

Reporting and vote transparency

    13  

 

 

The purpose of this document is to provide an overarching explanation of BlackRock’s approach globally to our responsibilities as a shareholder on behalf of our clients, our expectations of companies, and our commitments to clients in terms of our own governance and transparency.    

 

If you would like additional information, please contact:

ContactStewardship@blackrock.com

 

 

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Introduction to BlackRock

BlackRock’s purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual clients, across a full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as individuals around the world. As part of our fiduciary duty to our clients, we have determined that it is generally in the best long-term interest of our clients to promote sound corporate governance through voting as an informed, engaged shareholder. This is the responsibility of the Investment Stewardship Team.

Philosophy on investment stewardship

Companies are responsible for ensuring they have appropriate governance structures to serve the interests of shareholders and other key stakeholders. We believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders’ best interests to create sustainable value. Shareholders should have the right to vote to elect, remove, and nominate directors, approve the appointment of the auditor, and amend the corporate charter or by-laws. Shareholders should be able to vote on matters that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and pre-emptive rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information. In addition, shareholder voting rights should be proportionate to their economic ownership—the principle of “one share, one vote” helps achieve this balance.

Consistent with these shareholder rights, we believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients’ investments. BlackRock Investment Stewardship (“BIS”) does this through engagement with management teams and/or board members on material business issues including environmental, social, and governance (“ESG”) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of our clients. We also participate in the public debate to shape global norms and industry standards with the goal of a policy framework consistent with our clients’ interests as long-term shareholders.    

BlackRock looks to companies to provide timely, accurate, and comprehensive reporting on all material governance and business matters, including ESG issues. This allows shareholders to appropriately understand and assess how relevant risks and opportunities are being effectively identified and managed. Where company reporting and disclosure is inadequate or the approach taken is inconsistent with our view of what supports sustainable long-term value creation, we will engage with a company and/or use our vote to encourage a change in practice.

BlackRock views engagement as an important activity; engagement provides us with the opportunity to improve our understanding of the business and ESG risks and opportunities that are material to the companies in which our clients invest. As long-term investors on behalf of clients, we seek to have regular and continuing dialogue with executives and board directors to advance sound governance and sustainable business practices, as well as to understand the effectiveness of the company’s management and oversight of material issues. Engagement is an important mechanism for providing feedback on company practices and disclosures, particularly where we believe they could be enhanced. We primarily engage through direct dialogue but may use other tools such as written correspondence to share our perspectives. Engagement also informs our voting decisions.

We vote in support of management and boards where and to the extent they demonstrate an approach consistent with creating sustainable long-term value. If we have concerns about a company’s approach, we may choose to engage to explain our expectations. Where we consider that a company has failed to address one or more material issues within an appropriate timeframe, we may hold directors accountable or take other voting actions to signal our concerns. We apply our voting guidelines to achieve the outcome we believe is most aligned with our clients’ long-term economic interests.

 

 

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Key themes

We recognize that accepted standards and norms of corporate governance differ between markets; however, there are sufficient common threads globally to identify this overarching set of principles (the “Principles”) which are anchored in transparency and accountability. At a minimum, we expect companies to observe the accepted corporate governance standards in their domestic market or to explain why not doing so supports sustainable long-term value creation.

Our regional and market-specific voting guidelines explain how these Principles inform our voting decisions in relation to specific ballot items for shareholder meetings.

These Principles cover seven key themes:

 

 

Boards and directors

 

 

Auditors and audit-related issues

 

 

Capital structure, mergers, asset sales, and other special transactions

 

 

Compensation and benefits

 

 

Environmental and social issues

 

 

General corporate governance matters and shareholder protections

 

 

Shareholder proposals

 

 

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Boards and directors

The performance of the board is critical to the economic success of the company and the protection of shareholders’ interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most important responsibilities in the proxy voting context.

We support boards whose approach is consistent with creating sustainable long-term value. This includes the effective management of strategic, operational, and material ESG factors and the consideration of key stakeholder interests. Our primary focus is on the performance of the board of directors. The board should establish and maintain a framework of robust and effective governance mechanisms to support its oversight of the company’s strategic aims. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the company’s purpose. Disclosure of material issues that affect the company’s long-term strategy and value creation, including material ESG factors, is essential for shareholders to be able to appropriately understand and assess how the board is effectively identifying, managing, and mitigating risks.

Where a company has not adequately disclosed and demonstrated these responsibilities, we will consider withholding our support for the re-election of directors whom we hold accountable. We assess director performance on a case-by-case basis and in light of each company’s particular circumstances, taking into consideration our assessment of their governance, sustainable business practices, and performance. In serving the interests of shareholders, the responsibility of the board of directors includes, but is not limited to, the following:

 

 

Establishing an appropriate corporate governance structure

 

 

Supporting and overseeing management in setting long-term strategic goals, applicable measures of value-creation and milestones that will demonstrate progress, and steps taken if any obstacles are anticipated or incurred

 

 

Providing oversight on the identification and management of material, business operational and sustainability-related risks

 

 

Overseeing the financial resilience of the company, the integrity of financial statements, and the robustness of a company’s Enterprise Risk Management1 frameworks

 

 

Making decisions on matters that require independent evaluation which may include mergers, acquisitions and disposals, activist situations or other similar cases

 

 

Establishing appropriate executive compensation structures

 

 

Addressing business issues, including environmental and social issues, when they have the potential to materially impact the company’s long-term value

There should be clear definitions of the role of the board, the committees of the board and senior management. We set out below ways in which boards and directors can demonstrate a commitment to acting in the best interests of long-term shareholders. We will seek to engage with the appropriate directors where we have concerns about the performance of the company, board, or individual directors. As noted above, we believe that when a company is not effectively addressing a material issue, its directors should be held accountable.

 

 

 

1 Enterprise risk management is a process, effected by the entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of objectives. (Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management — Integrated Framework, September 2004, New York, NY).

 

 

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Regular accountability

BlackRock believes that directors should stand for re-election on a regular basis, ideally annually. In our experience, annual re-elections allow shareholders to reaffirm their support for board members or hold them accountable for their decisions in a timely manner. When board members are not re-elected annually, we believe it is good practice for boards to have a rotation policy to ensure that, through a board cycle, all directors have had their appointment re-confirmed, with a proportion of directors being put forward for re-election at each annual general meeting.

Effective board composition

Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect the evolution of the company’s strategy and the market environment. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the group’s thinking and in a manner that supports both continuity and appropriate succession planning. We expect companies to keep under regular review the effectiveness of its board (including its size), and assess directors nominated for election or re-election in the context of the composition of the board as a whole. This assessment should consider a number of factors, including the potential need to address gaps in skills or experience, the diversity of the board, and the balance of independent and non-independent directors. We also consider the average tenure of the overall board, where we are seeking a balance between the knowledge and experience of longer-serving members and the fresh perspectives of newer members.

When nominating new directors to the board, there should be detailed information on the individual candidates in order for shareholders to assess the suitability of an individual nominee and the overall board composition. These disclosures should give a clear sense of how the collective experience and expertise of the board aligns with the company’s long-term strategy and business model. We also expect disclosures to demonstrate how diversity is accounted for within the proposed board composition, including demographic factors such as gender, ethnicity, and age; as well as professional characteristics, such as a director’s industry experience, specialist areas of expertise, and geographic location.    

We expect there to be a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management. Common impediments to independence may include but are not limited to:

 

 

Current or recent employment at the company or a subsidiary

 

 

Being, or representing, a shareholder with a substantial shareholding in the company

 

 

Interlocking directorships

 

 

Having any other interest, business, or other relationship which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the company

BlackRock believes that the board is able to fulfill its fiduciary duty when there is a clearly independent, senior non-executive director to chair it or, where the chairman is also the CEO (or is otherwise not independent), a lead independent director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board and encouraging independent participation in board deliberations. The lead independent director or another appropriate director should be available to shareholders in those situations where an independent director is best placed to explain and justify a company’s approach.

There are matters for which the board has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock believes that objective oversight of such matters is best achieved when the board forms committees comprised entirely of independent directors. In many markets, these committees of the board specialize in audit, director nominations and compensation matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one involving a related party, or to investigate a significant adverse event.

Sufficient capacity

As the role of a director is demanding, directors must be able to commit an appropriate amount of time to board and committee matters. It is important that every director has the capacity to meet all of his/her responsibilities – including

 

 

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when there are unforeseen events – and therefore, he/she should not take on an excessive number of roles that would impair his/her ability to fulfill his/her duties.

Auditors and audit-related issues

BlackRock recognizes the critical importance of financial statements, which should provide a true and fair picture of a company’s financial condition. Accordingly, the assumptions made by management and reviewed by the auditor in preparing the financial statements should be reasonable and justified.    

The accuracy of financial statements, inclusive of financial and non-financial information, is clearly of paramount importance to BlackRock. Investors’ views on financial materiality are developing to encompass a broader range of risks. Over time, we expect increased scrutiny of the assumptions underlying financial reports.

In this context, audit committees, or equivalent, play a vital role in a company’s financial reporting system by providing independent oversight of the accounts, material financial and non-financial information, internal control frameworks, and Enterprise Risk Management systems. BlackRock believes that effective audit and risk committee oversight strengthens the quality and reliability of a company’s financial statements and provides an important level of reassurance to shareholders.

We hold the members of the audit committee or equivalent responsible for overseeing the management of the audit function. Audit committees or equivalent should have clearly articulated charters that set out the committee’s responsibilities and have a rotation plan in place that allows for a periodic refreshment of the committee memberships.

We take particular note of critical accounting matters, cases involving significant financial restatements or ad hoc notifications of material financial weakness. In this respect, audit committees should provide timely disclosure on the remediation of Key and Critical Audit Matters identified either by the external auditor or Internal Audit function.

The integrity of financial statements depends on the auditor being free of any impediments to being an effective check on management. To that end, we believe it is important that auditors are, and are seen to be, independent. Where the audit firm provides services to the company in addition to the audit, the fees earned should be disclosed and explained. Audit committees should have in place a procedure for assessing annually the independence of the auditor and the quality of the external audit process.

Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. The audit committee or equivalent should periodically review the company’s risk assessment and risk management policies and significant risks and exposures identified by management, the internal auditors or the independent accountants, and management’s steps to address them. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.

Capital structure, mergers, asset sales, and other special transactions

The capital structure of a company is critical to shareholders as it impacts the value of their investment and the priority of their interest in the company relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests.

Effective voting rights are basic rights of share ownership and we believe strongly in one vote for one share as a guiding principle that supports effective corporate governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting power should match economic exposure.

In principle, we disagree with the creation of a share class with equivalent economic exposure and preferential, differentiated voting rights as it violates the fundamental corporate governance principle of proportionality, and results in a concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying any potential conflicts of interest. However, we recognize that in certain markets, at least for a period of time, companies may have a valid argument for dual-class listings. We believe that such companies should review these share class structures on a regular basis or as company circumstances change. Additionally, they should receive shareholder approval of their capital structure on a periodic basis via a management proposal at the company’s shareholder meeting. The proposal

 

 

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should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.    

In assessing mergers, asset sales, or other special transactions, BlackRock’s primary consideration is the long-term economic interests of our clients as shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it enhances long-term shareholder value. We would prefer that proposed transactions have the unanimous support of the board and have been negotiated at arm’s length. We may seek reassurance from the board that executives’ and/or board members’ financial interests in a given transaction have not adversely affected their ability to place shareholders’ interests before their own. Where the transaction involves related parties, we would expect the recommendation to support it to come from the independent directors, and ideally, the terms have been assessed through an independent appraisal process. In addition, it is good practice that it be approved by a separate vote of the non-conflicted shareholders.

BlackRock believes that shareholders have a right to dispose of company shares in the open market without unnecessary restriction. In our view, corporate mechanisms designed to limit shareholders’ ability to sell their shares are contrary to basic property rights. Such mechanisms can serve to protect and entrench interests other than those of the shareholders. We believe that shareholders are broadly capable of making decisions in their own best interests. We expect any so-called ‘shareholder rights plans’ proposed by a board to be subject to shareholder approval upon introduction and periodically thereafter for continuation.

Compensation and benefits

BlackRock expects a company’s board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately and is linked with performance that aligns with shareholder interests, particularly the generation of sustainable long-term value. We would expect the compensation committee to carefully consider the specific circumstances of the company and the key individuals the board is trying to incentivize. We encourage companies to ensure that their compensation plans incorporate appropriate and rigorous performance metrics consistent with corporate strategy and market practice. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee or equivalent board members accountable for poor compensation practices or structures.

BlackRock believes that there should be a clear link between variable pay and company performance that drives value creation. We are not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee, we expect disclosure relating to how and why the discretion was used, and further, how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when the rationale for increases in total compensation at a company is solely based on peer benchmarking rather than a rigorous measure of outperformance.

We support incentive plans that foster the sustainable achievement of results consistent with the company’s long-term strategic initiatives. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. We believe consideration should be given to building claw back provisions into incentive plans such that executives would be required to forgo rewards when they are not justified by actual performance and/or when compensation was based on faulty financial reporting or deceptive business practices. We also favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal investigation, even if such actions did not ultimately result in a material restatement of past results. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.

Non-executive directors should be compensated in a manner that is commensurate with the time and effort expended in fulfilling their professional responsibilities. Additionally, these compensation arrangements should not risk compromising their independence or aligning their interests too closely with those of the management, whom they are charged with overseeing.

 

 

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Environmental and social issues

We believe that well-managed companies will deal effectively with material ESG factors relevant to their businesses. As stated throughout this document, governance is the core structure by which boards can oversee the creation of sustainable long-term value —appropriate risk oversight of environmental and social (“E&S”) considerations stems from this construct.    

Robust disclosure is essential for investors to effectively gauge companies’ business practices and strategic planning related to E&S risks and opportunities. When a company’s reporting is inadequate, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk. Given the increased understanding of material sustainability risks and opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies’ reporting and will hold management and/or directors accountable where disclosures or the business practices underlying them are inadequate.    

BlackRock views the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards put forward by the Sustainability Accounting Standards Board (SASB) as appropriate and complementary frameworks for companies to adopt for the disclosure of financially material sustainability information. While the TCFD framework was crafted with the aim of climate-related risk disclosure, the four pillars of the TCFD Governance, Strategy, Risk Management, and Metrics and Targets are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of sustainability-related risks and opportunities. SASB’s industry-specific guidance (as identified in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability that are considered to be financially material and decision-useful within their industry,

Accordingly, we ask companies to:

 

   

Disclose the identification, assessment, management, and oversight of sustainability-related risks in accordance with the four pillars of TCFD; and

 

   

Publish SASB-aligned reporting with industry-specific, material metrics and rigorous targets2.

Companies may also adopt or refer to guidance on sustainable and responsible business conduct issued by supranational organizations such as the United Nations or the Organization for Economic Cooperation and Development. Further, industry specific initiatives on managing specific operational risks may be useful. Companies should disclose any global standards adopted, the industry initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business practices.

Climate risk

BlackRock believes that climate change has become a defining factor in companies’ long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risk and opportunities, and how they are considered within strategy. Specifically, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2°C and is consistent with a global aspiration to reach net zero GHG emissions by 20503.

The public and private sectors have roles to play in aligning greenhouse gas reduction efforts with targets based on science, where available, to curb the worst effects of climate change and reach the global goal of carbon neutrality by the mid-century. Companies have an opportunity to utilize and contribute to the development of current and future low-carbon transition technologies, which are an important consideration for the rate at which emissions can be reduced. We expect

 

 

2 See our commentary on our approach to engagement on TCFD and SASB aligned reporting for greater detail of our expectations.

3 The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets are not equally equipped to transition their business and reduce emissions at the same rate—those in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace. Government policy and regional targets may be reflective of these realities.

 

 

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companies to disclose how they are considering these challenges, alongside opportunities for innovation, within their strategy and emissions reduction efforts.

Key stakeholder interests

Given our expectation that companies operate in long-term shareholders’ interests to create sustainable value and fulfill their purpose, BlackRock believes that companies should take due account of their key stakeholders’ interests. It is for each company to determine its key stakeholders based on what is material to its business, but they are likely to include employees, business partners (such as suppliers and distributors), clients and consumers, government and regulators, and the communities in which they operate, as well as investors.

Having regard to the interests of key stakeholders recognizes the collective nature of long-term value creation, and the extent to which each company’s prospects for growth are tied to its ability to foster strong sustainable relationships with those stakeholders. Companies should articulate how they address adverse impacts that could arise from their business practices and affect critical business relationships with their stakeholders. We expect companies to implement, to the extent appropriate, monitoring processes (often referred to as due diligence) to identify and mitigate potential adverse impacts, and grievance mechanisms to remediate any actual adverse impacts. The maintenance of trust within these relationships is often equated with a company’s social license to operate.

To ensure transparency and accountability, companies should report on how they have identified their key stakeholders and considered their interests in business decision-making, demonstrating the applicable governance, strategy, risk management, and metrics and targets. This approach should be overseen by the board, whose job it is to ensure that the approach taken is informed by and aligns with the company’s purpose.

General corporate governance matters and shareholder protections

BlackRock believes that shareholders have a right to material and timely information on the financial performance and viability of the companies in which they invest. In addition, companies should also publish information on the governance structures in place and the rights of shareholders to influence these structures. The reporting and disclosure provided by companies help shareholders assess whether their economic interests have been protected and the quality of the board’s oversight of management. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms, to submit proposals to the shareholders’ meeting, and to call special meetings of shareholders.

Shareholder proposals

In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be voted on by shareholders at a company’s annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance reforms, capital management, and improvements in the management or disclosure of environmental and social risks.

When assessing shareholder proposals, we evaluate each proposal on its merit, with a singular focus on its implications for long-term value creation. We consider the business and economic relevance of the issue raised, as well as its materiality and the urgency with which we believe it should be addressed. We take into consideration the legal effect of the proposal, as shareholder proposals may be advisory or legally binding depending on the jurisdiction. We would not support proposals that we believe would result in over-reaching into the basic business decisions of the issuer.

Where a proposal is focused on an issue that we agree needs to be addressed and the intended outcome is consistent with long-term value creation, we will look to the board and management to demonstrate that the company has met the intent of the request made in the shareholder proposal. Where our analysis and / or engagement indicate a need for improvement in the company’s approach to the issue, we will support shareholder proposals that are reasonable and not unduly constraining on management. Alternatively, or in addition, we may vote against the re-election of one of more directors if, in our assessment, the board has not responded sufficiently or with an appropriate sense of urgency.

 

 

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BlackRock’s oversight of its investment

stewardship activities

Oversight

We hold ourselves to a very high standard in our investment stewardship activities, including proxy voting. To meet this standard, BIS is comprised of BlackRock employees who do not have other responsibilities other than their roles in BIS. BIS is considered an investment function.

BlackRock maintains three regional advisory committees (“Stewardship Advisory Committees”) for (a) the Americas; (b) Europe, the Middle East and Africa (“EMEA”); and (c) Asia-Pacific, generally consisting of senior BlackRock investment professionals and/or senior employees with practical boardroom experience. The regional Stewardship Advisory Committees review and advise on amendments to BIS proxy voting guidelines covering markets within each respective region (“Guidelines”).

In addition to the regional Stewardship Advisory Committees, the Investment Stewardship Global Oversight Committee (“Global Committee”) is a risk-focused committee, comprised of senior representatives from various BlackRock investment teams, a senior legal representative, the Global Head of Investment Stewardship (“Global Head”), and other senior executives with relevant experience and team oversight.

The Global Head has primary oversight of the activities of BIS, including voting in accordance with the Guidelines, which require the application of professional judgment and consideration of each company’s unique circumstances. The Global Committee reviews and approves amendments to these Principles. The Global Committee also reviews and approves amendments to the regional Guidelines, as proposed by the regional Stewardship Advisory Committees.

In addition, the Global Committee receives and reviews periodic reports regarding the votes cast by BIS, as well as updates on material process issues, procedural changes, and other risk oversight considerations. The Global Committee reviews these reports in an oversight capacity as informed by the BIS corporate governance engagement program and the Guidelines.

BIS carries out engagement with companies, monitors and executes proxy votes, and conducts vote operations (including maintaining records of votes cast) in a manner consistent with the relevant Guidelines. BIS also conducts research on corporate governance issues and participates in industry discussions to contribute to and keep abreast of important developments in the corporate governance field. BIS may utilize third parties for certain of the foregoing activities and performs oversight of those third parties. BIS may raise complicated or particularly controversial matters for internal discussion with the relevant investment teams and/or refer such matters to the appropriate regional Stewardship Advisory Committees for review, discussion and guidance prior to making a voting decision.

Vote execution

We carefully consider proxies submitted to funds and other fiduciary account(s) (“Fund” or “Funds”) for which we have voting authority. BlackRock votes (or refrains from voting) proxies for each Fund for which we have voting authority based on our evaluation of the best long-term economic interests of our clients as shareholders, in the exercise of our independent business judgment, and without regard to the relationship of the issuer of the proxy (or any shareholder proponent or dissident shareholder) to the Fund, the Fund’s affiliates (if any), BlackRock or BlackRock’s affiliates, or BlackRock employees (see “Conflicts management policies and procedures”, below).

When exercising voting rights, BlackRock will normally vote on specific proxy issues in accordance with the Guidelines for the relevant market. The Guidelines are reviewed regularly and are amended consistent with changes in the local market practice, as developments in corporate governance occur, or as otherwise deemed advisable by the applicable Stewardship Advisory Committees. BIS analysts may, in the exercise of their professional judgment, conclude that the Guidelines do not cover the specific matter upon which a proxy vote is required or that an exception to the Guidelines would be in the best long-term economic interests of BlackRock’s clients.

 

 

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In the uncommon circumstance of there being a vote with respect to fixed income securities or the securities of privately held issuers, the decision generally will be made by a Fund’s portfolio managers and/or BIS based on their assessment of the particular transactions or other matters at issue.

In certain markets, proxy voting involves logistical issues which can affect BlackRock’s ability to vote such proxies, as well as the desirability of voting such proxies. These issues include, but are not limited to: (i) untimely notice of shareholder meetings; (ii) restrictions on a foreigner’s ability to exercise votes; (iii) requirements to vote proxies in person; (iv) “share-blocking” (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); (v) potential difficulties in translating the proxy; (vi) regulatory constraints; and (vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as share-blocking or overly burdensome administrative requirements.

As a consequence, BlackRock votes proxies on a “best-efforts” basis. In addition, BIS may determine that it is generally in the best interests of BlackRock’s clients not to vote proxies if the costs (including but not limited to opportunity costs associated with share-blocking constraints) associated with exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal.

Portfolio managers have full discretion to vote the shares in the Funds they manage based on their analysis of the economic impact of a particular ballot item. Portfolio managers may from time to time reach differing views on how best to maximize economic value with respect to a particular investment. Therefore, portfolio managers may, and sometimes do, vote shares in the Funds under their management differently from one another. However, because BlackRock’s clients are mostly long-term investors with long-term economic goals, ballots are frequently cast in a uniform manner.    

Conflicts management policies and procedures

BIS maintains policies and procedures that seek to prevent undue influence on BlackRock’s proxy voting activity. Such influence might stem from any relationship between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRock’s affiliates, a Fund or a Fund’s affiliates, or BlackRock employees. The following are examples of sources of perceived or potential conflicts of interest:

 

 

BlackRock clients who may be issuers of securities or proponents of shareholder resolutions

 

 

BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder resolutions

 

 

BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock

 

 

Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock

 

 

Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock

 

 

BlackRock, Inc. board members who serve as senior executives of public companies held in Funds managed by BlackRock

BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to, the following:

 

 

Adopted the Guidelines which are designed to advance our clients’ interests in the companies in which BlackRock invests on behalf of clients.

 

 

Established a reporting structure that separates BIS from employees with sales, vendor management, or business partnership roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRock’s relationship with such parties. Clients or business partners are not given special treatment or differentiated access to BIS. BIS prioritizes engagements based on factors including, but not limited to, our need for additional information to make a voting decision or our view on the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BIS may engage directly with BlackRock clients, business partners and/or third parties, and/or with employees with sales, vendor management, or business partnership roles, in

 

 

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discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to otherwise ensure that proxy-related client service levels are met.

 

 

Determined to engage, in certain instances, an independent fiduciary to vote proxies as a further safeguard to avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent fiduciary provides BlackRock’s proxy voting agent with instructions, in accordance with the Guidelines, as to how to vote such proxies, and BlackRock’s proxy voting agent votes the proxy in accordance with the independent fiduciary’s determination. BlackRock uses an independent fiduciary to vote proxies of BlackRock, Inc. and companies affiliated with BlackRock, Inc. BlackRock may also use an independent fiduciary to vote proxies of:

 

  i.

public companies that include BlackRock employees on their boards of directors,

 

  ii.

public companies of which a BlackRock, Inc. board member serves as a senior executive,

 

  iii.

public companies that are the subject of certain transactions involving BlackRock Funds,

 

  iv.

public companies that are joint venture partners with BlackRock, and

 

  v.

public companies when legal or regulatory requirements compel BlackRock to use an independent fiduciary.

In selecting an independent fiduciary, we assess several characteristics, including but not limited to: independence, an ability to analyze proxy issues and vote in the best economic interest of our clients, reputation for reliability and integrity, and operational capacity to accurately deliver the assigned votes in a timely manner. We may engage more than one independent fiduciary, in part in order to mitigate potential or perceived conflicts of interest at an independent fiduciary. The Global Committee appoints and reviews the performance of the independent fiduciaries, generally on an annual basis.

When so authorized, BlackRock acts as a securities lending agent on behalf of Funds. With regard to the relationship between securities lending and proxy voting, BlackRock’s approach is driven by our clients’ economic interests. The decision whether to recall securities on loan to vote is based on a formal analysis of the revenue producing value to clients of loans, against the assessed economic value of casting votes. Generally, we expect that the likely economic value to clients of casting votes would be less than the securities lending income, either because, in our assessment, the resolutions being voted on will not have significant economic consequences or because the outcome would not be affected by BlackRock voting the loaned securities that were recalled in order to vote. BlackRock also may, in our discretion, determine that the value of voting outweighs the cost of recalling shares, and thus recall shares to vote in that instance.

Periodically, BlackRock reviews our process for determining whether to recall securities on loan in order to vote and may modify it as necessary.

Voting guidelines

The issue-specific Guidelines published for each region/country in which we vote are intended to summarize BlackRock’s general philosophy and approach to issues that may commonly arise in the proxy voting context in each market where we invest. The Guidelines are not intended to be exhaustive. BIS applies the Guidelines on a case-by-case basis, in the context of the individual circumstances of each company and the specific issue under review. As such, the Guidelines do not indicate how BIS will vote in every instance. Rather, they reflect our view about corporate governance issues generally, and provide insight into how we typically approach issues that commonly arise on corporate ballots.

Reporting and vote transparency

Investment stewardship is how we use our voice as an investor to promote sound corporate governance and business practices to help maximize long-term shareholder value for our clients, the vast majority of whom are investing for long-term goals such as retirement. We are committed to transparency in the stewardship work we do on behalf of clients. We inform clients about our engagement and voting policies and activities through direct communication and through disclosure on our website. Each year we publish an annual report as well as quarterly stewardship reports which provide a global overview of our investment stewardship engagement and voting activities during the quarter, including market

 

 

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developments, speaking engagements, and engagement, and voting statistics. Additionally, we make public our market-specific voting guidelines for the benefit of clients and companies with whom we engage. We also publish commentaries to share our perspective on market developments and emerging key themes.

At a more granular level, we publish quarterly our vote record for each company that held a shareholder meeting during the period, showing how we voted on each proposal and explaining any votes against management proposals or on shareholder proposals. For shareholder meetings where a vote might be high profile or of significant interest to clients, we publish a voting bulletin shortly after the meeting, disclosing and explaining our vote on key proposals. We also publish a quarterly list of all companies we engaged and the key topics addressed in the engagement meeting.    

In this way, we help inform our clients about the work we do on their behalf in promoting the governance and business practices that support long-term sustainable value creation.    

 

 

This document is provided for information purposes only and is subject to change. Reliance upon this information is at the sole discretion of the reader.

Prepared by BlackRock, Inc.

©2020 BlackRock, Inc. All rights reserved.

 

 

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EX-99.US.CORP.GOV 6 d206286dex99uscorpgov.htm CORPORATE GOVERNANCE AND PROXY VOTING GUIDELINES FOR U.S. SECURITIES Corporate Governance and Proxy Voting Guidelines for U.S. Securities

LOGO

BlackRock Investment Stewardship Proxy voting guidelines for U.S. securities Effective as of January 2021


 

Contents

 

Introduction

    3  

Voting guidelines

    3  

Boards and directors

    3  

Auditors and audit-related issues

    9  

Capital structure proposals

    9  

Mergers, acquisitions, asset sales, and other special transactions

    10  

Executive compensation

    11  

Environmental and social issues

    13  

General corporate governance matters

    15  

Shareholder protections

    16  

 

 

If you would like additional information, please contact:

ContactStewardship@blackrock.com

 

 

 

BlackRock


These guidelines should be read in conjunction with the BlackRock Investment Stewardship Global Principles.

Introduction

We believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients’ investments. BlackRock Investment Stewardship (“BIS”) does this through engagement with management teams and/or board members on material business issues, including environmental, social, and governance (“ESG”) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of our clients.

The following issue-specific proxy voting guidelines (the “Guidelines”) are intended to summarize BIS’ general philosophy and approach to ESG factors, as well as our expectations of directors, that most commonly arise in proxy voting for U.S. securities. These Guidelines are not intended to limit the analysis of individual issues at specific companies or provide a guide to how BlackRock will vote in every instance. They are applied with discretion, taking into consideration the range of issues and facts specific to the company, as well as individual ballot items.

Voting guidelines

These guidelines are divided into eight key themes, which group together the issues that frequently appear on the agenda of annual and extraordinary meetings of shareholders:

 

 

Boards and directors

 

 

Auditors and audit-related issues

 

 

Capital structure

 

 

Mergers, acquisitions, asset sales, and other special transactions

 

 

Executive compensation

 

 

Environmental and social issues

 

 

General corporate governance matters

 

 

Shareholder protections

Boards and directors

The effective performance of the board is critical to the economic success of the company and the protection of shareholders’ interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most critical responsibilities.

Disclosure of material issues that affect the company’s long-term strategy and value creation, including material ESG factors, is essential for shareholders to be able to appropriately understand and assess how effectively the board is identifying, managing, and mitigating risks.    

Where we conclude that a board has failed to address or disclose one or more material issues within a specified timeframe, we may hold directors accountable or take other appropriate action in the context of our voting decisions.

Director elections

Where a board has not adequately demonstrated, through company disclosures and actions, how material issues are appropriately identified, managed, and overseen, we will consider withholding our support for the re-election of directors whom we hold accountable.

 

BlackRock   Proxy voting guidelines for U.S. securities | 3


In addition, we may withhold votes from directors or members of particular board committees in certain situations, as indicated below.

Independence

We expect a majority of the directors on the board to be independent. In addition, all members of key committees, including audit, compensation, and nominating/ governance committees, should be independent. Our view of independence may vary from listing standards.

Common impediments to independence may include:

 

 

Employment as a senior executive by the company or a subsidiary within the past five years

 

 

An equity ownership in the company in excess of 20%

 

 

Having any other interest, business, or relationship (professional or personal) which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company

 

 

When evaluating controlled companies, as defined by the U.S. stock exchanges, we may vote against insiders or affiliates who sit on the audit committee, but not other key committees

We may vote against directors serving on key committees who we do not consider to be independent.

Oversight

We expect the board to exercise appropriate oversight over management and business activities of the company. We will consider voting against committee members and/or individual directors in the following circumstances:

 

 

Where the board has failed to exercise sufficient oversight with regard to material ESG risk factors, or the company has failed to provide shareholders with adequate disclosure to conclude appropriate strategic consideration is given to these factors by the board

 

 

Where the board has failed to exercise oversight with regard to accounting practices or audit oversight, we will consider voting against the current audit committee, and any other members of the board who may be responsible. For example, we may vote against members of the audit committee during a period when the board failed to facilitate quality, independent auditing if substantial accounting irregularities suggest insufficient oversight by that committee

 

 

Members of the compensation committee during a period in which executive compensation appears excessive relative to performance and peers, and where we believe the compensation committee has not already substantially addressed this issue

 

 

The chair of the nominating/ governance committee, or where no chair exists, the nominating/governance committee member with the longest tenure, where the board is not comprised of a majority of independent directors. This may not apply in the case of a controlled company

 

 

Where it appears the director has acted (at the company or at other companies) in a manner that compromises his/ her ability to represent the best long-term economic interests of shareholders

 

 

Where a director has a multi-year pattern of poor attendance at combined board and applicable committee meetings, or a director has poor attendance in a single year with no disclosed rationale. Excluding exigent circumstances, BlackRock generally considers attendance at less than 75% of the combined board and applicable committee meetings to be poor attendance

 

 

Where a director serves on an excessive number of boards, which may limit his/ her capacity to focus on each board’s requirements. The following identifies the maximum number of boards on which a director may serve, before he/ she is considered to be over-committed:

 

BlackRock   Proxy voting guidelines for U.S. securities | 4


       

Public Company

Executive or Fund

Manager1

  # Outside Public Boards2   Total # of Public Boards
       
 

Director A

    1   2
       
 

Director B

      3   4

Responsiveness to shareholders

We expect a board to be engaged and responsive to its shareholders, including acknowledging voting outcomes for shareholder proposals, director elections, compensation, and other ballot items. Where we believe a board has not substantially addressed shareholder concerns, we may vote against the responsible committees and/or individual directors. The following illustrates common circumstances:

 

 

The independent chair or lead independent director, members of the nominating/governance committee, and/or the longest tenured director(s), where we observe a lack of board responsiveness to shareholders, evidence of board entrenchment, and/or failure to plan for adequate board member succession

 

 

The chair of the nominating/governance committee, or where no chair exists, the nominating/governance committee member with the longest tenure, where board member(s) at the most recent election of directors have received against votes from more than 25% of shares voted, and the board has not taken appropriate action to respond to shareholder concerns. This may not apply in cases where BlackRock did not support the initial against vote

 

 

The independent chair or lead independent director and/ or members of the nominating/governance committee, where a board fails to consider shareholder proposals that receive substantial support, and the proposals, in our view, have a material impact on the business, shareholder rights, or the potential for long-term value creation

Shareholder rights

We expect a board to act with integrity and to uphold governance best practices. Where we believe a board has not acted in the best interests of its shareholders, we may vote against the appropriate committees and/or individual directors. The following illustrates common circumstances:

 

 

The independent chair or lead independent director and members of the nominating/governance committee, where a board implements or renews a poison pill without shareholder approval

 

 

The independent chair or lead independent director and members of the nominating/governance committee, where a board amends the charter/articles/bylaws such that the effect may be to entrench directors or to significantly reduce shareholder rights

 

 

Members of the compensation committee where the company has repriced options without shareholder approval

 

 

If a board maintains a classified structure, it is possible that the director(s) with whom we have a particular concern may not be subject to election in the year that the concern arises. In such situations, if we have a concern regarding the actions of a committee and the responsible member(s) or committee chair are not up for re-election, we will generally register our concern by voting against all available members of the relevant committee

 

 

 

1 In this instance, “fund manager” refers to individuals whose full-time employment involves responsibility for the investment and oversight of fund vehicles, and those who have employment as professional investors and provide oversight for those holdings.

2 In addition to the company under review

 

BlackRock   Proxy voting guidelines for U.S. securities | 5


Board composition and effectiveness

We encourage boards to periodically renew their membership to ensure relevant skills and experience within the boardroom. To this end, regular performance reviews and skills assessments should be conducted by the nominating/ governance committee or the lead independent director.

Furthermore, we expect boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to bear in order to create a constructive debate of a variety of views and opinions in the boardroom. We recognize that diversity has multiple dimensions. In identifying potential candidates, boards should take into consideration the full breadth of diversity, including personal factors, such as gender, ethnicity, race, and age, as well as professional characteristics, such as a director’s industry, area of expertise, and geographic location. In addition to other elements of diversity, we encourage companies to have at least two women directors on their board. Our publicly available commentary explains our approach to engaging on board diversity.

We encourage boards to disclose:

 

 

The mix of competencies, experience, and other qualities required to effectively oversee and guide management in light of the stated long-term strategy of the company

 

 

The process by which candidates are identified and selected, including whether professional firms or other sources outside of incumbent directors’ networks have been engaged to identify and/or assess candidates

 

 

The process by which boards evaluate themselves and any significant outcomes of the evaluation process, without divulging inappropriate and/ or sensitive details

 

 

Demographics related to board diversity, including, but not limited to, gender, ethnicity, race, age, and geographic location, in addition to measurable milestones to achieve a boardroom reflective of multi-faceted racial, ethnic, and gender representation

Our primary concern is that board members are able to contribute effectively as corporate strategy evolves and business conditions change. We acknowledge that no single person can be expected to bring all relevant skill sets to a board; at the same time, we generally do not believe it is necessary or appropriate to have any particular director on the board solely by virtue of a singular background or specific area of expertise.

Where boards find that age limits or term limits are the most efficient and objective mechanism for ensuring periodic board refreshment, we generally defer to the board’s determination in setting such limits. BlackRock will also consider the average board tenure to evaluate processes for board renewal. We may oppose boards that appear to have an insufficient mix of short-, medium-, and long-tenured directors.

To the extent that a company has not adequately accounted for diversity in its board composition within a reasonable timeframe, based on our assessment, we may vote against members of the nominating/governance committee for an apparent lack of commitment to board effectiveness.

Board size

We typically defer to the board in setting the appropriate size and believe directors are generally in the best position to assess the optimal board size to ensure effectiveness. However, we may oppose boards that appear too small to allow for the necessary range of skills and experience or too large to function efficiently.

CEO and management succession planning

There should be a robust CEO and senior management succession plan in place at the board level that is reviewed and updated on a regular basis. We expect succession planning to cover both long-term planning consistent with the strategic direction of the company and identified leadership needs over time, as well as short-term planning in the event of an unanticipated executive departure. We encourage the company to explain its executive succession planning process,

 

BlackRock   Proxy voting guidelines for U.S. securities | 6


including where accountability lies within the boardroom for this task, without prematurely divulging sensitive information commonly associated with this exercise.

Classified board of directors/staggered terms

We believe that directors should be re-elected annually; classification of the board generally limits shareholders’ rights to regularly evaluate a board’s performance and select directors. While we will typically support proposals requesting board de-classification, we may make exceptions, should the board articulate an appropriate strategic rationale for a classified board structure, such as when a company needs consistency and stability during a time of transition, e.g. newly public companies or companies undergoing a strategic restructuring. A classified board structure may also be justified at non-operating companies, e.g. closed-end funds or business development companies (BDC),3 in certain circumstances. We would, however, expect boards with a classified structure to periodically review the rationale for such structure and consider when annual elections might be more appropriate.

Without a voting mechanism to immediately address concerns about a specific director, we may choose to vote against the available slate of directors (see “Shareholder rights” for additional detail).

Contested director elections

The details of contested elections, or proxy contests, are assessed on a case-by-case basis. We evaluate a number of factors, which may include: the qualifications of the dissident and management candidates; the validity of the concerns identified by the dissident; the viability of both the dissident’s and management’s plans; the ownership stake and holding period of the dissident; the likelihood that the dissident’s solutions will produce the desired change; and whether the dissident represents the best option for enhancing long-term shareholder value.

Cumulative voting

We believe that a majority vote standard is in the best long-term interests of shareholders. It ensures director accountability through the requirement to be elected by more than half of the votes cast. As such, we will generally oppose proposals requesting the adoption of cumulative voting, which may disproportionately aggregate votes on certain issues or director candidates.

Director compensation and equity programs

We believe that compensation for directors should be structured to attract and retain directors, while also aligning their interests with those of shareholders. We believe director compensation packages that are based on the company’s long-term value creation and include some form of long-term equity compensation are more likely to meet this goal. In addition, we expect directors to build meaningful share ownership over time.

Majority vote requirements

BlackRock believes that directors should generally be elected by a majority of the shares voted and will normally support proposals seeking to introduce bylaws requiring a majority vote standard for director elections. Majority vote standards assist in ensuring that directors who are not broadly supported by shareholders are not elected to serve as their representatives. Some companies with a plurality voting standard have adopted a resignation policy for directors who do not receive support from at least a majority of votes cast. Where we believe that the company already has a sufficiently robust majority voting process in place, we may not support a shareholder proposal seeking an alternative mechanism.

We note that majority voting may not be appropriate in all circumstances, for example, in the context of a contested election, or for majority-controlled companies.

 

 

 

3A BDC is a special investment vehicle under the Investment Company Act of 1940 that is designed to facilitate capital formati on for small and middle-market companies.

 

BlackRock   Proxy voting guidelines for U.S. securities | 7


Risk oversight

Companies should have an established process for identifying, monitoring, and managing business and material ESG risks. Independent directors should have access to relevant management information and outside advice, as appropriate, to ensure they can properly oversee risk. We encourage companies to provide transparency around risk management, mitigation, and reporting to the board. We are particularly interested in understanding how risk oversight processes evolve in response to changes in corporate strategy and/or shifts in the business and related risk environment. Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.

Separation of chairman and CEO

We believe that independent leadership is important in the boardroom. There are two commonly accepted structures for independent board leadership: 1) an independent chairman; or 2) a lead independent director when the roles of chairman and CEO are combined.    

In the absence of a significant governance concern, we defer to boards to designate the most appropriate leadership structure to ensure adequate balance and independence.

In the event that the board chooses a combined chair/CEO model, we generally support the designation of a lead independent director if they have the power to: 1) provide formal input into board meeting agendas; 2) call meetings of the independent directors; and 3) preside at meetings of independent directors. Furthermore, while we anticipate that most directors will be elected annually, we believe an element of continuity is important for this role to provide appropriate leadership balance to the chair/CEO.

The following table illustrates examples of responsibilities under each board leadership model:

 

   
  Combined Chair/ CEO Model    Separate Chair Model   
     
  Chair/ CEO    Lead Independent Director    Chair   
       
  Board Meetings   Authority to call full meetings of the board of directors    Attends full meetings of the board of directors    Authority to call full meetings of the board of directors   
       Authority to call meetings of independent directors        
       Briefs CEO on issues arising from executive sessions        
       
  Agenda   Primary responsibility for shaping board agendas, consulting with the lead independent director    Collaborates with chair/ CEO to set board agenda and board information    Primary responsibility for shaping board agendas, in conjunction with CEO   
       

  Board

  Communications

  Communicates with all directors on key issues and concerns outside of full board meetings    Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession planning    Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession planning   

 

BlackRock   Proxy voting guidelines for U.S. securities | 8


Auditors and audit-related issues

BlackRock recognizes the critical importance of financial statements to provide a complete and accurate portrayal of a company’s financial condition. Consistent with our approach to voting on boards of directors, we seek to hold the audit committee of the board responsible for overseeing the management of the audit function at a company, and may vote against the audit committee members where the board has failed to facilitate quality, independent auditing. We look to the audit committee report for insight into the scope of the audit committee responsibilities, including an overview of audit committee processes, issues on the audit committee agenda, and key decisions taken by the audit committee. We take particular note of cases involving significant financial restatements or material weakness disclosures, and we expect timely disclosure and remediation of accounting irregularities.

The integrity of financial statements depends on the auditor effectively fulfilling its role. To that end, we favor an independent auditor. In addition, to the extent that an auditor fails to reasonably identify and address issues that eventually lead to a significant financial restatement, or the audit firm has violated standards of practice that protect the interests of shareholders, we may also vote against ratification.

From time to time, shareholder proposals may be presented to promote auditor independence or the rotation of audit firms. We may support these proposals when they are consistent with our views as described above.

Capital structure proposals

Equal voting rights

BlackRock believes that shareholders should be entitled to voting rights in proportion to their economic interests. We believe that companies that look to add or already have dual or multiple class share structures should review these structures on a regular basis, or as company circumstances change. Companies with multiple share classes should receive shareholder approval of their capital structure on a periodic basis via a management proposal on the company’s proxy. The proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.    

Blank check preferred stock

We frequently oppose proposals requesting authorization of a class of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (“blank check” preferred stock) because they may serve as a transfer of authority from shareholders to the board and as a possible entrenchment device. We generally view the board’s discretion to establish voting rights on a when-issued basis as a potential anti-takeover device, as it affords the board the ability to place a block of stock with an investor sympathetic to management, thereby foiling a takeover bid without a shareholder vote.    

Nonetheless, we may support the proposal where the company:

 

 

Appears to have a legitimate financing motive for requesting blank check authority

 

 

Has committed publicly that blank check preferred shares will not be used for anti-takeover purposes

 

 

Has a history of using blank check preferred stock for financings

 

 

Has blank check preferred stock previously outstanding such that an increase would not necessarily provide further anti-takeover protection but may provide greater financing flexibility

Increase in authorized common shares

BlackRock will evaluate requests to increase authorized shares on a case-by-case basis, in conjunction with industry-specific norms and potential dilution, as well as a company’s history with respect to the use of its common shares.

 

BlackRock   Proxy voting guidelines for U.S. securities | 9


Increase or issuance of preferred stock

We generally support proposals to increase or issue preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and where the terms of the preferred stock appear reasonable.

Stock splits

We generally support stock splits that are not likely to negatively affect the ability to trade shares or the economic value of a share. We generally support reverse stock splits that are designed to avoid delisting or to facilitate trading in the stock, where the reverse split will not have a negative impact on share value (e.g. one class is reduced while others remain at pre-split levels). In the event of a proposal for a reverse split that would not proportionately reduce the company’s authorized stock, we apply the same analysis we would use for a proposal to increase authorized stock.

Mergers, acquisitions, asset sales, and other special transactions

In assessing mergers, acquisitions, asset sales, or other special transactions, BlackRock’s primary consideration is the long-term economic interests of our clients as shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it enhances long-term shareholder value. While mergers, acquisitions, asset sales, and other special transaction proposals vary widely in scope and substance, we closely examine certain salient features in our analyses, such as:

 

 

The degree to which the proposed transaction represents a premium to the company’s trading price. We consider the share price over multiple time periods prior to the date of the merger announcement. We may consider comparable transaction analyses provided by the parties’ financial advisors and our own valuation assessments. For companies facing insolvency or bankruptcy, a premium may not apply

 

 

There should be clear strategic, operational, and/ or financial rationale for the combination

 

 

Unanimous board approval and arm’s-length negotiations are preferred. We will consider whether the transaction involves a dissenting board or does not appear to be the result of an arm’s-length bidding process. We may also consider whether executive and/ or board members’ financial interests appear likely to affect their ability to place shareholders’ interests before their own

 

 

We prefer transaction proposals that include the fairness opinion of a reputable financial advisor assessing the value of the transaction to shareholders in comparison to recent similar transactions

Poison pill plans

Where a poison pill is put to a shareholder vote by management, our policy is to examine these plans individually. Although we oppose most plans, we may support plans that include a reasonable “qualifying offer clause.” Such clauses typically require shareholder ratification of the pill and stipulate a sunset provision whereby the pill expires unless it is renewed. These clauses also tend to specify that an all-cash bid for all shares that includes a fairness opinion and evidence of financing does not trigger the pill, but forces either a special meeting at which the offer is put to a shareholder vote, or requires the board to seek the written consent of shareholders, where shareholders could rescind the pill at their discretion. We may also support a pill where it is the only effective method for protecting tax or other economic benefits that may be associated with limiting the ownership changes of individual shareholders.

We generally vote in favor of shareholder proposals to rescind poison pills.

Reimbursement of expenses for successful shareholder campaigns

We generally do not support shareholder proposals seeking the reimbursement of proxy contest expenses, even in situations where we support the shareholder campaign. We believe that introducing the possibility of such reimbursement may incentivize disruptive and unnecessary shareholder campaigns.

 

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Executive compensation

BlackRock expects a company’s board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately and is aligned with shareholder interests, particularly the generation of sustainable long-term value.

We expect the compensation committee to carefully consider the specific circumstances of the company and the key individuals the board is focused on incentivizing. We encourage companies to ensure that their compensation plans incorporate appropriate and rigorous performance metrics consistent with corporate strategy and market practice. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee, or equivalent board members, accountable for poor compensation practices or structures.

BlackRock believes that there should be a clear link between variable pay and company performance that drives value creation. We are generally not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee, we expect disclosure relating to how and why the discretion was used and further, how the adjusted outcome is aligned with the interests of shareholders.

We acknowledge that the use of peer group evaluation by compensation committees can help calibrate competitive pay; however, we are concerned when the rationale for increases in total compensation is solely based on peer benchmarking, rather than absolute outperformance.

We support incentive plans that foster the sustainable achievement of results consistent with the company’s long-term strategic initiatives. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.

“Say on Pay” advisory resolutions

In cases where there is a “Say on Pay” vote, BlackRock will respond to the proposal as informed by our evaluation of compensation practices at that particular company and in a manner that appropriately addresses the specific question posed to shareholders. In a commentary on our website, entitled “BlackRock Investment Stewardship’s approach to executive compensation,” we explain our expectations related to executive compensation practices, our “Say on Pay” analysis framework, and our typical approach to engagement and voting on “Say on Pay.”

Where we conclude that a company has failed to align pay with performance, we will vote against the management compensation proposal and consider voting against the compensation committee members.

Frequency of “Say on Pay” advisory resolutions

BlackRock will generally support annual advisory votes on executive compensation, and will consider biennial and triennial timeframes, absent compensation concerns. In evaluating pay, we believe that the compensation committee is responsible for constructing a plan that appropriately incentivizes executives for long-term value creation, utilizing relevant metrics and structure to promote overall pay and performance alignment.

Clawback proposals

We generally favor recoupment from any senior executive whose compensation was based on faulty financial reporting or deceptive business practices. We also favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal proceeding, even if such actions did not ultimately result in a material restatement of past results. This includes, but is not limited to, settlement agreements arising from such behavior and paid for directly by the company. We typically support shareholder proposals on these matters unless the company already has a robust claw back policy that sufficiently addresses our concerns.

 

BlackRock   Proxy voting guidelines for U.S. securities | 11


Employee stock purchase plans

We believe employee stock purchase plans (“ESPP”) are an important part of a company’s overall human capital management strategy and can provide performance incentives to help align employees’ interests with those of shareholders. The most common form of ESPP qualifies for favorable tax treatment under Section 423 of the Internal Revenue Code. We will typically support qualified ESPP proposals.

Equity compensation plans

BlackRock supports equity plans that align the economic interests of directors, managers, and other employees with those of shareholders. We believe that boards should establish policies prohibiting the use of equity awards in a manner that could disrupt the intended alignment with shareholder interests (e.g. the use of stock as collateral for a loan; the use of stock in a margin account; the use of stock in hedging or derivative transactions). We may support shareholder proposals requesting the establishment of such policies.

Our evaluation of equity compensation plans is based on a company’s executive pay and performance relative to peers and whether the plan plays a significant role in a pay-for-performance disconnect. We generally oppose plans that contain “evergreen” provisions, which allow for the unlimited increase of shares reserved without requiring further shareholder approval after a reasonable time period. We also generally oppose plans that allow for repricing without shareholder approval. We may also oppose plans that provide for the acceleration of vesting of equity awards even in situations where an actual change of control may not occur. We encourage companies to structure their change of control provisions to require the termination of the covered employee before acceleration or special payments are triggered (commonly referred to as “double trigger” change of control provisions).    

Golden parachutes

We generally view golden parachutes as encouragement to management to consider transactions that might be beneficial to shareholders. However, a large potential pay-out under a golden parachute arrangement also presents the risk of motivating a management team to support a sub-optimal sale price for a company.    

When determining whether to support or oppose an advisory vote on a golden parachute plan, BlackRock may consider several factors, including:

 

 

Whether we believe that the triggering event is in the best interests of shareholders

 

 

Whether management attempted to maximize shareholder value in the triggering event

 

 

The percentage of total premium or transaction value that will be transferred to the management team, rather than shareholders, as a result of the golden parachute payment

 

 

Whether excessively large excise tax gross-up payments are part of the pay-out

 

 

Whether the pay package that serves as the basis for calculating the golden parachute payment was reasonable in light of performance and peers

 

 

Whether the golden parachute payment will have the effect of rewarding a management team that has failed to effectively manage the company

It may be difficult to anticipate the results of a plan until after it has been triggered; as a result, BlackRock may vote against a golden parachute proposal even if the golden parachute plan under review was approved by shareholders when it was implemented.

We may support shareholder proposals requesting that implementation of such arrangements require shareholder approval. We generally support proposals requiring shareholder approval of plans that exceed 2.99 times an executive’s current salary and bonus, including equity compensation.

Option exchanges

 

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We believe that there may be legitimate instances where underwater options create an overhang on a company’s capital structure and a repricing or option exchange may be warranted. We will evaluate these instances on a case-by-case basis. BlackRock may support a request to reprice or exchange underwater options under the following circumstances:

 

 

The company has experienced significant stock price decline as a result of macroeconomic trends, not individual company performance

 

 

Directors and executive officers are excluded; the exchange is value neutral or value creative to shareholders; tax, accounting, and other technical considerations have been fully contemplated

 

 

There is clear evidence that absent repricing, the company will suffer serious employee incentive or retention and recruiting problems

BlackRock may also support a request to exchange underwater options in other circumstances, if we determine that the exchange is in the best interests of shareholders.

Supplemental executive retirement plans

BlackRock may support shareholder proposals requesting to put extraordinary benefits contained in supplemental executive retirement plans (“SERP”) to a shareholder vote unless the company’s executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans.

Environmental and social issues

We believe that well-managed companies deal effectively with material ESG factors relevant to their businesses. As stated throughout this document, governance is the core structure by which boards can oversee the creation of sustainable long-term value—appropriate risk oversight of environmental and social (“E&S”) considerations stems from this construct.

Robust disclosure is essential for investors to effectively gauge companies’ business practices and strategic planning related to E&S risks and opportunities. When a company’s reporting is inadequate, investors, including BlackRock, will increasingly conclude that the company is not adequately managing risk. Given the increased understanding of material sustainability risks and opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies’ reporting and will hold management and/ or directors accountable where disclosures or the business practices underlying them are inadequate.    

BlackRock views the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards put forth by the Sustainability Accounting Standards Board (SASB) as appropriate and complementary frameworks for companies to disclose financially material sustainability information. While the TCFD framework was crafted with the aim of climate-related risk disclosure, the four pillars of the TCFD–Governance, Strategy, Risk Management, and Metrics and Targets–are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of sustainability-related risks and opportunities. SASB’s industry-specific guidance (as identified in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability that are considered to be financially material and decision-useful within their industry.

Accordingly, we ask companies to:

 

   

Disclose the identification, assessment, management, and oversight of sustainability-related risks in accordance with the four pillars of TCFD

 

   

Publish SASB-aligned reporting with industry-specific, material metrics and rigorous targets

See our commentary on our approach to engagement on TCFD- and SASB-aligned reporting for greater detail of our expectations.

 

BlackRock   Proxy voting guidelines for U.S. securities | 13


Climate risk

BlackRock believes that climate change has become a defining factor in companies’ long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risks and opportunities, and how they are considered within the company’s strategy.    

Specifically, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2° C and is consistent with a global aspiration to reach net zero GHG emissions by 2050.4 In order to assess companies’ progress, BIS expects carbon-intensive companies to disclose explicit GHG emissions reduction targets.

The public and private sectors have roles to play in aligning greenhouse gas reduction efforts with targets based on science, where available to curb the worst effects of climate change and reach the global goal of carbon neutrality by mid-century. Companies have an opportunity to utilize and contribute to the development of current and future low-carbon transition technologies, which are an important consideration for the rate at which emissions can be reduced. We expect companies to disclose how they are considering these challenges, alongside opportunities for innovation, within their strategy and emissions reduction efforts.

We may support shareholder proposals that ask companies to disclose climate plans aligned with our expectations.

Key stakeholder interests

As a long-term investor, we believe that in order to deliver value for shareholders, companies should also consider their stakeholders. While stakeholder groups may vary across industries, they are likely to include employees; business partners (such as suppliers and distributors); clients and consumers; government and regulators; and the communities in which companies operate. Companies that build strong relationships with their stakeholders are more likely to meet their own strategic objectives, while poor relationships may create adverse impacts that expose a company to legal, regulatory, operational, and reputational risks and jeopardize their social license to operate. We expect companies to effectively oversee and mitigate these risks with appropriate due diligence processes and board oversight.

Human capital management

A company’s approach to human capital management is a critical factor in fostering an inclusive, diverse, and engaged workforce, which contributes to business continuity, innovation, and long-term value creation. As an important component of strategy, we expect boards to oversee human capital management.

We believe that clear and consistent reporting on these matters is critical for investors to understand the composition of a company’s workforce. We expect companies to disclose workforce demographics, such as gender, race, and ethnicity in line with the US Equal Employment Opportunity Commission’s EEO-1 Survey, alongside the steps they are taking to advance diversity, equity, and inclusion. Where we believe a company’s disclosures or practices fall short relative to the market or peers, or we are unable to ascertain the board and management’s effectiveness in overseeing related risks and opportunities, we may vote against members of the appropriate committee or support relevant shareholder proposals. Our commentary on human capital management provides more information on our expectations.

Corporate political activities

Companies may engage in certain political activities, within legal and regulatory limits, in order to influence public policy consistent with the companies’ values and strategies. These activities can also create risks, including: the potential for allegations of corruption; reputational risk associated with a candidate, party, or issue; and risks that arise from the complex legal, regulatory, and compliance considerations associated with corporate political spending and lobbying

 

 

4 The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets are not equally equipped to transition their business and reduce emissions at the same rate–those in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace. Government policy and regional targets may be reflective of these realities.

 

BlackRock   Proxy voting guidelines for U.S. securities | 14


activity. Companies that engage in political activities should develop and maintain robust processes to guide these activities and mitigate risks, including board oversight.

When presented with shareholder proposals requesting increased disclosure on corporate political activities, BlackRock will evaluate publicly available information to consider how a company’s lobbying may impact the company. We will also evaluate whether there is alignment between a company’s stated positions on policy matters material to its strategy and the positions taken by industry groups of which it is a member. We may decide to support a shareholder proposal requesting additional disclosure if we identify a material misalignment. Additional detail can be found in our commentary on political contributions and lobbying disclosures.

General corporate governance matters

Adjourn meeting to solicit additional votes

We generally support such proposals unless the agenda contains items that we judge to be detrimental to shareholders’ best long-term economic interests.

Bundled proposals

We believe that shareholders should have the opportunity to review substantial governance changes individually without having to accept bundled proposals. Where several measures are grouped into one proposal, BlackRock may reject certain positive changes when linked with proposals that generally contradict or impede the rights and economic interests of shareholders.

Exclusive forum provisions

BlackRock generally supports proposals to seek exclusive forum for certain shareholder litigation. In cases where a board unilaterally adopts exclusive forum provisions that we consider unfavorable to the interests of shareholders, we will vote against the independent chair or lead independent director and members of the nominating/governance committee.

Multi-jurisdictional companies

Where a company is listed on multiple exchanges or incorporated in a country different from its primary listing, we will seek to apply the most relevant market guideline(s) to our analysis of the company’s governance structure and specific proposals on the shareholder meeting agenda. In doing so, we typically consider the governance standards of the company’s primary listing, the market standards by which the company governs itself, and the market context of each specific proposal on the agenda. If the relevant standards are silent on the issue under consideration, we will use our professional judgment as to what voting outcome would best protect the long-term economic interests of investors. We expect companies to disclose the rationale for their selection of primary listing, country of incorporation, and choice of governance structures, particularly where there is conflict between relevant market governance practices.

Other business

We oppose giving companies our proxy to vote on matters where we are not given the opportunity to review and understand those measures and carry out an appropriate level of shareholder oversight.

Reincorporation

Proposals to reincorporate from one state or country to another are most frequently motivated by considerations of anti-takeover protections, legal advantages, and/or cost savings. We will evaluate, on a case-by-case basis, the economic and strategic rationale behind the company’s proposal to reincorporate. In all instances, we will evaluate the changes to shareholder protections under the new charter/articles/bylaws to assess whether the move increases or decreases shareholder protections. Where we find that shareholder protections are diminished, we may support reincorporation if we determine that the overall benefits outweigh the diminished rights.

 

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IPO governance

We expect boards to consider and disclose how the corporate governance structures adopted upon initial public offering (“IPO”) are in shareholders’ best long-term interests. We also expect boards to conduct a regular review of corporate governance and control structures, such that boards might evolve foundational corporate governance structures as company circumstances change, without undue costs and disruption to shareholders. In our letter on unequal voting structures, we articulate our view that “one vote for one share” is the preferred structure for publicly-traded companies. We also recognize the potential benefits of dual class shares to newly public companies as they establish themselves; however, we believe that these structures should have a specific and limited duration. We will generally engage new companies on topics such as classified boards and supermajority vote provisions to amend bylaws, as we believe that such arrangements may not be in the best interest of shareholders in the long-term.

We will typically apply a one-year grace period for the application of certain director-related guidelines (including, but not limited to, responsibilities on other public company boards and board composition concerns), during which we expect boards to take steps to bring corporate governance standards in line with our expectations.

Further, if a company qualifies as an emerging growth company (an “EGC”) under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we will give consideration to the NYSE and NASDAQ governance exemptions granted under the JOBS Act for the duration such a company is categorized as an EGC. We expect an EGC to have a totally independent audit committee by the first anniversary of its IPO, with our standard approach to voting on auditors and audit-related issues applicable in full for an EGC on the first anniversary of its IPO.

Shareholder protections

Amendment to charter/articles/bylaws

We believe that shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms and amendments to the charter/articles/bylaws. We may vote against certain directors where changes to governing documents are not put to a shareholder vote within a reasonable period of time, particularly if those changes have the potential to impact shareholder rights (see “Director elections”). In cases where a board’s unilateral adoption of changes to the charter/articles/bylaws promotes cost and operational efficiency benefits for the company and its shareholders, we may support such action if it does not have a negative effect on shareholder rights or the company’s corporate governance structure.

When voting on a management or shareholder proposal to make changes to the charter/articles/bylaws, we will consider in part the company’s and/or proponent’s publicly stated rationale for the changes; the company’s governance profile and history; relevant jurisdictional laws; and situational or contextual circumstances which may have motivated the proposed changes, among other factors. We will typically support amendments to the charter/articles/bylaws where the benefits to shareholders outweigh the costs of failing to make such changes.

Proxy access

We believe that long-term shareholders should have the opportunity, when necessary and under reasonable conditions, to nominate directors on the company’s proxy card.    

In our view, securing the right of shareholders to nominate directors without engaging in a control contest can enhance shareholders’ ability to meaningfully participate in the director election process, encourage board attention to shareholder interests, and provide shareholders an effective means of directing that attention where it is lacking. Proxy access mechanisms should provide shareholders with a reasonable opportunity to use this right without stipulating overly restrictive or onerous parameters for use, and also provide assurances that the mechanism will not be subject to abuse by short-term investors, investors without a substantial investment in the company, or investors seeking to take control of the board.    

In general, we support market-standardized proxy access proposals, which allow a shareholder (or group of up to 20 shareholders) holding three percent of a company’s outstanding shares for at least three years the right to nominate the

 

BlackRock   Proxy voting guidelines for U.S. securities | 16


greater of up to two directors or 20% of the board. Where a standardized proxy access provision exists, we will generally oppose shareholder proposals requesting outlier thresholds.

Right to act by written consent

In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. We therefore believe that shareholders should have the right to solicit votes by written consent provided that: 1) there are reasonable requirements to initiate the consent solicitation process (in order to avoid the waste of corporate resources in addressing narrowly supported interests); and 2) shareholders receive a minimum of 50% of outstanding shares to effectuate the action by written consent. We may oppose shareholder proposals requesting the right to act by written consent in cases where the proposal is structured for the benefit of a dominant shareholder to the exclusion of others, or if the proposal is written to discourage the board from incorporating appropriate mechanisms to avoid the waste of corporate resources when establishing a right to act by written consent. Additionally, we may oppose shareholder proposals requesting the right to act by written consent if the company already provides a shareholder right to call a special meeting that we believe offers shareholders a reasonable opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting.

Right to call a special meeting

In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. Accordingly, shareholders should have the right to call a special meeting in cases where a reasonably high proportion of shareholders (typically a minimum of 15% but no higher than 25%) are required to agree to such a meeting before it is called. However, we may oppose this right in cases where the proposal is structured for the benefit of a dominant shareholder, or where a lower threshold may lead to an ineffective use of corporate resources. We generally believe that a right to act via written consent is not a sufficient alternative to the right to call a special meeting.

Simple majority voting

We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved. Nonetheless, in situations where there is a substantial or dominant shareholder, supermajority voting may be protective of minority shareholder interests and we may support supermajority voting requirements in those situations.

Virtual meetings

Shareholders should have the opportunity to participate in the annual and special meetings for the companies in which they are invested, as these meetings facilitate an opportunity for shareholders to provide feedback and hear from the board and management. While these meetings have traditionally been conducted in-person, virtual meetings are an increasingly viable way for companies to utilize technology to facilitate shareholder accessibility, inclusiveness, and cost efficiencies. We expect shareholders to have a meaningful opportunity to participate in the meeting and interact with the board and management in these virtual settings; companies should facilitate open dialogue and allow shareholders to voice concerns and provide feedback without undue censorship.

 

BlackRock   Proxy voting guidelines for U.S. securities | 17


 

 

 

This document is provided for information purposes only and is subject to change. Reliance upon this information is at the sole discretion of the reader.

Prepared by BlackRock, Inc.

©2020 BlackRock, Inc. All rights reserved.

 

BlackRock   Proxy voting guidelines for U.S. securities | 18
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