For the period ended January 31, 2023, the effect of derivative financial instruments in the
Statements of Operations was as follows:
For more information about the Trust’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
Trust’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the
Trust’s financial instruments categorized in the fair value hierarchy. The breakdown of the Trust’s financial instruments into major categories is disclosed in the Schedule of Investments above.
The Trust 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 four 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 April 12, 2021.
Assuming the reorganization had been completed on September 1, 2020, the beginning of the fiscal reporting period of the Acquiring Trust, the pro
forma results of operations for the year ended August 31, 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 the Target Funds that have been included in the Acquiring Trust’s Statements of Operations since April 12, 2021.
Reorganization costs incurred by BLE in connection with the reorganization were expensed by BLE. The Manager reimbursed BLE $149,214.
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 Trust 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 Trust, as applicable. Deferred compensation liabilities, if any, are included in the Trustees’ and Officer’s fees payable in the Statements of
Assets and Liabilities and will remain as a liability of the Trusts until such amounts are distributed in accordance with the Plan. Net appreciation (depreciation) in the value of participants’ deferral accounts is allocated among the
participating funds in the BlackRock Fixed-Income Complex and reflected as Trustees and Officer expense on the Statements of Operations. The Trustees and Officer expense may be negative as a result of a decrease in value of the deferred accounts.
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 Valuation Committee in accordance with the Manager’s policies and procedures as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the
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 Valuation Committee seeks to determine the price that each Trust 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 Valuation Committee deems relevant and consistent with the principles of fair value measurement.
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 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.
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 Trusts) 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. MVF’s management believes that the fund’s
restrictions on borrowings do not apply to the Trust’s TOB Trust transactions. Each Trust’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 Trust. A Trust 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 Trust 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 Trust 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Trust Name |
|
Interest Expense |
|
|
Liquidity Fees |
|
|
Other Expenses |
|
|
Total |
|
| BYM |
|
$ |
764,275 |
|
|
$ |
134,937 |
|
|
$ |
48,981 |
|
|
$ |
948,193 |
|
| BLE |
|
|
946,277 |
|
|
|
179,435 |
|
|
|
71,711 |
|
|
|
1,197,423 |
|
| MVF |
|
|
580,037 |
|
|
|
115,820 |
|
|
|
39,686 |
|
|
|
735,543 |
|
For the six months ended January 31, 2023, the following table is a summary of each Trust’s TOB Trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Trust 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 |
|
| BYM |
|
$ |
98,131,094 |
|
|
$ |
55,285,145 |
|
|
|
1.68% — 1.84% |
|
|
$ |
68,768,877 |
|
|
|
2.73 |
% |
| BLE |
|
|
120,616,675 |
|
|
|
68,183,463 |
|
|
|
1.67 — 1.96 |
|
|
|
85,946,953 |
|
|
|
2.76 |
|
| MVF |
|
|
80,046,171 |
|
|
|
41,524,426 |
|
|
|
1.69 — 1.96 |
|
|
|
55,371,852 |
|
|
|
2.63 |
|
| |
(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 Trusts, 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 Trusts, 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 Trust
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 Trust invests in a TOB Trust on a recourse basis, a Trust enters into a reimbursement agreement with the Liquidity Provider where a Trust 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 Trust invests in a
recourse TOB Trust, a Trust 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 Trust at
January 31, 2023, 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 Trust at January 31, 2023. |
|
|
|
|
|
N O T E S T O F
I N A N C I A L S T A
T E M E N T S |
|
49 |
Notes to Financial Statements (unaudited) (continued)
For the six months ended January 31, 2023, the following table is a summary of each Trust’s
Loan for TOB Trust Certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Trust 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 |
|
| BYM |
|
$ |
646,800 |
|
|
|
0.25 — 0.25 |
% |
|
$ |
73,820 |
|
|
|
0.71 |
% |
| 5. |
DERIVATIVE FINANCIAL INSTRUMENTS |
The Trusts engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Trusts 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 Trusts 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 Trusts 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 Trusts 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 Trust entered into an Investment Advisory Agreement with the Manager, the Trusts’ 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 Trust’s portfolio and provides the personnel,
facilities, equipment and certain other services necessary to the operations of each Trust.
For such services, each Trust, except for MVF, pays the
Manager a monthly fee at an annual rate equal to the following percentages of the average weekly value of each Trust’s managed assets:
|
|
|
|
|
| Trust Name |
|
Investment
Advisory Fees |
|
| BYM |
|
|
0.55 |
% |
| BLE |
|
|
0.55 |
|
For purposes of calculating these fees, “managed assets” are determined as total assets of each Trust (including
any assets attributable to money borrowed for investment purposes) less the sum of its accrued liabilities (other than money borrowed for investment purposes).
For such services, MVF pays the Manager a monthly fee at an annual rate equal to 0.50% of the average daily value of the Trust’s net assets.
For purposes of calculating this fee, “net assets" mean the total assets of the Trust 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 Trust’s NAV.
BLE has entered into a Distribution Agreement with BlackRock Investments, LLC
(“BRIL”), an affiliate of the Manager, to provide for distribution of BLE 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 BLE’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 January 31, 2023 amounted to $0.
Expense Limitations, Waivers and Reimbursements: With respect to each Trust, the Manager contractually agreed to waive its investment advisory fees
by the amount of investment advisory fees each Trust pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through
|
|
|
| 50 |
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2 0 2 3
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)
June 30, 2024. The contractual agreement may be terminated upon 90 days’ notice by a majority
of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of a Trust. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the six months ended
January 31, 2023, the amounts waived were as follows:
|
|
|
|
|
| Trust Name |
|
Fees Waived and/or Reimbursed
by the Manager |
|
| BYM |
|
$ |
4,523 |
|
| BLE |
|
|
4,279 |
|
| MVF |
|
|
15,220 |
|
The Manager contractually agreed to waive its investment advisory fee with respect to any portion of each Trust’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, 2024. 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 Trusts’ Independent Trustees. For the six months ended January 31, 2023, there were no fees waived by the Manager pursuant to this arrangement.
Trustees and Officers: Certain trustees and/or officers of the Trusts are directors and/or officers of BlackRock or its affiliates. The Trusts
reimburse the Manager for a portion of the compensation paid to the Trusts’ Chief Compliance Officer, which is included in Trustees and Officer in the Statements of Operations.
Other Transactions: The Trusts may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to
having a common investment adviser, common officers, or common trustees. For the six months ended January 31, 2023, the purchase and sale transactions and any net realized gains (losses) with affiliated funds in compliance with Rule 17a-7 under the 1940 Act were as follows:
|
|
|
|
|
|
|
|
|
|
|
| Trust Name |
|
Purchases |
|
|
Sales |
|
|
Net Realized
Gain (Loss) |
| MVF |
|
$ |
16,208,020 |
|
|
$ |
— |
|
|
$ — |
For the six months ended January 31, 2023, purchases and sales of investments, excluding short-term securities, were as follows:
|
|
|
|
|
|
|
| Trust Name |
|
Purchases |
|
|
Sales |
| BYM |
|
$ |
68,781,211 |
|
|
$ 106,485,689 |
| BLE |
|
|
169,491,748 |
|
|
230,330,281 |
| MVF |
|
|
212,124,819 |
|
|
284,663,940 |
| 8. |
INCOME TAX INFORMATION |
It is each Trust’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.
Each Trust 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 Trust’s U.S. federal tax returns generally remains open for a period of three years after they are filed. The statutes of limitations on each Trust’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 Trusts as of January 31, 2023, 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 Trusts’ financial statements.
During the year ended January 31, 2023, the Trusts listed below utilized the following amounts of their respective capital loss carryforward:
|
|
|
| Trust Name |
|
Non-Expiring |
| BYM |
|
$ 18,328,618 |
| BLE |
|
34,056,036 |
| MVF |
|
28,303,468 |
As of January 31, 2023, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Trust Name |
|
Tax Cost |
|
|
Gross Unrealized
Appreciation |
|
|
Gross Unrealized
Depreciation |
|
|
Net Unrealized
Appreciation
(Depreciation) |
|
| |
|
| BYM |
|
$ |
471,099,144 |
|
|
$ |
20,661,405 |
|
|
$ |
(12,701,134 |
) |
|
$ |
7,960,271 |
|
| BLE |
|
|
907,347,808 |
|
|
|
19,622,645 |
|
|
|
(30,142,618 |
) |
|
|
(10,519,973 |
) |
| MVF |
|
|
759,293,305 |
|
|
|
11,237,830 |
|
|
|
(16,356,460 |
) |
|
|
(5,118,630 |
) |
| |
|
|
|
|
|
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 |
|
51 |
Notes to Financial Statements (unaudited) (continued)
In the normal course of business, the Trusts invest in securities or other instruments and may enter into certain transactions, and such activities
subject each Trust 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 Trusts and their investments.
The Trusts 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 Trusts 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 Trust.
A Trust 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.
As
short-term interest rates rise, the Trusts’ investments in the TOB Trusts may adversely affect the Trusts’ 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 Trusts’ 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 Trusts’ 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 Trusts, 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 Trust 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 Trust may not be able to readily dispose of such investments at prices that approximate those at which a Trust could sell such
investments if they were more widely traded and, as a result of such illiquidity, a Trust 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 Trust’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 Trust 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 Trust to reinvest in lower yielding securities. Each Trust may also be exposed to
reinvestment risk, which is the risk that income from each Trust’s portfolio will decline if each Trust invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are below each Trust
portfolio’s current earnings rate.
Municipal securities are subject to the risk that litigation, legislation or other political events, local
business or economic conditions, credit rating downgrades, or the bankruptcy of the issuer could have a significant effect on an issuer’s ability to make payments of principal and/or interest or otherwise affect the value of such securities.
Municipal securities can be significantly affected by political or economic changes, including changes made in the law after issuance of the securities, as well as uncertainties in the municipal market related to, taxation, legislative changes or
the rights of municipal security holders, including in connection with an issuer insolvency. Municipal securities backed by current or anticipated revenues from a specific project or specific assets can be negatively affected by the discontinuance
of the tax benefits supporting the project or assets or the inability to collect revenues for the project or from the assets. Municipal securities may be less liquid than taxable bonds, and there may be less publicly available information on the
financial condition of municipal security issuers than for issuers of other securities.
Infectious Illness Risk: An outbreak of an infectious
illness, such as the COVID-19 pandemic, may adversely impact the economies of many nations and the global economy, and may impact individual issuers and capital markets in ways that cannot be foreseen. An
infectious illness outbreak may result in, among other things, closed international borders, prolonged quarantines, supply chain disruptions, market volatility or disruptions and other significant economic, social and political impacts.
Counterparty Credit Risk: The Trusts 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 Trusts 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 Trusts to market, issuer and
counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Trusts’ 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 Trusts.
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
Trusts 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 Trust 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
|
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| 52 |
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T O S H A R E H O L D
E R S |
Notes to Financial Statements (unaudited) (continued)
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
Trusts.
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 Trust’s portfolio are disclosed in its Schedule of Investments.
The Trusts 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 decrease as interest rates rise and increase as
interest rates fall. The Trusts may be subject to a greater risk of rising interest rates due to the recent period of historically low interest rates. The Federal Reserve has recently begun to raise the federal funds rate as part of its efforts to
address inflation. There is a risk that interest rates will continue to rise, which will likely drive down the prices of bonds and other fixed-income securities, and could negatively impact the Trusts’ performance.
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 ceased to be published or no longer are representative of the underlying market they seek to measure after December 31, 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 Trusts 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
Trusts is uncertain.
| 10. |
CAPITAL SHARE TRANSACTIONS |
BYM and BLE are authorized to issue an unlimited number of shares, including Preferred Shares, par value $0.001 per share, all of which were initially
classified as Common Shares. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders.
MVF is authorized to issue 160 million shares, 150 million of which were initially classified as Common Shares, par value $0.10 per share and
10 million of which were classified as Preferred Shares, par value $0.10 per share.
Common Shares
For the six months shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:
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|
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|
|
|
|
| Trust Name |
|
Six Months Ended
01/31/23 |
|
|
Period from
09/01/21 to
07/31/22 |
|
|
Year Ended
08/31/21 |
|
| BYM |
|
|
6,598 |
|
|
|
4,409 |
|
|
|
4,589 |
|
| BLE |
|
|
— |
|
|
|
24,988 |
|
|
|
39,663 |
|
For the period ended July 31, 2022 and year ended August 31, 2021, shares issued and outstanding remained
constant for MVF.
For the year ended August 31, 2021, Common Shares of BLE issued and outstanding increased by 25,061,561 as a result of the
reorganization of BSD, MFT and BBF with and into BLE.
For the year ended August 31, 2021, Common Shares of BLE issued and outstanding decreased
by 25 as a result of a redemption of fractional shares from the reorganization of BSD, MFT and BBF with and into BLE.
The Trusts participate in an
open market share repurchase program (the “Repurchase Program”). From December 1, 2021 through November 30, 2022, each Trust 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, 2021, subject to certain conditions. From December 1, 2022 through November 30, 2023, each Trust 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, 2022, subject to certain conditions. The Repurchase Program has an accretive effect as shares are purchased at a discount to the Trust’s
NAV. There is no assurance that the Trusts will purchase shares in any particular amounts. For the six months ended January 31, 2023, BYM did not repurchase any shares.
The total cost of the shares repurchased is reflected in Trusts’ Statements of Changes in Net Assets. For the periods shown, shares repurchased and
cost, including transaction costs were as follows:
|
|
|
|
|
|
|
|
|
| |
|
BLE |
|
| |
|
Shares |
|
|
Amounts |
|
| Six Months Ended January 31, 2023 |
|
|
80,872 |
|
|
$ |
889,167 |
|
|
|
|
|
|
|
|
|
|
| |
|
MVF |
|
| |
|
Shares |
|
|
Amounts |
|
| Six Months Ended January 31, 2023 |
|
|
88,718 |
|
|
$ |
587,575 |
|
|
|
|
|
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 |
|
53 |
Notes to Financial Statements (unaudited) (continued)
BLE has filed a prospectus with the SEC allowing it to issue an additional 15,000,000 Common Shares
through the Shelf Offering. Under the Shelf Offering, BLE, 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 each Trust’s NAV
per Common Share (calculated within 48 hours of pricing). As of period end, 14,822,320 Common Shares remain available for issuance under the Shelf Offering. During the period ended January 31, 2023, BLE did not issue any Common Shares. See
Additional Information - Shelf Offering Program for additional information.
Initial costs incurred by BLE 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 Trust’s Preferred
Shares rank prior to its Common Shares as to the payment of dividends by the Trust and distribution of assets upon dissolution or liquidation of the Trust. The 1940 Act prohibits the declaration of any dividend on Common Shares or the repurchase of
Common Shares if the Trust fails to maintain asset coverage of at least 200% of the liquidation preference of the Trust’s outstanding Preferred Shares. In addition, pursuant to the Preferred Shares’ governing instruments, a Trust 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 Trust 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 Trust’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
BYM, BLE and MVF (for purposes of
this section, each a “VMTP Trust”) 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 Trust 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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|
| Trust Name |
|
Issue
Date |
|
|
Shares
Issued |
|
|
Aggregate
Principal |
|
|
Term
Redemption
Date |
|
|
Moody’s
Rating |
|
|
Fitch
Rating |
|
| BYM |
|
|
12/16/2011 |
|
|
|
1,372 |
|
|
$ |
137,200,000 |
|
|
|
07/02/2024 |
|
|
|
Aa1 |
|
|
|
AA |
|
| BLE |
|
|
12/16/2011 |
|
|
|
1,513 |
|
|
|
151,300,000 |
|
|
|
07/02/2024 |
|
|
|
Aa1 |
|
|
|
AA |
|
|
|
|
04/12/2021 |
|
|
|
1,514 |
|
|
|
151,400,000 |
|
|
|
07/02/2024 |
|
|
|
Aa1 |
|
|
|
AA |
|
| MVF |
|
|
12/16/2011 |
|
|
|
2,438 |
|
|
|
243,800,000 |
|
|
|
07/02/2024 |
|
|
|
Aa1 |
|
|
|
AA |
|
Redemption Terms: Each VMTP Trust 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 Trust is required to begin to segregate liquid assets with its custodian to fund the redemption. In addition, a VMTP Trust is required to redeem certain of its outstanding VMTP Shares if
it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.
Subject to certain conditions, VMTP Shares may be
redeemed, in whole or in part, at any time at the option of the VMTP Trust. With respect to each VMTP Trust, the redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends and applicable
redemption premium. If each VMTP Trust 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 1% 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 daily Secured Overnight Financing 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 Trust 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 January 31, 2023, the average annualized dividend rates for the VMTP Shares were as follows:
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|
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| |
|
BYM |
|
|
BLE |
|
|
MVF |
|
| Dividend rates |
|
|
3.57 |
% |
|
|
3.57 |
% |
|
|
3.57 |
% |
For the six months ended January 31, 2023, VMTP Shares issued and outstanding of each VMTP Trust remained constant.
|
|
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| 54 |
|
2 0 2 3
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)
Offering Costs: The Trusts 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:
|
|
|
|
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|
|
|
|
| Trust Name |
|
Dividends Accrued |
|
|
Deferred Offering
Costs Amortization |
|
| BYM |
|
$ |
2,446,039 |
|
|
$ |
— |
|
| BLE |
|
|
5,404,602 |
|
|
|
— |
|
| MVF |
|
|
4,348,141 |
|
|
|
— |
|
Management’s evaluation of the impact of all subsequent events on the Trusts’ financial statements was completed through the date the financial
statements were issued and the following items were noted:
The Trusts declared and paid or will pay distributions to Common Shareholders as follows:
|
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|
|
| Trust Name |
|
Declaration
Date |
|
|
Record
Date |
|
|
Payable/
Paid Date |
|
|
Dividend Per
Common Share |
|
| BYM |
|
|
02/01/23 |
|
|
|
02/15/23 |
|
|
|
03/01/23 |
|
|
$ |
0.038000 |
|
|
|
|
03/01/23 |
|
|
|
03/15/23 |
|
|
|
04/03/23 |
|
|
|
0.038000 |
|
| BLE |
|
|
02/01/23 |
|
|
|
02/15/23 |
|
|
|
03/01/23 |
|
|
|
0.037000 |
|
|
|
|
03/01/23 |
|
|
|
03/15/23 |
|
|
|
04/03/23 |
|
|
|
0.034000 |
|
| MVF |
|
|
02/01/23 |
|
|
|
02/15/23 |
|
|
|
03/01/23 |
|
|
|
0.021000 |
|
| |
|
|
03/01/23 |
|
|
|
03/15/23 |
|
|
|
04/03/23 |
|
|
|
0.021000 |
|
The Trusts declared and paid or will pay distributions to Preferred Shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Preferred Shares(a) |
|
| Trust Name |
|
Shares |
|
|
Series |
|
|
Declared |
|
| BYM |
|
|
VMTP |
|
|
|
W-7 |
|
|
$ |
453,737 |
|
| BLE |
|
|
VMTP |
|
|
|
W-7 |
|
|
|
1,001,066 |
|
| MVF |
|
|
VMTP |
|
|
|
W-7 |
|
|
|
806,277 |
|
| |
(a) |
Dividends declared for period February 1, 2023 to February 28, 2023. |
|
|
|
|
|
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 |
|
55 |
Additional Information