Notes to Financial Statements
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:
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Fund Name
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Herein Referred To As
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Organized
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Diversification
Classification
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BlackRock MuniAssets Fund, Inc.
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MUA
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Maryland
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Diversified
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BlackRock MuniEnhanced Fund, Inc.
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MEN
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Maryland
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Diversified
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BlackRock MuniHoldings Fund, Inc.
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MHD
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Maryland
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Diversified
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BlackRock MuniHoldings Fund II, Inc.
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MUH
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Maryland
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Diversified
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BlackRock MuniHoldings Quality Fund, Inc.
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MUS
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Maryland
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Diversified
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BlackRock Muni Intermediate Duration Fund, Inc.
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MUI
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Maryland
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Diversified
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BlackRock MuniVest Fund II, Inc.
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MVT
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Maryland
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Diversified
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The Boards of Directors of the Funds are collectively referred to throughout this report as the Board of Directors or the
Board, and the directors 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.
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SIGNIFICANT ACCOUNTING POLICIES
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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 on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized 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 monthly and paid monthly. Distributions of capital gains are recorded on the ex-dividend date 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 the 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 are included in the Directors and Officers 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.
Recent Accounting Standards: The Funds have adopted
Financial Accounting Standards Board Accounting Standards Update 2017-08 to amend the amortization period for certain purchased callable debt securities held at a premium. Under the new standard, the Funds
have changed the amortization period for the premium on certain purchased callable debt securities with non-contingent call features to the earliest call date. In accordance with the transition provisions of
the standard, the Funds applied the amendments on a modified retrospective basis beginning with the fiscal period ended April 30, 2020. The adjusted cost basis of securities at April 30, 2019 are as follows:
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MUA
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$
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545,683,936
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MEN
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538,145,340
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MHD
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342,848,540
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MUH
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261,762,036
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MUS
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269,356,424
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MUI
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911,482,516
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MVT
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470,370,386
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88
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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Notes to Financial Statements (continued)
This change in accounting policy has been
made to comply with the newly issued accounting standard and had no impact on accumulated earnings (loss) or the net asset value of the Funds.
Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A
Funds 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.
3.
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INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS
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Investment Valuation Policies: The Funds investments are valued at fair value (also referred to as market value within the financial statements)
as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments using various independent dealers or pricing services under policies approved by the Board. If a securitys
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 Funds assets and liabilities:
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Municipal investments (including commitments to purchase such investments on a when-issued basis) are valued on
the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing
matrixes, market transactions in comparable investments and information with respect to various relationships between investments.
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Investments in open-end U.S. mutual funds are valued at NAV each business day.
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If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such
investments, or in the event that the 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 will 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 arms-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 investments and derivative financial instruments. These inputs to valuation
techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:
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Level 1 Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each
Fund has the ability to access
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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)
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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 Committees assumptions used in determining the fair value of investments and derivative financial instruments)
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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. There may not
be a secondary market, and/or there are a limited number of investors. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial
instruments and is not necessarily an indication of the risks associated with investing in those securities.
4.
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SECURITIES AND OTHER INVESTMENTS
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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.
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NOTES TO FINANCIAL STATEMENTS
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89
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Notes to Financial Statements (continued)
Forward Commitments, When-Issued and
Delayed Delivery Securities: Certain 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. A fund 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 date. Since the value of
securities purchased may fluctuate prior to settlement, a fund may be required to pay more at settlement than the security is worth. In addition, a fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on
a delayed delivery basis, a fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, a funds maximum amount of loss is the unrealized
appreciation of unsettled when-issued transactions.
Municipal Bonds Transferred to TOB Trusts: Certain 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 funds 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. The funds management believes that a funds restrictions on borrowings do not apply to the funds TOB Trust transactions. Each funds 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
funds 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 funds payable to the holder of the TOB Trust Certificates or Loan for 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 deferred offering costs in the Statements of Operations. Amounts recorded within interest expense,
fees and amortization of offering costs in the Statements of Operations are:
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Interest Expense
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Liquidity Fees
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Other Expense
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Total
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MUA
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$
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1,040,362
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$
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295,052
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$
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107,746
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$
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1,443,160
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MEN
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1,339,893
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384,782
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124,568
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1,849,243
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MHD
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|
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719,649
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206,471
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70,245
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|
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996,365
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MUH
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|
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772,501
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218,546
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75,599
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1,066,646
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MUS
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413,035
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111,480
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43,571
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568,086
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MUI
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1,320,312
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414,824
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106,552
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1,841,688
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MVT
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695,743
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197,780
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69,726
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963,249
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90
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
For the year ended April 30, 2020, the
following table is a summary of each Funds TOB Trusts:
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Underlying
Municipal Bonds
Transferred to
TOB
Trusts (a)
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Liability for
TOB Trust
Certificates
(b)
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Range of
Interest Rates
on TOB Trust
Certificates at
Period End
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Average
TOB Trust
Certificates
Outstanding
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Daily Weighted
Average Rate
of Interest and
Other Expenses
on TOB Trusts
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MUA
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$
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114,135,383
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$
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69,231,546
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0.19% 0.42%
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$
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70,988,587
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2.03
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%
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MEN
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147,544,651
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80,896,214
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0.25% 0.72%
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90,339,817
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2.03
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MHD
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86,659,558
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53,130,349
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0.19% 0.73%
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49,655,623
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2.00
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MUH
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84,121,485
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49,787,484
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0.20% 0.40%
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53,240,849
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2.00
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MUS
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53,690,846
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29,367,864
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0.24% 0.40%
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28,280,178
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2.01
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MUI
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154,862,897
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92,013,580
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0.24% 0.37%
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91,277,128
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2.02
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MVT
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91,569,052
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56,197,698
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0.19% 0.73%
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48,209,253
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2.00
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(a)
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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.
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(b)
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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, the 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
April 30, 2020, 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 April 30, 2020.
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For the year ended April 30, 2020, the following table is a summary of each Funds Loan for TOB Trust Certificates:
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Loans
Outstanding
at Period End
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Range of
Interest Rates
on Loans at
Period
End
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Average
Loans
Outstanding
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|
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Daily Weighted
Average Rate
of Interest and
Other Expenses
on Loans
|
|
MUA
|
|
$
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|
|
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%
|
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$
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23,869
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|
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0.71
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%
|
MEN
|
|
|
5,235,000
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|
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|
0.12 0.18
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|
|
|
630,512
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|
|
|
0.71
|
|
MHD
|
|
|
|
|
|
|
|
|
|
|
47,809
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|
|
|
0.68
|
|
MUH
|
|
|
|
|
|
|
|
|
|
|
22,961
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|
|
|
0.69
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|
MUS
|
|
|
|
|
|
|
|
|
|
|
3,325
|
|
|
|
0.71
|
|
MUI
|
|
|
|
|
|
|
|
|
|
|
30,962
|
|
|
|
0.71
|
|
MVT
|
|
|
|
|
|
|
|
|
|
|
58,642
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|
|
|
0.67
|
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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.
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 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
contracts 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, foreign currency exchange rates or underlying assets.
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|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
91
|
|
Notes to Financial Statements (continued)
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 Funds portfolio and provides the personnel, facilities, equipment and
certain other services necessary to the operations of each Fund.
For such services, each Fund, except MUI, pays the Manager a monthly fee at an annual rate equal to
the following percentages of the average daily value of each Funds net assets:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MVT
|
|
Investment advisory fees
|
|
|
0.55
|
%
|
|
|
0.50
|
%
|
|
|
0.55
|
%
|
|
|
0.55
|
%
|
|
|
0.55
|
%
|
|
|
0.50
|
%
|
For such services, MUI pays the Manager a monthly fee of 0.55% of (i) the average daily value of MUIs net assets and
(ii) the proceeds of any outstanding debt securities and borrowings used for leverage.
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 Funds NAV.
Waivers:
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, 2021. 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. Prior to December 1, 2019, this waiver was voluntary. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year ended April 30, 2020, the amounts waived
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Amounts waived
|
|
$
|
1,384
|
|
|
$
|
1,895
|
|
|
$
|
7,606
|
|
|
$
|
925
|
|
|
$
|
2,203
|
|
|
$
|
1,740
|
|
|
$
|
8,833
|
|
The Manager contractually agreed to waive its investment advisory fee with respect to any portion of each Funds assets invested in
affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2021. 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 April 30, 2020, there were no fees waived and/or reimbursed by the Manager pursuant to this agreement.
The Manager, for MUS, 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 April 30, 2020 the waiver was $103,192.
Directors and Officers: Certain directors and/or officers of the Funds 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.
For the year ended April 30, 2020, purchases and sales of investments, excluding short-term securities, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Purchases
|
|
$
|
119,414,330
|
|
|
$
|
123,606,338
|
|
|
$
|
75,270,944
|
|
|
$
|
62,090,956
|
|
|
$
|
69,300,195
|
|
|
$
|
210,486,573
|
|
|
$
|
96,424,617
|
|
Sales
|
|
|
127,969,735
|
|
|
|
133,730,794
|
|
|
|
76,293,093
|
|
|
|
70,484,367
|
|
|
|
63,923,751
|
|
|
|
197,767,508
|
|
|
|
89,649,113
|
|
8.
|
INCOME TAX INFORMATION
|
It is each Funds 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 Funds U.S. federal tax returns generally remains open for each of the four years ended April 30, 2020. The
statutes of limitations on each Funds 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 April 30, 2020, 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.
|
|
|
92
|
|
2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEN
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Paid-in capital
|
|
$
|
(10,717
|
)
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
Accumulated earnings (loss)
|
|
|
10717
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
The tax character of distributions paid was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Tax-exempt
income(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2020
|
|
$
|
22,874,474
|
|
|
$
|
17,283,813
|
|
|
$
|
12,535,210
|
|
|
$
|
8,995,568
|
|
|
$
|
8,841,795
|
|
|
$
|
26,692,456
|
|
|
$
|
17,424,641
|
|
4/30/2019
|
|
|
23,551,751
|
|
|
|
20,223,865
|
|
|
|
13,771,349
|
|
|
|
9,829,684
|
|
|
|
10,264,197
|
|
|
|
27,386,865
|
|
|
|
19,429,884
|
|
Ordinary income(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2020
|
|
|
11,097
|
|
|
|
8,134
|
|
|
|
8,171
|
|
|
|
20,822
|
|
|
|
3,703
|
|
|
|
7,088
|
|
|
|
33,500
|
|
4/30/2019
|
|
|
157,714
|
|
|
|
5,562
|
|
|
|
283,540
|
|
|
|
261,013
|
|
|
|
1,553
|
|
|
|
21,651
|
|
|
|
157,896
|
|
Long-term capital gains(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2020
|
|
|
767,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2019
|
|
|
|
|
|
|
172,797
|
|
|
|
588,905
|
|
|
|
436,963
|
|
|
|
|
|
|
|
1,680,224
|
|
|
|
1,283,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2020
|
|
$
|
23,653,518
|
|
|
$
|
17,291,947
|
|
|
$
|
12,543,381
|
|
|
$
|
9,016,390
|
|
|
$
|
8,845,498
|
|
|
$
|
26,699,544
|
|
|
$
|
17,458,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/30/2019
|
|
$
|
23,709,465
|
|
|
$
|
20,402,224
|
|
|
$
|
14,643,794
|
|
|
$
|
10,527,660
|
|
|
$
|
10,265,750
|
|
|
$
|
29,088,740
|
|
|
$
|
20,871,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Funds designate these amounts paid during the fiscal year ended April 30, 2020, 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 for non-US residents and are eligible for exemption from US withholding tax for nonresident aliens and foreign
corporations.
|
|
|
(c)
|
The Funds designate these amounts paid during the fiscal year ended April 30, 2020 as 20% rate long-term capital gain
dividends.
|
|
As of period end, the tax components of accumulated earnings (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Undistributed tax-exempt income
|
|
$
|
102,897
|
|
|
$
|
972,698
|
|
|
$
|
|
|
|
$
|
972,740
|
|
|
$
|
747,341
|
|
|
$
|
2,949,945
|
|
|
$
|
155,828
|
|
Undistributed ordinary income
|
|
|
312,577
|
|
|
|
544
|
|
|
|
7,785
|
|
|
|
6,054
|
|
|
|
1,019
|
|
|
|
647
|
|
|
|
1,005
|
|
Non-expiring Capital loss carryforwards(a)
|
|
|
|
|
|
|
(8,766,890
|
)
|
|
|
(4,959,340
|
)
|
|
|
(3,829,813
|
)
|
|
|
(10,673,950
|
)
|
|
|
(6,055,723
|
)
|
|
|
(5,679,292
|
)
|
Net unrealized gains (losses)(b)
|
|
|
(16,855,202
|
)
|
|
|
25,062,558
|
|
|
|
8,740,647
|
|
|
|
7,799,054
|
|
|
|
7,003,679
|
|
|
|
19,586,008
|
|
|
|
5,783,377
|
|
Qualified late-year losses(c)
|
|
|
(257,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,697,720
|
)
|
|
$
|
17,268,910
|
|
|
$
|
3,789,092
|
|
|
$
|
4,948,035
|
|
|
$
|
(2,921,911
|
)
|
|
$
|
16,480,877
|
|
|
$
|
260,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts available to offset future realized capital gains.
|
|
|
(b)
|
The differences between book-basis and tax-basis net unrealized gains (losses)
were attributable primarily to the tax deferral of losses on wash sales and straddles, amortization and accretion methods of premiums and discounts on fixed income securities, the accrual of income on securities in default, the treatment of residual
interests in tender option bond trusts and the deferral of compensation to Directors.
|
|
|
(c)
|
The Funds have elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.
|
|
As of April 30, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S.
federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
MEN
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Tax cost
|
|
$
|
474,177,363
|
|
|
$
|
441,918,182
|
|
|
$
|
287,220,499
|
|
|
$
|
204,634,739
|
|
|
$
|
242,192,721
|
|
|
$
|
823,333,884
|
|
|
$
|
415,582,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
14,770,739
|
|
|
$
|
32,950,751
|
|
|
$
|
16,779,307
|
|
|
$
|
12,284,045
|
|
|
$
|
10,991,325
|
|
|
$
|
30,616,183
|
|
|
$
|
17,122,754
|
|
Gross unrealized depreciation
|
|
|
(31,625,941
|
)
|
|
|
(7,811,168
|
)
|
|
|
(7,770,967
|
)
|
|
|
(4,484,991
|
)
|
|
|
(3,987,646
|
)
|
|
|
(10,737,385
|
)
|
|
|
(11,288,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation)
|
|
$
|
(16,855,202
|
)
|
|
$
|
25,139,583
|
|
|
$
|
9,008,340
|
|
|
$
|
7,799,054
|
|
|
$
|
7,003,679
|
|
|
$
|
19,878,798
|
|
|
$
|
5,834,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Many municipalities insure repayment of their bonds, which may reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other
reasons, including market perception of the value of such insurance, and there is no guarantee that the insurer will meet its obligation.
Inventories of municipal
bonds held by brokers and dealers may decrease, which would lessen their ability to make a market in these securities. Such a reduction in market making capacity could potentially decrease a Funds ability to buy or sell bonds. As a result, a
Fund may sell a security at a lower price, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative impact on performance. If a Fund needed to sell large blocks of bonds, those sales could further
reduce the bonds prices and impact performance.
In the normal course of business, certain 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
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
93
|
|
Notes to Financial Statements (continued)
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 its investments.
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
Funds 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 portfolios current earnings rate.
The Funds may hold a significant amount of bonds subject to calls by the issuers at defined dates and prices. When bonds are called by issuers and the Funds reinvest the
proceeds received, such investments may be in securities with lower yields than the bonds originally held, and correspondingly, could adversely impact the yield and total return performance of a Fund.
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 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 Trusts 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 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 funds to meet its obligations. Limited liquidity can also affect the market price of investments,
thereby adversely affecting the Funds net asset value 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.
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 funds investments. The impact of the pandemic may be short term or may last for an extended period of time.
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. 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 brokers 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 brokers customers, potentially resulting in losses to the Funds.
Concentration Risk: As of period end, MEN, MHD, MUS and MUI invested a
significant portion of their assets in securities in the transportation sector. Changes in economic conditions affecting such sector would have a greater impact on the Funds and could affect the value, income and/or liquidity of positions in such
securities.
The 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.
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94
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
10.
|
CAPITAL SHARE TRANSACTIONS
|
Each Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Funds Common Shares is
$0.10. The par value for each of MENs, MHDs, MUHs, MUSs, MUIs and MVTs Preferred Shares outstanding is $0.10. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without
the approval of Common Shareholders.
Common Shares
For the years
shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:
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|
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|
Year Ended April 30,
|
|
MUA
|
|
|
MHD
|
|
|
MVT
|
|
2020
|
|
|
78,450
|
|
|
|
18,512
|
|
|
|
15,552
|
|
2019
|
|
|
24,627
|
|
|
|
|
|
|
|
18,940
|
|
For the year ended April 30, 2020 and for the year ended April 30, 2019, shares issued and outstanding remained constant for
MEN, MUH, MUS and MUI.
The Funds participate in an open market share repurchase program (the Repurchase Program). From December 1, 2018 through
November 30, 2019, 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, 2018, subject to certain conditions. 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. There is no assurance that the Funds will purchase shares in any particular amounts. For the year ended April 30, 2020, the Funds did not repurchase any shares.
Preferred Shares
A Funds 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 Funds 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 Funds 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.
VRDP Shares
MEN (for purposes of this section, a VRDP Fund) has 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:
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|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Maturity
Date
|
|
MEN
|
|
|
05/19/11
|
|
|
|
1,425
|
|
|
$
|
142,500,000
|
|
|
|
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 Funds 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 on July 2, 2020 unless
renewed or terminated in advance.
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.
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|
|
NOTES TO FINANCIAL STATEMENTS
|
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|
95
|
|
Notes to Financial Statements (continued)
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:
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|
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|
|
Moodys
Long-term
Rating
|
|
|
Fitch
Long-term
Rating
|
|
MEN
|
|
|
Aa1
|
|
|
|
AAA
|
|
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 Moodys and Fitch. 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 may commence 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. MENs special rate period has commenced on June 21, 2012 and has a current expiration date of June 17, 2020.
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.
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.
If MEN redeems its VRDP Shares prior to end of the special rate period and the VRDP Shares have long-term ratings above A1/A+ and its equivalent by all ratings
agencies then rating the VRDP Shares, then such redemption may be subject to a redemption premium payable to the holder of the VRDP Shares based on the time remaining in the special rate period, subject to certain exceptions for redemptions that are
required to comply with minimum asset coverage requirements.
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 April 30, 2020, the annualized dividend rate for the VRDP Shares was 2.18%.
For the year ended April 30, 2020, VRDP Shares issued and outstanding of MEN remained constant.
VMTP Shares
MHD, MUH, MUS, MUI and MVT (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:
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|
|
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|
|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Term
Redemption
Date
|
|
|
Moodys
|
|
|
Fitch
|
|
MHD
|
|
|
12/16/11
|
|
|
|
837
|
|
|
$
|
83,700,000
|
|
|
|
07/02/21
|
|
|
|
Aa1
|
|
|
|
AAA
|
|
MUH
|
|
|
12/16/11
|
|
|
|
550
|
|
|
|
55,000,000
|
|
|
|
07/02/21
|
|
|
|
Aa1
|
|
|
|
AAA
|
|
MUS
|
|
|
12/16/11
|
|
|
|
870
|
|
|
|
87,000,000
|
|
|
|
07/02/21
|
|
|
|
Aa1
|
|
|
|
AAA
|
|
MUI
|
|
|
12/07/12
|
|
|
|
2,871
|
|
|
|
287,100,000
|
|
|
|
07/02/21
|
|
|
|
Aa2
|
|
|
|
AAA
|
|
MVT
|
|
|
12/16/11
|
|
|
|
1,400
|
|
|
|
140,000,000
|
|
|
|
07/02/21
|
|
|
|
Aa1
|
|
|
|
AAA
|
|
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.
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96
|
|
2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
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 April 30, 2020, the average annualized dividend rates for the
VMTP Shares were as follows:
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|
|
|
|
|
MHD
|
|
|
MUH
|
|
|
MUS
|
|
|
MUI
|
|
|
MVT
|
|
Rate
|
|
|
2.18
|
%
|
|
|
2.18
|
%
|
|
|
2.18
|
%
|
|
|
2.18
|
%
|
|
|
2.18
|
%
|
For the year ended April 30, 2020, VMTP Shares issued and outstanding of each Fund remained constant.
Offering Costs: MEN, MHD, MUH, MUS, MUI and MVT 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 MEN 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.
On
December 7, 2012, MUI issued VMTP Shares, the proceeds of which were used to redeem all of MUIs then-outstanding VRDP Shares on December 21, 2012. MUIs offering costs that were recorded as a deferred charge and amortized over
the 30-year life of MUIs VRDP Shares were accelerated and charged to expense immediately upon redemption of MUIs VRDP Shares. Costs incurred in connection with the issuance of MUIs VMTP
Shares were recorded as a deferred charge and will be amortized over the life of the VMTP Shares.
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 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:
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|
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|
|
|
|
|
|
|
|
Dividends
Accrued
|
|
|
Deferred
Offering
Costs
Amortization
|
|
MEN
|
|
$
|
3,104,202
|
|
|
$
|
9,999
|
|
MHD
|
|
|
1,821,907
|
|
|
|
|
|
MUH
|
|
|
1,197,870
|
|
|
|
|
|
MUS
|
|
|
1,893,738
|
|
|
|
|
|
MUI
|
|
|
6,249,338
|
|
|
|
|
|
MVT
|
|
|
3,049,868
|
|
|
|
|
|
Managements 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 distributions to Common Shareholders and Preferred Shareholders as follows:
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|
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|
|
|
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|
|
|
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|
|
|
|
|
|
Common Dividend
Per Share
|
|
|
|
|
|
Preferred Shares (c)
|
|
|
|
Paid (a)
|
|
|
Declared (b)
|
|
|
|
|
|
Shares
|
|
|
Series
|
|
|
Declared
|
|
MUA
|
|
$
|
0.052500
|
|
|
$
|
0.052500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
MEN
|
|
|
0.039000
|
|
|
|
0.043000
|
|
|
|
|
|
|
|
VRDP
|
|
|
|
W-7
|
|
|
|
112,014
|
|
MHD
|
|
|
0.060500
|
|
|
|
0.060500
|
|
|
|
|
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
76,349
|
|
MUH
|
|
|
0.056500
|
|
|
|
0.058500
|
|
|
|
|
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
50,169
|
|
MUS
|
|
|
0.044500
|
|
|
|
0.050500
|
|
|
|
|
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
79,359
|
|
MUI
|
|
|
0.044500
|
|
|
|
0.052500
|
|
|
|
|
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
261,884
|
|
MVT
|
|
|
0.055500
|
|
|
|
0.055500
|
|
|
|
|
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
127,704
|
|
|
(a)
|
Net investment income dividend paid on June 1, 2020 to Common Shareholders of record on May 15, 2020.
|
|
|
(b)
|
Net investment income dividend declared on June 1, 2020, payable to Common Shareholders of record on June 15, 2020.
|
|
|
(c)
|
Dividends declared for period May 1, 2020 to May 31, 2020.
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
97
|
|
Notes to Financial Statements (continued)
On June 16, 2020, the Board of Directors of
MEN and the Board of Directors of BlackRock MuniYield Quality Fund, Inc. (MQY) each approved the reorganization of MEN with and into MQY. The reorganization is expected to occur in or before the first quarter of 2021 and is subject to the approvals
by each Funds shareholders and the satisfaction of customary closing conditions.
On June 16, 2020, the Board of Directors or Trustees, as applicable, of
BlackRock Municipal Income Investment Quality Trust (BAF), BlackRock Municipal Bond Trust (BBK), BlackRock MuniHoldings Fund II, Inc. (MUH), BlackRock MuniHoldings Quality Fund, Inc. (MUS) and the Board of Directors of MHD each approved the
reorganizations of BAF, BBK, MUH and MUS with and into MHD. The reorganizations are expected to occur in or before the first quarter of 2021 and are subject to the approvals by each Funds shareholders and the satisfaction of customary closing
conditions.
|
|
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98
|
|
2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
To the Shareholders and Board of Directors of BlackRock MuniAssets Fund, Inc., BlackRock
MuniEnhanced Fund, Inc., BlackRock MuniHoldings Fund, Inc., BlackRock MuniHoldings Fund II, Inc., BlackRock MuniHoldings Quality Fund, Inc., BlackRock Muni Intermediate Duration Fund, Inc., and BlackRock MuniVest Fund II, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited
the accompanying statements of assets and liabilities of BlackRock MuniAssets Fund, Inc., BlackRock MuniEnhanced Fund, Inc., BlackRock MuniHoldings Fund, Inc., BlackRock MuniHoldings Fund II, Inc., BlackRock MuniHoldings Quality Fund, Inc.,
BlackRock Muni Intermediate Duration Fund, Inc., and BlackRock MuniVest Fund II, Inc. (the Funds), including the schedules of investments, as of April 30, 2020, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and
financial highlights present fairly, in all material respects, the financial position of the Funds as of April 30, 2020, 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 April 30, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that
our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
June 22, 2020
We have served as the auditor of one or more BlackRock investment companies since 1992.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
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99
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Automatic Dividend Reinvestment Plan
Pursuant to each Funds 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 Funds Common
Shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street name
or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After
the Funds 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 Funds primary exchange (open-market purchases). If, on the dividend payment
date, the net asset value per share (NAV) is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to as a market premium), the Reinvestment Plan Agent will
invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be credited to each participants account will be determined by dividing the dollar amount of the dividend by the NAV
on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend
payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often referred to as a market discount), the Reinvestment Plan Agent will invest the dividend amount in shares acquired
on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the
Reinvestment Plan Agent will invest any un-invested portion in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares
will substitute for the dividend payment date.
You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting the
Reinvestment Plan Agent, at the address set forth below.
Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time
without penalty by notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and
such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other
distribution.
The Reinvestment Plan Agents fees for the handling of the reinvestment of distributions will be paid by each Fund. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agents open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not
relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.
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 MEN and MUI 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 MUA, MHD, MUH, MUS and MVT 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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100
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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS
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