|
|
Notes to Financial Statements
(Unaudited)
|
|
1. Organization:
BlackRock Muni New York Intermediate Duration Fund, Inc.
(MNE), BlackRock MuniYield Arizona Fund, Inc. (MZA), BlackRock MuniYield California Fund, Inc. (MYC), BlackRock
MuniYield Investment Fund (MYF) and BlackRock MuniYield New Jersey Fund, Inc. (MYJ) (collectively, the Funds) are
registered under the Investment Company Act of 1940, as amended (the 1940 Act), as non-diversified, closed-end management investment
companies. MNE, MZA, MYC and MYJ are organized as Maryland corporations. MYF is organized as a Massachusetts business trust. The Board of Directors and
the Board of Trustees of the Funds are collectively referred to throughout this report as the Board of Directors or the Board,
and the directors/trustees thereof are collectively referred to throughout this report as Directors. The Funds determine and make available
for publication the NAVs of their Common Shares on a daily basis.
2. Significant Accounting Policies:
The Funds financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America (US GAAP), which may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities in 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. The following is a summary of the
significant accounting policies followed by the Funds:
Valuation
: US GAAP defines fair value as the price the
Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The
Funds determine the fair value of their financial instruments at market value using independent dealers or pricing services under policies approved by
the Board. The BlackRock Global Valuation Methodologies Committee (the Global Valuation Committee) is the committee formed by management to
develop global pricing policies and procedures and to provide oversight of the pricing function for the Funds for all financial
instruments.
Municipal investments (including commitments to purchase such
investments on a when-issued basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of
a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers,
pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments. Financial
futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at NAV
each business day.
In the event that the application of these methods of valuation
results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available,
the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair
value (Fair Value Assets). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to
determine the price that each Fund might reasonably expect to receive from the current sale of that asset in an arms-length transaction. Fair
value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the
principles of fair value measurements, which include the market approach, income approach and/or in the case of recent investments, the cost approach,
as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount
future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific
to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the
investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar
investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment
speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such
investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its
delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due
diligence of the Funds pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to
compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews
of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly
basis.
Segregation and Collateralization:
In cases where a Fund
enters into certain investments (e.g., financial futures contracts) or certain borrowings (e.g., TOBs) that would be senior securities for
1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the
amount of the Funds future obligations under such investments or borrowings. Doing so allows the investments or borrowings to be excluded from
treatment as a senior security. Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to
deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or
obligations.
Investment Transactions and Investment Income:
For
financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and
losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Interest income,
including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Dividends and Distributions:
Dividends from net investment
income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. The character and timing of dividends and
distributions are determined in accordance with federal income tax
46
|
SEMI-ANNUAL REPORT
|
JANUARY 31, 2014
|
|
|
Notes to Financial Statements (continued)
|
|
regulations, which may differ from US GAAP. Dividends and
distributions to Preferred Shareholders are accrued and determined as described in Note 9.
Income Taxes:
It is each Funds policy to comply with
the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of
their taxable income to their shareholders. Therefore, no federal income tax provision is required.
Each Fund files US federal and various state and local tax
returns. No income tax returns are currently under examination. The statute of limitations on the Funds US federal tax returns remains open for
each of the four years ended July 31, 2013. The statutes of limitations on each Funds state and local tax returns may remain open for an
additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their
application to the Funds facts and circumstances and does not believe there are any uncertain tax positions that require recognition of a tax
liability.
Deferred Compensation Plan:
Under the Deferred Compensation
Plan (the Plan) approved by each Funds Board, the independent Directors (Independent Directors) may defer a portion of
their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common
shares of certain other BlackRock Closed-End Funds selected by the Independent Directors. This has the same economic effect for the Independent
Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.
The Plan is not funded and obligations thereunder represent
general unsecured claims against the general assets of each Fund. Deferred compensation liabilities are included in officers and directors
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.
Other:
Expenses directly related to a Fund are charged to
that Fund. Other operating expenses shared by several funds are pro-rated among those funds on the basis of relative net assets or other appropriate
methods.
The Funds have an arrangement with the custodians whereby fees may
be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The
custodians impose fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody
charges.
3. Securities and Other Investments:
Zero-Coupon Bonds:
The Funds may invest in zero-coupon
bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may
experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments.
Forward Commitments and When-Issued Delayed Delivery
Securities:
The Funds may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement
of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Funds may purchase securities under such
conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date.
Since the value of securities purchased may fluctuate prior to settlement, the Funds may be required to pay more at settlement than the security is
worth. In addition, the Funds are not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery
basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default
by the counterparty, the Funds maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in the
Schedules of Investments.
Municipal Bonds Transferred to TOBs:
The Funds leverage
their assets through the use of TOBs. A TOB is a special purpose entity established by a third party sponsor, into which a fund, or an agent on behalf
of the funds, transfers municipal bonds into a trust (TOB Trust). Other funds managed by the investment advisor may also contribute
municipal bonds to a TOB into which a Fund has contributed bonds. A TOB typically issues two classes of beneficial interests: short-term floating rate
certificates (TOB Trust Certificates), which are sold to third party investors, and residual certificates (TOB Residuals),
which are generally issued to the participating funds that contributed the municipal bonds to the TOB Trust. If multiple funds participate in the same
TOB, the rights and obligations under the TOB Residual will be shared among the funds ratably in proportion to their participation.
The TOB Residuals held by a Fund include the right of a Fund (1)
to cause the holders of a proportional share of the TOB Trust Certificates to tender their certificates at par plus accrued interest upon the
occurrence of certain mandatory tender events defined in the TOB agreements, and (2) to transfer, subject to a specified number of days prior
notice, a corresponding share of the municipal bonds from the TOB to a Fund. The TOB may also be collapsed without the consent of a Fund, as the TOB
Residual holder, upon the occurrence of certain termination events as defined in the TOB agreements. Such termination events may include the bankruptcy
or default of the municipal bond, a substantial downgrade in credit quality of the municipal bond, the inability of the TOB to obtain renewal of the
liquidity support agreement, a substantial decline in market value of the municipal bond and a judgment or ruling that interest on the municipal bond
is subject to federal income taxation. Upon the occurrence of a termination event, the TOB would generally be liquidated in full with the proceeds
typically applied first to any accrued fees owed to the trustee, remarketing agent and liquidity provider, and then to the holders of the TOB Trust
Certificates up to par plus accrued interest owed on the TOB Trust Certificates, with the balance paid out to the TOB Residual holder. During the six
months ended January 31, 2014, no TOBs in which the Funds participated were terminated without the consent of the Funds.
SEMI-ANNUAL REPORT
|
JANUARY 31, 2014
|
47
|
|
|
Notes to Financial Statements (continued)
|
|
The cash received by the TOB from the sale of the TOB Trust
Certificates, less transaction expenses, is paid to a Fund. The Funds typically invests the cash received in additional municipal bonds. Each
Funds transfer of the municipal bonds to a TOB Trust is accounted for as a secured borrowing; therefore, the municipal bonds deposited into a TOB
are presented in the Funds Schedules of Investments and the TOB Trust Certificates issued are shown in other liabilities in the Statements of
Assets and Liabilities. The carrying amount of each Funds payable to the holder of the TOB Trust Certificates, as reported in Statements of
Assets and Liabilities as TOB Trust Certificates, approximates its fair value.
The Funds may invest in TOBs on either a non-recourse or recourse
basis. TOB Trusts are typically supported by a liquidity facility provided by a 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 from the Liquidity Provider
of par plus accrued interest on any business day prior to the occurrence of the termination events described above. When a Fund invests in TOBS on a
non-recourse basis, and the Liquidity Provider is required to make a payment under the liquidity facility due to a termination event, the Liquidity
Provider will typically liquidate all or a portion of the municipal securities held in the TOB Trust and then fund, on a net basis, the balance, if
any, of the amount owed under the liquidity facility over the liquidation proceeds (the Liquidation Shortfall). If a Fund invests in a TOB
on a recourse basis, the Fund will typically enter into a reimbursement agreement with the Liquidity Provider where the Fund is required to repay the
Liquidity Provider the amount of any Liquidation Shortfall. As a result, a Fund investing in a recourse TOB will bear the risk of loss with respect to
any Liquidation Shortfall. If multiple funds participate in any such TOB, these losses will be shared ratably, including the maximum potential amounts
owed by the Funds at January 31, 2014 in proportion to their participation. The recourse TOB Trusts, if any, are identified in the Schedules of
Investments, including the maximum potential amounts owed by the Funds at January 31, 2014.
Interest income, including amortization and accretion of premiums
and discounts, from the underlying municipal bonds is recorded by the Funds on an accrual basis. Interest expense incurred on the secured borrowing and
other expenses related to remarketing, administration and trustee services to a TOB are shown as interest expense, fees and amortization of offering
costs in the Statements of Operations. The TOB Trust Certificates have interest rates that generally reset weekly and their holders have the option to
tender such certificates to the TOB for redemption at par at each reset date. At January 31, 2014, the aggregate value of the underlying municipal
bonds transferred to TOBs, the related liability for TOB Trust Certificates and the range of interest rates on the liability for TOB Trust Certificates
were as follows:
|
|
|
|
Underlying
Municipal
Bonds
Transferred
to TOBs
|
|
Liability for
TOB Trust
Certificates
|
|
Range of
Interest
Rates
|
MNE
|
|
|
|
$
|
13,104,512
|
|
|
$
|
6,537,751
|
|
|
0.04% 0.09%
|
MZA
|
|
|
|
$
|
7,151,686
|
|
|
$
|
3,330,000
|
|
|
0.04% 0.05%
|
MYC
|
|
|
|
$
|
202,581,400
|
|
|
$
|
100,170,375
|
|
|
0.04% 0.07%
|
MYF
|
|
|
|
$
|
143,948,418
|
|
|
$
|
75,965,414
|
|
|
0.04% 0.29%
|
MYJ
|
|
|
|
$
|
66,538,014
|
|
|
$
|
39,553,519
|
|
|
0.04% 0.29%
|
For the six months ended January 31, 2014, the Funds average
TOB trust certificates outstanding and the daily weighted average interest rate, including fees, were as follows:
|
|
|
|
Average TOB Trust
Certificates
Outstanding
|
|
Daily Weighted
Average
Interest Rate
|
MNE
|
|
|
|
$
|
6,838,834
|
|
|
|
0.53
|
%
|
MZA
|
|
|
|
$
|
3,330,000
|
|
|
|
0.60
|
%
|
MYC
|
|
|
|
$
|
114,369,548
|
|
|
|
0.59
|
%
|
MYF
|
|
|
|
$
|
77,593,343
|
|
|
|
0.65
|
%
|
MYJ
|
|
|
|
$
|
39,568,827
|
|
|
|
0.75
|
%
|
Should short-term interest rates rise, the Funds investments
in TOBs 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.
4. 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 economically hedge their exposure to certain risks such as, interest rate
risk. These contracts may be transacted on an exchange or over-the-counter.
Financial Futures Contracts:
The Funds purchase and/or sell
financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates
(interest rate risk). Financial futures contracts are agreements between the Funds and a counterparty to buy or sell a specific quantity of an
underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are
settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the
settlement date.
Upon entering into a financial futures contract, the Funds are
required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contracts size and
risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial
margin are designated on the Schedules of Investments and cash deposited, if any, is recorded on the Statements of Assets and Liabilities as cash
pledged for financial futures contracts. 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 value of the contract. Such receipts or payments are known as variation margin. Variation Margin is recorded by the Funds as
unrealized appreciation or depreciation, and if applicable, as a receivable or payable for variation margin in the Statements of Assets and
Liabilities.
When the contract is closed, the Funds record a realized gain or
loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial
futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the
underlying assets.
48
|
SEMI-ANNUAL REPORT
|
JANUARY 31, 2014
|
|
|
Notes to Financial Statements (continued)
|
|
The following is a summary of the Funds derivative financial
instruments categorized by risk exposure:
Fair Values of Derivative
Financial Instruments as of January 31, 2014
|
|
Derivative
Liabilities
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
Statements of Assets
and
Liabilities Location
|
|
MNE
|
|
MYC
|
|
MYF
|
|
MYJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
Financial futures contracts
|
|
|
|
Net unrealized depreciation
1
|
|
$
|
(105,551
|
)
|
|
$
|
(276,813
|
)
|
|
$
|
(97,335
|
)
|
|
$
|
(106,984
|
)
|
1
|
|
Includes cumulative appreciation/depreciation on
financial futures contracts as reported in the Schedules of Investments. Only current days variation margin is reported within the Statements of
Assets and Liabilities.
|
The Effect of Derivative
Financial Instruments in the Statements of Operations
Six Months Ended January 31, 2014
|
|
|
|
|
|
Net Realized Gain From
|
|
|
|
|
|
MNE
|
|
MYC
|
|
MYF
|
|
MYJ
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
|
|
$
|
49,354
|
|
|
$
|
19,780
|
|
|
$
|
105,231
|
|
|
$
|
115,732
|
|
|
|
|
|
Net Change in Unrealized
Appreciation/Depreciation on
|
|
|
|
|
|
MNE
|
|
MYC
|
|
MYF
|
|
MYJ
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
|
|
$
|
(105,551
|
)
|
|
$
|
(276,813
|
)
|
|
$
|
(97,335
|
)
|
|
$
|
(106,984
|
)
|
For the six months ended January 31, 2014, the average quarterly
balance of outstanding derivative financial instruments were as follows:
|
|
|
|
MNE
|
|
MYC
|
|
MYF
|
|
MYJ
|
Financial future contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of contracts purchased
|
|
|
|
|
25
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of contracts sold
|
|
|
|
|
39
|
|
|
|
200
|
|
|
|
152
|
|
|
|
167
|
|
Average notional value of contracts purchased
|
|
|
|
$
|
3,097,979
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Average notional value of contracts sold
|
|
|
|
$
|
4,861,492
|
|
|
$
|
25,310,938
|
|
|
$
|
19,147,688
|
|
|
$
|
21,043,594
|
|
2
|
|
Actual contract amount shown due to limited
activity.
|
Counterparty Credit Risk:
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, the 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 clearing house. Additionally, credit risk
exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing brokers customer accounts. While
clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into
bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the short
fall would be allocated on a pro rata basis across all the clearing brokers customers, potentially resulting in losses to the
Funds.
5. Investment Advisory Agreement and Other Transactions with
Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder
and an affiliate, for 1940 Act purposes of BlackRock, Inc. (BlackRock).
Each Fund entered into an Investment Advisory Agreement with
BlackRock Advisors, LLC (the Manager), the Funds investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide
investment advisory and administration services. The Manager is responsible for the management of each Funds portfolio and provides the necessary
personnel, facilities, equipment and certain other services necessary to the operations of each Fund. For such services, each Fund pays the Manager a
monthly fee based on a percentage of each Funds average daily net assets at the following annual rates:
MNE
|
|
|
|
|
0.55
|
%
|
MZA
|
|
|
|
|
0.50
|
%
|
MYC
|
|
|
|
|
0.50
|
%
|
MYF
|
|
|
|
|
0.50
|
%
|
MYJ
|
|
|
|
|
0.50
|
%
|
Average daily net assets are the average daily value of each
Funds total assets minus its total accrued liabilities.
The Manager voluntarily 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.
However, the Manager does not waive its advisory fees by the amount of investment advisory fees paid in connection with its investment in other
affiliated investment companies, if any. These amounts waived or reimbursed are shown as fees waived by Manager in the Statements of
Operations.
SEMI-ANNUAL REPORT
|
JANUARY 31, 2014
|
49
|
|
|
Notes to Financial Statements (continued)
|
|
The Manager entered into a sub-advisory agreement with BlackRock
Investment Management, LLC (BIM), an affiliate of the Manager. The Manager pays BIM for services it provides, a monthly fee that is a
percentage of the investment advisory fees paid by each Fund to the Manager.
Certain officers and/or Directors of the Funds are officers and/or
directors 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 Officer and Directors in the Statements of Operations.
The Funds may purchase securities from, or sell securities to, an
affiliated fund provided the affiliation is due solely due to having a common investment adviser, common officers or common directors. For the six
months ended January 31, 2014, the sale transactions from an affiliated fund in compliance with Rule 17a-7 under the 1940 Act for MYF were
$2,805,356.
6. Purchases and Sales:
Purchases and sales of investments, excluding short-term
securities, for the six months ended January 31, 2014 were as follows:
|
|
|
|
Purchases
|
|
Sales
|
MNE
|
|
|
|
$
|
9,131,715
|
|
|
$
|
7,689,641
|
|
MZA
|
|
|
|
$
|
12,076,960
|
|
|
$
|
13,603,850
|
|
MYC
|
|
|
|
$
|
61,333,172
|
|
|
$
|
71,004,221
|
|
MYF
|
|
|
|
$
|
40,655,097
|
|
|
$
|
52,320,587
|
|
MYJ
|
|
|
|
$
|
36,164,888
|
|
|
$
|
37,229,036
|
|
7. Income Tax Information:
As of July 31, 2013, the Funds had capital loss carryforwards
available to offset future realized capital gains through the indicated expiration dates as follows:
Expires July 31,
|
|
|
|
MNE
|
|
MZA
|
|
MYC
|
|
MYF
|
2018
|
|
|
|
$
|
750,672
|
|
|
$
|
816,347
|
|
|
$
|
758,242
|
|
|
$
|
7,205,475
|
|
2019
|
|
|
|
|
|
|
|
|
68,648
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
750,672
|
|
|
$
|
884,995
|
|
|
$
|
758,242
|
|
|
$
|
7,205,475
|
|
As of January 31, 2014, gross unrealized appreciation and gross
unrealized depreciation based on cost for federal income tax purposes were as follows:
|
|
|
|
MNE
|
|
MZA
|
|
MYC
|
|
MYF
|
|
MYJ
|
Tax cost
|
|
|
|
$
|
87,861,839
|
|
|
$
|
96,326,334
|
|
|
$
|
417,862,410
|
|
|
$
|
232,415,982
|
|
|
$
|
308,698,361
|
|
Gross unrealized appreciation
|
|
|
|
$
|
4,359,160
|
|
|
$
|
4,876,472
|
|
|
$
|
32,830,208
|
|
|
$
|
21,969,509
|
|
|
$
|
15,502,667
|
|
Gross unrealized depreciation
|
|
|
|
|
(1,409,109
|
)
|
|
|
(636,517
|
)
|
|
|
(1,998,526
|
)
|
|
|
(1,546,911
|
)
|
|
|
(3,135,764
|
)
|
Net unrealized appreciation
|
|
|
|
$
|
2,950,051
|
|
|
$
|
4,239,955
|
|
|
$
|
30,831,682
|
|
|
$
|
20,422,598
|
|
|
$
|
12,366,903
|
|
8. Concentration, Market and Credit Risk:
MNE, MZA, MYC and MYJ invest a substantial amount of their assets
in issuers located in a single state or limited number of states. Please see the Schedules of Investments for concentrations in specific states or US
territories.
Many municipalities insure repayment of their bonds, which may
reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the
value of such insurance, and there is no guarantee that the insurer will meet its obligation.
In the normal course of business, the Funds invest in securities
and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its
obligations (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly
involving the issuers whose securities are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or
global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Funds may
be exposed to counterparty credit risk, or the risk that an entity with which the Funds have unsettled or open transactions may fail to or be unable to
perform on its commitments. The Funds manage counterparty credit risk by entering into transactions only with counterparties that they believe 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 generally approximated
by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.
The Funds invest a significant portion of their assets in
fixed-income securities and/or use derivatives tied to fixed income markets. See the Schedules of Investments for these securities and/or derivatives.
Changes in market interest rates or economic conditions, including the Federal Reserves decision in December 2013 to taper its quantitative
easing policy, 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.
50
|
SEMI-ANNUAL REPORT
|
JANUARY 31, 2014
|
|
|
Notes to Financial Statements (continued)
|
|
As of January 31, 2014, MNE invested a significant portion of its
assets in securities in the county/city/special district/school district sector. MZA and MYC invested a significant portion of their assets in
securities in the county/city/special district/school district and utilities sectors. MYF invested a significant portion of its assets in securities in
the county/city/special district/school district and transportation sectors. MYJ invested a significant portion of its assets in securities in the
state and transportation sectors. Changes in economic conditions affecting the county/city/special district/school district, state, transportation and
utilities sectors would have a greater impact on the Funds and could affect the value, income and/or liquidity of positions in such
securities.
On December 10, 2013, regulators published final rules
implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Volcker Rule), which prohibit banking
entities from engaging in proprietary trading of certain instruments and limit such entities investments in, and relationships with,
covered funds, as defined in the rules. Banking entities subject to the rules are required to fully comply by July 21, 2015. These rules
may preclude banking entities and their affiliates from (i) sponsoring TOB trust programs (as such programs are presently structured) and (ii)
continuing relationships with or services for existing TOB trust programs. As a result, TOB trusts may need to be restructured or unwound. There can be
no assurances that TOB trusts can be restructured, that new sponsors of TOB trusts will develop, or that alternative forms of leverage will be
available to the Fund. Any alternative forms of leverage may be more or less advantageous to the Funds than existing TOB leverage.
TOB transactions constitute an important component of the
municipal bond market. Accordingly, implementation of the Volcker Rule may adversely impact the municipal market, including through reduced demand for
and liquidity of municipal bonds and increased financing costs for municipal issuers. Any such developments could adversely affect the Funds. The
ultimate impact of these rules on the TOB market and the overall municipal market is not yet certain.
9. Capital Share Transactions:
Each Fund is authorized to issue 200 million shares (unlimited
number of shares for MYF), all of which were initially classified as Common Shares. The par value for each Funds Common Shares is $0.10. The par
value for each Funds Preferred Shares outstanding is $0.10, except for MYF, which is $0.05. The Board is authorized, however, to reclassify any
unissued Common Shares to Preferred Shares without approval of Common Shareholders. MYF is authorized to issue 1 million Preferred Shares, including
AMPS.
Common Shares
For the periods shown, shares issued and outstanding increased by
the following amounts as a result of dividend reinvestment:
|
|
|
|
Six Months
Ended
January
31,
2014
|
|
Year Ended
July 31,
2013
|
MNE
|
|
|
|
|
|
|
|
|
3,405
|
|
MZA
|
|
|
|
|
|
|
|
|
12,706
|
|
MYC
|
|
|
|
|
|
|
|
|
37,874
|
|
MYF
|
|
|
|
|
|
|
|
|
20,747
|
|
MYJ
|
|
|
|
|
|
|
|
|
55,771
|
|