For the period ended October 31, 2021, the effect of derivative financial
instruments in the Statements of Operations was as follows:
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes
to Financial Statements.
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.
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:
The purpose of these transactions was to combine five funds managed by the Manager with the same or substantially similar
(but not identical) investment objectives, investment policies, strategies, risks and restrictions. Each reorganization was a tax-free event and was effective on March 8, 2021.
Assuming the reorganization had been completed on May 1, 2020, the beginning of the fiscal reporting period of MHD, the pro forma results of
operations for the year ended April 30, 2021, are as follows:
Because the combined investment portfolios have been managed as a single integrated portfolio since the reorganization was completed, it is not
practicable to separate the amounts of revenue and earnings of each Target Fund that have been included in MHD’s Statement of Operations since March 8, 2021.
Reorganization costs incurred by MHD in connection with the reorganization were expensed by MHD. The Manager reimbursed the Fund $123,963.
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:
Distributions to Preferred Shareholders are accrued and determined as described in Note 10.
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.
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.
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.
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. MUA and MVT 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.
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
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
$
|
24,694
|
|
|
$
|
133,589
|
|
|
$
|
44,014
|
|
|
$
|
202,297
|
|
|
MUI
|
|
|
33,134
|
|
|
|
190,749
|
|
|
|
52,111
|
|
|
|
275,994
|
|
|
MHD
|
|
|
84,654
|
|
|
|
422,076
|
|
|
|
150,650
|
|
|
|
657,380
|
|
|
MVT
|
|
|
24,503
|
|
|
|
119,142
|
|
|
|
39,938
|
|
|
|
183,583
|
|
|
|
|
|
|
|
|
|
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
|
|
73
|
Notes to Financial Statements (unaudited) (continued)
For the six months ended
October 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
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
$ 98,562,891
|
|
|
$
|
61,889,545
|
|
|
|
0.06% — 0.17%
|
|
|
$
|
62,234,308
|
|
|
|
0.64
|
%
|
|
MUI
|
|
|
141,529,787
|
|
|
|
83,289,072
|
|
|
|
0.07 — 0.15
|
|
|
|
88,234,449
|
|
|
|
0.62
|
|
|
MHD
|
|
|
361,262,340
|
|
|
|
206,226,045
|
|
|
|
0.06 — 0.21
|
|
|
|
206,503,795
|
|
|
|
0.63
|
|
|
MVT
|
|
|
104,807,890
|
|
|
|
61,988,645
|
|
|
|
0.06 — 0.20
|
|
|
|
58,956,725
|
|
|
|
0.62
|
|
|
|
(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 October 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 October 31, 2021.
|
|
For the six months ended October 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
|
|
|
|
|
|
|
|
|
MUI
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
42,351
|
|
|
|
0.78
|
%
|
|
MHD
|
|
|
—
|
|
|
|
—
|
|
|
|
77,391
|
|
|
|
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.
|
|
|
|
|
74
|
|
2 0 2 1 B L A C
K R O C K S E M I - 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
|
Notes to Financial Statements (unaudited) (continued)
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 Fund’s net assets:
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Investment
Advisory Fees
|
|
|
|
|
|
MUA
|
|
|
0.55
|
%
|
|
MHD
|
|
|
0.55
|
|
|
MVT
|
|
|
0.50
|
|
For such services, MUI pays the Manager a monthly fee of 0.55% of (i) the average daily value of MUI’s 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 Fund’s NAV.
Distribution Fees: MUA has entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager,
to provide for distribution of MUA common shares on a reasonable best efforts basis through an equity shelf offering (a “Shelf Offering”) (the “Distribution Agreement”). Pursuant to the Distribution Agreement, BRIL will receive
commissions with respect to sales of common shares at a commission rate of 1.00% of the gross proceeds of the sale of MUA’s common shares and a portion of such commission is re-allowed to broker-dealers engaged by BRIL. The commissions retained
by BRIL during the period ended October 31, 2021 amounted to $22,657.
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, 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 six months ended October 31, 2021, the amounts waived were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Fees Waived and/or Reimbursed
by the Manager
|
|
|
|
|
|
|
|
|
MUA
|
|
$
|
1,392
|
|
|
MUI
|
|
|
1,268
|
|
|
MHD
|
|
|
1,495
|
|
|
MVT
|
|
|
246
|
|
|
|
|
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 six months ended October 31, 2021, there were no fees waived by the Manager pursuant to this arrangement.
With respect to MHD, the Manager contractually agreed to waive a portion of its investment advisory fees equal to the annual rate of 0.01% of the average
daily value of net assets through June 30, 2022. 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 the Fund. This
amount is included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the six months ended October 31, 2021, the amounts waived was $74,736.
The Manager reimbursed MUI $10,435 for reorganization costs.
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 six months ended October 31, 2021, purchases and sales of investments, excluding short-term investments, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Purchases
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
MUA
|
|
$
|
62,098,795
|
|
|
$
|
64,611,689
|
|
|
MUI
|
|
|
76,101,753
|
|
|
|
73,094,641
|
|
|
MHD
|
|
|
98,140,209
|
|
|
|
104,187,315
|
|
|
MVT
|
|
|
29,429,500
|
|
|
|
24,421,023
|
|
|
|
|
|
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.
|
|
|
|
|
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
|
|
75
|
Notes to Financial Statements (unaudited) (continued)
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 October 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.
As of April 30, 2021, the Funds had non-expiring capital loss carryforwards, subject to limitation, available to offset future realized capital gains
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Non-Expiring
|
|
|
|
|
|
|
|
|
MUI
|
|
$
|
5,533,868
|
|
|
MHD
|
|
|
27,296,188
|
|
|
MVT
|
|
|
5,269,494
|
|
|
|
|
As of October 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)
|
|
|
|
|
|
|
|
|
|
|
|
MUA
|
|
$
|
510,327,857
|
|
|
$
|
59,253,188
|
|
|
$
|
(7,535,864
|
)
|
|
$
|
51,717,324
|
|
|
MUI
|
|
|
839,438,994
|
|
|
|
66,646,215
|
|
|
|
(1,167,779
|
)
|
|
|
65,478,436
|
|
|
MHD
|
|
|
1,121,344,499
|
|
|
|
125,565,892
|
|
|
|
(3,232,766
|
)
|
|
|
122,333,126
|
|
|
MVT
|
|
|
421,410,852
|
|
|
|
42,538,849
|
|
|
|
(784,164
|
)
|
|
|
41,754,685
|
|
|
|
|
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. MUA’s prospectus provides details of the risks to which the Fund is subject.
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 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.
|
|
|
|
|
76
|
|
2 0 2 1 B L A C
K R O C K S E M I - 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
|
Notes to Financial Statements (unaudited) (continued)
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.
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 high yield securities. High yield securities that are rated below investment-grade
(commonly referred to as “junk bonds”) or are unrated may be deemed speculative, involve greater levels of risk than higher-rated securities of similar maturity and are more likely to default. High yield securities may be issued by less
creditworthy issuers, and issuers of high yield securities may be unable to meet their interest or principal payment obligations. High yield securities are subject to extreme price fluctuations, may be less liquid than higher rated fixed-income
securities, even under normal economic conditions, and frequently have redemption features.
Certain Funds invest a significant portion of their
assets in fixed-income securities and/or use derivatives tied to the fixed-income markets. Changes in market interest rates 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
|
Each Fund 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 of MUI’s, MHD’s and MVT’s Preferred Shares outstanding is $0.10. Each Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of
Common Shareholders.
|
|
|
|
|
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
|
|
77
|
Notes to Financial Statements (unaudited) (continued)
Common Shares
For the periods shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Six Months Ended
10/31/21
|
|
|
Year Ended
04/30/21
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
35,186
|
|
|
|
62,648
|
|
|
MVT
|
|
|
24,086
|
|
|
|
—
|
|
|
|
|
For the six months ended October 31, 2021 and the year ended April 30, 2021, shares issued and outstanding
remained constant for MUI.
For the year ended April 30, 2021, Common Shares issued and outstanding increased by 39,147,091 as a result of the
reorganization of BAF, BBK, MUH and MUS into MHD.
For the year ended April 30, 2021, Common Shares issued and outstanding decreased by 25 as a
result of a redemption of fractional shares from the reorganization of BAF, BBK, MUH and MUS into MHD.
The Funds participate in an open market share
repurchase program (the “Repurchase Program”). 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. For the six months ended October 31, 2021, the Funds did not repurchase
any shares.
MUA has filed a prospectus with the SEC allowing it to issue an additional 5,500,000 Common Shares through an equity shelf program (a
“Shelf Offering”). Under the Shelf Offering, MUA, subject to market conditions, may raise additional equity capital from time to time in varying amounts and utilizing various offering methods at a net price at or above the Fund’s NAV
per Common Share (calculated within 48 hours of pricing). As of period end, 5,233,338 Common Shares remain available for issuance under the Shelf Offering. During the period ended, MUA issued 709,432 shares under the Shelf Offering. See Additional
Information - Shelf Offering Program for additional information.
Initial costs incurred by MUA in connection with its shelf offering are recorded as
“Deferred offering costs” in the Statements of Assets and Liabilities. As shares are sold, a portion of the costs attributable to the shares sold will be charged against paid-in-capital. Any remaining deferred charges at the end of the
shelf offering period will be charged to expense.
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.
VMTP Shares
MUI, MHD and MVT (for purposes of this section,
each 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
of 1933, as amended (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUI
|
|
|
12/07/12
|
|
|
|
2,871
|
|
|
$
|
287,100,000
|
|
|
|
07/02/23
|
|
|
|
Aa1
|
|
|
|
AA
|
|
|
MHD
|
|
|
12/16/11
|
|
|
|
837
|
|
|
|
83,700,000
|
|
|
|
07/02/23
|
|
|
|
Aa1
|
|
|
|
AA
|
|
|
|
|
|
03/08/21
|
|
|
|
2,641
|
|
|
|
264,100,000
|
|
|
|
07/02/23
|
|
|
|
Aa1
|
|
|
|
AA
|
|
|
MVT
|
|
|
12/16/11
|
|
|
|
1,400
|
|
|
|
140,000,000
|
|
|
|
07/02/23
|
|
|
|
Aa1
|
|
|
|
AA
|
|
|
|
|
Redemption Terms: Each 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.
|
|
|
|
|
78
|
|
2 0 2 1 B L A C
K R O C K S E M I - 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
|
Notes to Financial Statements (unaudited) (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. With respect to MUI, MHD and MVT, the redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding
unpaid dividends and applicable redemption premium. If MUI, MHD and MVT redeems the VMTP Shares prior to the term redemption date and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then rating the
VMTP Shares, then such redemption may be subject to a prescribed redemption premium (up to 2% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining until the term redemption date, subject to certain
exceptions for redemptions that are required to comply with minimum asset coverage requirements.
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 six months ended
October 31, 2021, the average annualized dividend rates for the VMTP Shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUI
|
|
|
MHD
|
|
|
MVT
|
|
|
|
|
|
|
|
|
|
|
|
Dividend rates
|
|
|
|
|
|
|
1.03
|
%
|
|
|
1.03
|
%
|
|
|
1.03%
|
|
|
|
|
For the six months ended October 31, 2021, VMTP Shares issued and outstanding of each VMTP Fund remained constant.
For the year ended April 30, 2021, VMTP Shares issued and outstanding for MHD increased by 2,641 due to the reorganizations of BAF, BBK, MUH and MUS
with and into MHD.
Offering Costs: The Funds incurred costs in connection with the issuance of 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 VMTP Shares. Amortization of these costs is included in interest expense, fees and amortization of offering costs in the Statements of
Operations.
Financial Reporting: The VMTP Shares are considered debt of the issuer; therefore, the liquidation preference, which approximates
fair value of the 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 VMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the Statements of Operations. The VMTP Shares are treated as equity for tax purposes. Dividends paid to
holders of the VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes. Dividends and amortization of deferred offering costs on 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
|
|
|
|
|
|
|
|
|
|
MUI
|
|
$
|
1,472,819
|
|
|
$
|
—
|
|
|
MHD
|
|
|
1,784,210
|
|
|
|
—
|
|
|
MVT
|
|
|
718,198
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
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
|
|
79
|
Notes to Financial Statements (unaudited) (continued)
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
|
|
|
|
|
|
|
|
|
|
MUA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/01/21
|
|
|
|
11/15/21
|
|
|
|
12/01/21
|
|
|
|
|
|
|
$
|
0.049000
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.045500
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.003940
|
(a)
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.025430
|
(b)
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.117520
|
(c)
|
|
|
|
|
|
|
|
|
MUI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/01/21
|
|
|
|
11/15/21
|
|
|
|
12/01/21
|
|
|
|
|
|
|
|
0.054000
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.054000
|
|
|
|
|
|
|
|
|
|
MHD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/01/21
|
|
|
|
11/15/21
|
|
|
|
12/01/21
|
|
|
|
|
|
|
|
0.060500
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.060500
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.000490
|
(a)
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.000820
|
(c)
|
|
|
|
|
|
|
|
|
MVT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/01/21
|
|
|
|
11/15/21
|
|
|
|
12/01/21
|
|
|
|
|
|
|
|
0.058500
|
|
|
|
|
|
12/06/21
|
|
|
|
12/17/21
|
|
|
|
12/31/21
|
|
|
|
|
|
|
|
0.058500
|
|
|
|
(a)
|
Net investment income special dividend.
|
|
|
|
(b)
|
Special short-term capital gain distribution.
|
|
|
|
(c)
|
Special long-term capital gain distribution.
|
|
The Funds declared and paid or will pay distributions to Preferred Shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Shares
|
|
|
Series
|
|
|
Declared
|
|
|
|
|
|
|
|
|
|
|
MUI
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
$
|
239,666
|
|
|
MHD
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
292,984
|
|
|
MVT
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
116,870
|
|
|
|
|
|
|
(a)
|
Dividends declared for period November 1, 2021 to November 30, 2021.
|
|
On December 15, 2021, MUA issued 1,750 Series W-7 Variable Rate Demand Preferred Shares with a $100,000
liquidation preference per share and a maturity date of January 1, 2052, in a privately negotiated offering exempt from registration under the Securities Act.
|
|
|
|
|
80
|
|
2 0 2 1 B L A C
K R O C K S E M I - A N N U A L R
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Disclosure of Investment Advisory Agreements
The Boards of Directors (collectively, the “Board,” the
members of which are referred to as “Board Members”) of BlackRock MuniAssets Fund, Inc. (“MUA”), BlackRock MuniHoldings Fund, Inc. (“MHD”), BlackRock Municipal Income Fund, Inc. (“MUI”) and BlackRock MuniVest
Fund II, Inc. (“MVT,” and together with MUA, MHD and MUI, 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, registration statements in connection with MUA’s equity shelf program 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, MUA 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 MUA, 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, MHD ranked in the first, first and second 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 MHD, 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, MUI 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 MUI, 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, MVT 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 MVT, and that BlackRock has explained its rationale for this belief to the Board.
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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 MUA’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense
ratio ranked in the second and first quartiles, respectively, relative to the Expense Peers.
The Board noted that MHD’s contractual management
fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the second and third quartiles, respectively, relative to the Expense Peers.
The Board noted that MUI’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense
ratio ranked in the second and third quartiles, respectively, relative to the Expense Peers.
The Board noted that MVT’s contractual management
fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Expense Peers.
D. Economies of Scale
The Board,
including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of 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. The Board noted that although MUA
may from time-to-time make additional share offerings pursuant to its equity shelf program, the growth of MUA’s assets will occur primarily through the appreciation of its investment portfolio.
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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Additional Information