As filed with the Securities and Exchange Commission on December 15, 2021
Securities Act File No. 333-260148
Investment Company Act File No. 811-08621
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
☒ Pre-Effective Amendment No. 1
☐ Post-Effective Amendment No.
(Check appropriate box or boxes)
BLACKROCK
MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
(800) 882-0052
(Area Code and Telephone Number)
John M. Perlowski
President and Chief Executive Officer
BlackRock MuniHoldings New Jersey Quality Fund, Inc.
55 East 52nd Street
New York, New York 10055
(Name and Address of Agent for Service)
With
copies to:
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Margery K. Neale, Esq.
Elliot J. Gluck, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New
York, New York 10019-6099
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Janey Ahn, Esq.
BlackRock Advisors, LLC
55 East 52nd Street
New York, New York 10055
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AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
(Approximate Date of Proposed Public Offering)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Title of Securities
Being Registered
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Amount Being
Registered(1)
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Proposed
Maximum
Offering Price
Per Unit(2)
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration
Fee(3)
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Common stock, $0.10 par value
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26,688,225
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$15.91
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$424,609,660
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$39,361.32
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(1)
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Estimated solely for the purpose of calculating the filing registration fee, pursuant to Rule 457(o) under the
Securities Act of 1933.
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(2)
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Net asset value per share of common stock on December 10, 2021.
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(3)
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$92.70 previously paid in connection with the registration of $1,000,000 worth of common stock on
October 8, 2021.
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The Registrant hereby amends this registration statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until
this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement is organized as follows:
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a.
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Letter to Common Shareholders of BlackRock MuniYield New Jersey Fund, Inc. (MYJ) and BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ).
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b.
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Questions & Answers for Common Shareholders of MYJ and MUJ.
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c.
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Notice of Joint Special Meeting of Shareholders of MYJ and MUJ.
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d.
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Joint Proxy Statement/Prospectus regarding the proposed reorganization of MYJ into MUJ.
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e.
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Statement of Additional Information regarding the proposed reorganization of MYJ into MUJ.
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f.
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Part C: Other Information.
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g.
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Exhibits.
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BLACKROCK MUNIYIELD NEW JERSEY FUND, INC.
BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
100 Bellevue Parkway
Wilmington, Delaware 19809
(800) 882-0052
[●] , 2021
Dear Common Shareholder:
You are cordially invited to attend a joint special shareholder meeting (the Special Meeting) of BlackRock MuniYield New Jersey Fund, Inc.
(MYJ) and BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ or the Acquiring Fund and together with MYJ, the Funds, and each, a Fund), to be held on
February 4, 2022 at 10:00 a.m. (Eastern time). Because of our concerns regarding the coronavirus disease (COVID-19) pandemic, the Special
Meeting will be held in a virtual meeting format only. Shareholders will not have to travel to attend the Special Meeting, but will be able to view the Special Meeting live, have a meaningful opportunity to participate, including the ability to ask
questions of management, and cast their votes by accessing a web link. Before the Special Meeting, I would like to provide you with additional background information and ask for your vote on important proposals affecting the Funds.
Common Shareholders of MYJ: You and the preferred shareholders of MYJ are being asked to vote as a single class on a proposal to approve an Agreement
and Plan of Reorganization between MYJ and the Acquiring Fund (the Reorganization Agreement) and the transactions contemplated therein, including the termination of MYJs registration under the Investment Company Act of 1940, as
amended (the 1940 Act), and the dissolution of MYJ under Maryland law (the Reorganization). The Acquiring Fund has a similar investment objective and similar investment strategies, policies and restrictions as MYJ, although
there are some differences. Preferred shareholders of MYJ are also being asked to vote as a separate class on a proposal to approve the Reorganization Agreement and the Reorganization.
Common Shareholders of the Acquiring Fund: You and the preferred shareholders of the Acquiring Fund are being asked to vote as a single class on a
proposal to approve the issuance of additional common shares of the Acquiring Fund in connection with the Reorganization. Preferred shareholders of the Acquiring Fund are also being asked to vote as a separate class on a proposal to approve the
Reorganization Agreement and the transactions contemplated therein.
The enclosed Joint Proxy Statement/Prospectus is only being delivered to the
Funds common shareholders. The preferred shareholders of each Fund are also being asked to attend the Special Meeting and to vote as a separate class with respect to the proposals described above. Each Fund is delivering to its preferred
shareholders a separate proxy statement with respect to the proposals described above.
The Board of Directors of each Fund believes that the proposal
that the common shareholders of its Fund are being asked to vote upon is in the best interests of its respective Fund and its shareholders and unanimously recommends that you vote FOR such proposal.
Your vote is important. Attendance at the Special Meeting will be limited to each Funds shareholders as of December 7,
2021, the record date for the Special Meeting.
If your shares in a Fund are registered in your name, you may attend and participate in the Special
Meeting at https://meetnow.global/M5YSR7R by entering the control number found in the shaded box on your proxy card on the date and time of the Special Meeting. You may vote during the Special Meeting by following the instructions that
will be available on the Special Meeting website during the Special Meeting.
i
If you are a beneficial shareholder of a Fund (that is if you hold your shares of a Fund through a bank, broker,
financial intermediary or other nominee) and want to attend the Special Meeting you must register in advance of the Special Meeting. To register, you must submit proof of your proxy power (legal proxy), which you can obtain from your financial
intermediary or other nominee, reflecting your Fund holdings along with your name and email address to Georgeson LLC, each Funds tabulator. You may email an image of your legal proxy to shareholdermeetings@computershare.com. Requests for
registration must be received no later than 5:00 p.m. (Eastern time) three business days prior to the Special Meeting date. You will receive a confirmation email from Georgeson LLC of your registration and a control number and security code that
will allow you to vote at the Special Meeting.
Even if you plan to attend the Special Meeting, please promptly follow the enclosed instructions to submit
voting instructions by telephone or via the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card or voting instruction form you receive, and if received by mail, returning it in the accompanying
postage-paid return envelope.
We encourage you to carefully review the enclosed materials, which explain the proposals in more detail. As a shareholder,
your vote is important, and we hope that you will respond today to ensure that your shares will be represented at the meeting. You may vote using one of the methods below by following the instructions on your proxy card or voting instruction
form(s):
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By signing, dating and returning the enclosed proxy card or voting instruction form(s) in the postage-paid
envelope; or
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By participating at the Special Meeting as described above.
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If you do not vote using one of the methods described above, you may be called by Georgeson LLC, the Funds proxy solicitor, to vote your shares.
If you have any questions about the proposals to be voted on or the virtual Special Meeting, please call Georgeson LLC, the firm assisting us in the
solicitation of proxies, toll free at 1-888-666-2580.
As always, we
appreciate your support.
Sincerely,
JOHN M. PERLOWSKI
President and Chief Executive Officer of the Funds
Please vote now. Your vote is important.
To avoid the wasteful and unnecessary expense of further solicitation(s), we urge you to indicate your voting instructions on the enclosed
proxy card, date and sign it and return it promptly in the postage-paid envelope provided, or record your voting instructions by telephone or via the internet, no matter how large or small your holdings may be. If you submit a properly executed
proxy but do not indicate how you wish your common shares to be voted, your common shares will be voted FOR the proposal. If your common shares are held through a broker, you must provide voting instructions to your broker about how to
vote your common shares in order for your broker to vote your common shares as you instruct at the Special Meeting.
ii
[●], 2021
IMPORTANT NOTICE
TO
COMMON SHAREHOLDERS OF
BLACKROCK MUNIYIELD NEW JERSEY FUND, INC.
BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
QUESTIONS & ANSWERS
Although we urge you to read the entire Joint Proxy Statement/Prospectus, we have provided for your convenience a brief overview of some of the important
questions concerning the joint special shareholder meeting (the Special Meeting) of BlackRock MuniYield New Jersey Fund, Inc. (MYJ or the Target Fund) and BlackRock MuniHoldings New Jersey Quality Fund, Inc.
(MUJ or the Acquiring Fund and together with MYJ, the Funds, and each, a Fund) and the proposals to be voted on. It is expected that the effective date ( the Closing Date) of the
Reorganization will be sometime during the second quarter of 2022, but it may be at a different time as described in the Joint Proxy Statement/Prospectus.
The enclosed Joint Proxy Statement/Prospectus is being sent only to the common shareholders of MYJ and the Acquiring Fund. Each of MYJ and the Acquiring Fund
is separately soliciting the votes of its holders of Variable Rate Demand Preferred Shares (VRDP Shares and the holders thereof, VRDP Holders, and such VRDP Shares together with the common shares of MYJ and the Acquiring
Fund, the Shares) through a separate proxy statement.
Q:
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Why is a shareholder meeting being held?
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A: Common Shareholders of BlackRock MuniYield New Jersey Fund, Inc. (NYSE Ticker: MYJ): You and the VRDP Holders of MYJ are
being asked to vote as a single class on a proposal to approve an Agreement and Plan of Reorganization between MYJ and the Acquiring Fund (the Reorganization Agreement) and the transactions contemplated therein, including (i) the
acquisition by the Acquiring Fund of substantially all of MYJs assets and the assumption by the Acquiring Fund of substantially all of MYJs liabilities in exchange solely for newly issued common shares and VRDP Shares of the Acquiring
Fund, which will be distributed to the common shareholders (although cash may be distributed in lieu of fractional common shares) and VRDP Holders, respectively, of MYJ, and which shall constitute the sole consideration to be distributed or paid to
the common shareholders (although cash may be distributed in lieu of fractional common shares) and the VRDP Holders in respect of their common shares and VRDP Shares, respectively, and (ii) the termination by MYJ of its registration under the
1940 Act, and the liquidation, dissolution and termination of MYJ in accordance with its charter and Maryland law (the Reorganization).
MYJ
VRDP Holders are also being asked to vote as a separate class on a proposal to approve the Reorganization Agreement and the Reorganization through a separate proxy statement.
Common Shareholders of BlackRock MuniHoldings New Jersey Quality Fund, Inc. (NYSE Ticker: MUJ): You and the Acquiring Fund VRDP Holders are being asked
to vote as a single class on a proposal to approve the issuance of additional common shares of the Acquiring Fund in connection with the Reorganization Agreement (the Issuance).
Acquiring Fund VRDP Holders are also being asked to vote as a separate class on a proposal to approve the Reorganization Agreement and the transactions
contemplated therein, including the issuance of additional Acquiring Fund VRDP Shares, through a separate proxy statement.
The term Combined
Fund refers to the Acquiring Fund as the surviving Fund after the consummation of the Reorganization.
If the Reorganization is not consummated,
then each Fund would continue to exist and operate on a standalone basis.
iii
Q:
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Why has each Funds Board recommended these proposals?
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A: The Board of Directors (each, a Board and each member thereof, a Board Member) of each Fund has determined
that the Reorganization is in the best interests of its Fund and that the interests of existing common shareholders and preferred shareholders of its Fund will not be diluted with respect to net asset value (NAV) and liquidation
preference, respectively, as a result of the Reorganization. The Reorganization seeks to achieve certain economies of scale and other operational efficiencies by combining two funds that have similar investment objectives, investment strategies,
policies and restrictions and are managed by the same investment adviser, BlackRock Advisors, LLC (the Investment Advisor).
In light of these
similarities, the Reorganization is intended to reduce fund redundancies and create a single, larger fund that may benefit from anticipated operating efficiencies and economies of scale. The Reorganization is intended to result in the following
potential benefits to common shareholders:
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(i)
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lower net total expenses (excluding interest expense) per Common Share for common shareholders of each Fund (as
common shareholders of the Combined Fund following the Reorganization) due to economies of scale resulting from the larger size of the Combined Fund;
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(ii)
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improved net earnings yield on NAV for common shareholders of the Acquiring Fund;
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(iii)
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improved secondary market trading of the common shares of the Combined Fund; and
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(iv)
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operating and administrative efficiencies for the Combined Fund, including the potential for the following:
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(a)
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greater investment flexibility and investment options;
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(b)
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greater diversification of portfolio investments;
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(c)
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the ability to trade portfolio securities in larger positions and more favorable transaction terms;
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(d)
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additional sources of leverage or more competitive leverage terms and more favorable transaction terms;
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(e)
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benefits from having fewer closed-end funds offering similar products
in the market, including an increased focus by investors on the remaining funds in the market (including the Combined Fund) and additional research coverage; and
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(f)
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benefits from having fewer similar funds in the same fund complex, including a simplified operational model and
a reduction in risk of operational, legal and financial errors.
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The Board of each Fund, including Board Members thereof who are not
interested persons (as defined in the 1940 Act), approved the Reorganization Agreement and the Issuance, concluding that the Reorganization is in the best interests of its Fund and that the interests of existing common shareholders and
preferred shareholders of its Fund will not be diluted with respect to NAV and liquidation preference, respectively, as a result of the Reorganization. As a result of the Reorganization, however, common and preferred shareholders of each Fund may
hold a reduced percentage of ownership in the larger Combined Fund than they did in any of the individual Funds before the Reorganization. Each Boards conclusion was based on each Board Members business judgment after consideration of
all relevant factors taken as a whole with respect to its Fund and the Funds common and preferred shareholders, although individual Board Members may have placed different weight on various factors and assigned different degrees of materiality
to various factors.
If the Reorganization is not consummated, then the Investment Advisor may, in connection with ongoing management of each Fund and its
product line, recommend alternative proposals to the Board of the Fund.
iv
Q:
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How will the Reorganization affect the fees and expenses of the Funds?
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A: As of July 31, 2021 for MYJ, the Acquiring Fund and the Combined Fund, the historical and pro forma Total Expense Ratios
applicable to the Reorganization are as follows:
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MYJ
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Acquiring
Fund (MUJ)
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Pro forma
Combined
Fund (MYJ
into MUJ)
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1.39%
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1.44
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%
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1.36
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%
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Total Expenses means a Funds total annual operating expenses (including interest expense). Total
Expense Ratio means a Funds Total Expenses expressed as a percentage of its average net assets attributable to its common shares.
The Funds
estimate that the completion of the Reorganization would result in a Total Expense Ratio (excluding interest expense) for the Combined Fund of 0.86% on a historical and pro forma basis for the fiscal year ended July 31, 2021,
representing a reduction in the Total Expense Ratio (excluding interest expense) for the common shareholders of MYJ and the Acquiring Fund by 0.03% and 0.03%, respectively.
Each Funds Total Expenses include interest expense associated with such Funds VRDP Shares. For the fiscal year ended July 31, 2021, the Total
Expense Ratios (excluding interest expense) of MYJ and the Acquiring Fund were 0.89% and 0.89%, respectively.
The Funds estimate that the
completion of all of the Reorganization would result in a Total Expense Ratio (including interest expense) for the Combined Fund of 1.36% on a historical and pro forma basis for the fiscal year ended July 31, 2021, representing a
reduction in the Total Expense Ratio (including interest expense) for the common shareholders of MYJ and the Acquiring Fund by 0.03% and 0.08%, respectively.
The Combined Fund will have the same annual contractual investment management fee rate as MYJ and the Acquiring Fund. Each Fund currently pays the Investment
Advisor a monthly fee at an annual contractual investment management fee rate of 0.50% of the average daily value of its net assets. For purposes of calculating these fees, net assets means the total assets of each Fund minus the sum of
its accrued liabilities (which does not include liabilities represented by tender option bond (TOB) trusts and the liquidation preference of any outstanding preferred shares). It is understood that the liquidation preference of any
outstanding preferred shares (other than accumulated dividends) and TOB Trusts is not considered a liability in determining the relevant Funds NAV.
If the Reorganization is consummated, the annual contractual investment management fee rate of the Acquiring Fund will be the annual contractual investment
management fee rate of the Combined Fund, which will be 0.50% of the average daily net assets of the Combined Fund. The annual contractual investment management fee rate of the Combined Fund is the same as the annual contractual investment
management fee rate for each Fund. Please see Expense Table For Common Shareholders in the Joint Proxy Statement/Prospectus for additional information.
Based on a pro forma Broadridge peer expense universe for the Combined Fund, the estimated total annual fund expense ratio (excluding
investment-related expenses and taxes) is expected to be in the first quartile and contractual investment management fee rate and actual investment management fee rate over total assets are each expected to be in the first
quartile.
There can be no assurance that future expenses of the Combined Fund will not increase or that any expense savings for any Fund will
be realized as a result of the Reorganization.
Q:
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How will the Reorganization affect the earnings, distributions and undistributed net income of the Funds?
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A: The Combined Funds net earnings yield on NAV for common shareholders following the Reorganization is
expected to be potentially higher than the current net earnings yield on NAV for the Acquiring Fund and potentially the same as the current net earnings yield on NAV for MYJ. The distribution level of any fund is subject to change based upon a
number of factors, including the current and projected level of the funds earnings, and may fluctuate
v
over time; thus, subject to a number of other factors, including the funds distribution policy, a higher net earnings profile may potentially have a positive impact on such funds
distribution level over time. The Combined Funds earnings and distribution rate on NAV will change over time, and depending on market conditions, may be higher or lower than each Funds earnings and distribution rate on NAV prior to the
Reorganization. A Funds earnings and net investment income are variables which depend on many factors, including its asset mix, portfolio turnover level, the amount of leverage utilized by the Fund, the costs of such leverage, the performance
of its investments, the movement of interest rates and general market conditions. There can be no assurance that the future earnings of a Fund, including the Combined Fund after the Reorganization, will remain constant.
If the Reorganization is approved by shareholders, then the greater of (1) substantially all of the undistributed net investment income
(UNII), if any, or (2) the monthly distribution of each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date (the Pre-Reorganization Declared
UNII Distributions). The declaration date, ex-dividend date (the Ex-Dividend Date) and record date of the
Pre-Reorganization Declared UNII Distributions will occur prior to the Closing Date. However, all or a significant portion of the Pre-Reorganization Declared UNII
Distributions may be paid in one or more distributions to common shareholders of the Funds entitled to such Pre-Reorganization Declared UNII Distributions after the Closing Date. Former MYJ shareholders
entitled to such Pre-Reorganization Declared UNII Distributions paid after the Closing Date will receive such distributions in cash.
Persons who purchase common shares of any of the Funds on or after the Ex-Dividend Date for the Pre-Reorganization Declared UNII Distributions should not expect to receive any distributions from any Fund until distributions, if any, are declared by the Board of the Combined Fund and paid to shareholders
entitled to any such distributions. No such distributions are expected to be paid by the Combined Fund until at least approximately one month following the Closing Date.
Additionally, the Acquiring Fund, in order to seek to provide its common shareholders with distribution rate stability, may include in its Pre-Reorganization Declared UNII Distribution amounts in excess of its undistributed net investment income and net investment income accrued through the Closing Date. This would result in the Acquiring Fund issuing
incrementally more common shares in the Reorganization since its NAV as of the valuation time for the Reorganization would be lower relative to a scenario where such excess amounts were not included in the Acquiring Funds Pre-Reorganization Declared UNII Distribution.
The Combined Fund is anticipated to retain a lower UNII balance
after the Reorganization than the Acquiring Fund prior to the Reorganization. The lower anticipated UNII balance for the Combined Fund relative to the UNII balance of the Acquiring Fund poses risks for shareholders of the Combined Fund. UNII
balances, in part, support the level of a funds regular distributions and provide a cushion in the event a funds net earnings for a particular distribution period are insufficient to support the level of its regular distribution for that
period. If the Combined Funds net earnings are below the level of its current distribution rate, the Combined Funds UNII balance could be more likely to contribute to a determination to decrease the Combined Funds distribution
rate, or could make it more likely that the Combined Fund will make distributions consisting in part of a return of capital to maintain the level of its regular distributions. See Dividends and Distributions. Moreover, because a
funds UNII balance, in part, supports the level of a funds regular distributions, the UNII balance of the Combined Fund could impact the trading market for the Combined Funds common shares and the magnitude of the trading discount
to NAV of the Combined Funds common shares. However, the Combined Fund is anticipated to benefit from a lower expense ratio, a potentially higher net earnings profile (compared to the Acquiring Fund) and other anticipated benefits of
economies of scale as discussed herein. Each Fund, including the Combined Fund, reserves the right to change its distribution policy with respect to common share distributions and the basis for establishing the rate of its distributions for
the common shares at any time and may do so without prior notice to common shareholders. The payment of any distributions by any Fund, including the Combined Fund, is subject to, and will only be made when, as, and if, declared by the Board of such
Fund. There is no assurance the Board of any Fund, including the Combined Fund, will declare any distributions for such Fund.
To the extent any Pre-Reorganization Declared UNII Distribution is not an exempt interest dividend (as defined in the Internal Revenue Code of 1986, as amended (the Code)), the distribution may be taxable to
shareholders for U.S. federal income tax purposes.
vi
Q:
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Have common shares of each Fund historically traded at a premium or discount?
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A: The common shares of each Fund have historically traded at both a premium and a discount. The table below sets forth the market
price, NAV, and the premium/discount to NAV of each Fund as of December 6, 2021.
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Fund
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Market
Price
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NAV
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Premium/(Discount) to NAV
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MYJ
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$
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15.84
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$
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16.01
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(1.1
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)%
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Acquiring Fund (MUJ)
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$
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15.48
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$
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15.91
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(2.7
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)%
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To the extent MYJs common shares are trading at a wider discount (or a narrower premium) than the Acquiring Fund at
the time of the Reorganization, MYJs common shareholders would have the potential for an economic benefit by the narrowing of the discount or widening of the premium. To the extent MYJs common shares are trading at a narrower discount
(or wider premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders may be negatively impacted if the Reorganization is consummated. Acquiring Fund common shareholders would only benefit from a
premium/discount perspective to the extent the post-Reorganization discount (or premium) of the Acquiring Fund common shares improves.
There can be no
assurance that, after the Reorganization, common shares of the Combined Fund will trade at a narrower discount to NAV or wider premium to NAV than the common shares of any individual Fund prior to the Reorganization. Upon consummation of the
Reorganization, the Combined Fund common shares may trade at a price that is less than the current market price of Acquiring Fund common shares. In the Reorganization, common shareholders of MYJ will receive Acquiring Fund common shares based on the
relative NAVs (not the market values) of the respective Funds common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of each respective Fund prior to the Reorganization.
Q:
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How will holders of preferred shares be affected by the Reorganization?
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A: As of the date of the enclosed Joint Proxy Statement/Prospectus, MYJ and the Acquiring Fund each have VRDP Shares outstanding. As of
December 6, 2021, MYJ had 1,800 Series W-7 VRDP Shares outstanding and the Acquiring Fund had 2,371 Series W-7 VRDP Shares outstanding.
In connection with the Reorganization, the Acquiring Fund expects to issue 1,800 additional VRDP Shares to MYJ VRDP Holders. Following the completion of the Reorganization, the Combined Fund is expected to have 4,171 VRDP Shares outstanding.
Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and
unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in exchange for the Target
Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares may be of the same series as the Acquiring Funds Series W-7
VRDP Shares or a substantially identical series. No fractional Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring
Funds outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the
Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such
special rate period will terminate on April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding.
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms of the outstanding Target
Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund
may designate any succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing
vii
instrument for such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds
VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year special rate period that will end on
April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless extended (each, a Special Rate Period). The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special
Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on
the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the Funds in the Joint Proxy Statement/Prospectus for additional information about the preferred shares of each Fund.
None of the expenses of the Reorganization are expected to be borne by the VRDP Holders of the Funds.
Following the Reorganization, the VRDP Holders of each Fund will be VRDP Holders of the larger Combined Fund that will have a larger asset base and more VRDP
Shares outstanding than either Fund individually. With respect to matters requiring all preferred shareholders to vote separately or common and preferred shareholders to vote together as a single class, following the Reorganization, VRDP
Holders of the Combined Fund will hold a smaller percentage of the outstanding preferred shares of the Combined Fund as compared to their percentage holdings of outstanding preferred shares of their respective Fund prior to the
Reorganization.
Q:
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How similar are the Funds?
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A: The Funds have the same investment adviser, officers and directors. MYJ and the Acquiring Fund are each formed as a Maryland
corporation.
Each Fund has its common shares listed on the NYSE and has privately placed VRDP Shares outstanding. Each of MYJ and the Acquiring Fund
is managed by a team of investment professionals led by Phillip Soccio, CFA and Theodore R. Jaeckel, Jr., CFA. Following the Reorganization, it is expected that the Combined Fund will be managed by a team of investment professionals lead by Phillip
Soccio, CFA, Theodore R. Jaeckel, Jr., CFA, and Christian Romaglino.
The investment objective, significant investment strategies and
operating policies, and investment restrictions of the Combined Fund will be those of the Acquiring Fund, which are similar to those of MYJ, although there are some differences.
Investment Objective:
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MYJ
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Acquiring Fund (MUJ)
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The Funds investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes and New Jersey personal income tax as is consistent with its investment policies and
prudent investment management.
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The Funds investment objective is to provide shareholders with current income exempt from federal income tax and New Jersey personal income taxes.
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Municipal Bonds: Below is a comparison of each Funds 80% investment policy with respect to municipal
bonds, the interest of which is exempt from federal income tax and New Jersey personal income tax.
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MYJ
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Acquiring Fund (MUJ)
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The Fund seeks to achieve its investment objective by investing at least 80% of an aggregate of the Funds net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for
investment purposes, in a portfolio of municipal obligations issued by or on behalf of the State of New Jersey, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the
opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from New Jersey
personal income tax (MYJ New Jersey Municipal Bonds).
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The Fund invests substantially all (at least 80%) of its assets in municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from federal income tax and New Jersey personal income taxes
(MUJ New Jersey Municipal Bonds), except at times when the Investment Advisor considers that MUJ New Jersey Municipal Bonds of sufficient quantity and quality are unavailable at suitable prices.
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viii
Investment Grade Securities: The Acquiring Fund invests in investment grade MUJ New Jersey
Municipal Bonds and municipal obligations exempt from federal income taxes but not New Jersey personal income taxes (MUJ Municipal Bonds) that are rated at the date of purchase in the four highest rating categories of Moodys
(currently Aaa, Aa, A and Baa), S&P (currently AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB) or, if unrated, are considered to be of comparable quality by the Investment Advisor.
Under normal market conditions, the Target Fund expects to invest primarily in a portfolio of long-term municipal obligations issued by or on behalf of
states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S.
federal income tax purposes but is not exempt from gross income for New Jersey personal income tax purposes (MYJ Municipal Bonds) that are commonly referred to as investment grade securities, which are obligations rated
within the four highest quality ratings as determined by either Moodys (currently Aaa, Aa, A and Baa), S&P (currently AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB), or are considered by the Investment Advisor to be of
comparable quality, at the time of investment.
Bond Maturity: Below is a comparison of each Funds policy with respect to bond
maturity.
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MYJ
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Acquiring Fund (MUJ)
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The average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Investment Advisor. The Funds portfolio at any given time may include both
long-term and intermediate-term municipal bonds.
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The Fund invests primarily in long-term MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with a maturity of more than ten years. However, the Fund may also invest in intermediate-term MUJ New Jersey Municipal Bonds and MUJ
Municipal Bonds with a maturity of between three years and ten years. The Fund may also invest in short-term tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash.
Investments in such short-term securities or cash will not exceed 20% of the Funds total assets, except during interim periods pending investment of the net proceeds from public offerings of the Funds securities or in anticipation of the
repurchase or redemption of the Funds securities and temporary periods when, in the opinion of the Investment Advisor, prevailing market or economic conditions warrant. Under normal circumstances, at least 80% of the Funds assets will be
invested in municipal obligations with remaining maturities of one year or more.
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Leverage: Each Fund utilizes leverage through the issuance of VRDP Shares and TOBs. See The Acquiring
Funds InvestmentsLeverage; General Risks of Investing in the Acquiring FundLeverage Risk; and General Risks of Investing in the Acquiring FundTender Option Bond Risk. The Acquiring Fund is
expected to continue to leverage its assets through the use of VRDP Shares and TOBs after the Closing Date of the Reorganization. After the consummation of the Reorganization, common shareholders of the Acquiring Fund, including former Target Fund
common shareholders, will bear the leverage costs associated with the Acquiring Fund VRDP Shares and will be subject to the terms of the Acquiring Fund VRDP Shares, including that the Acquiring Fund VRDP Shares will be senior in priority to the
Acquiring Fund common shares as to the payment of dividends and the distribution of assets upon dissolution liquidation or winding up of the affairs of the Acquiring Fund. Please see Information about the Preferred Shares of the Funds in
the Joint Proxy Statement/Prospectus for additional information about the preferred shares of each Fund.
ix
The annualized dividend rates for the preferred shares for each Funds most recent fiscal year end were as
follows:
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Fund
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Preferred Shares
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Rate
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MYJ
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VRDP Shares
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0.82
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%
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Acquiring Fund (MUJ)
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VRDP Shares
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0.91
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%
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Please see below a comparison of certain important ratios related to (i) each Funds use of leverage as of
December 6, 2021, and (ii) the Combined Funds estimated use of leverage, assuming the Reorganization had taken place as of July 31, 2021.
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Ratios
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MYJ
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Acquiring
Fund
(MUJ)
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Pro forma
Combined
Fund
(MYJ into
MUJ)
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Asset Coverage Ratio
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314.6
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%
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301.8
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%
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307.4
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%
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Regulatory Leverage Ratio(1)
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31.8
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%
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33.1
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%
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32.5
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%
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Effective Leverage Ratio(2)
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38.0
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%
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38.9
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%
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38.5
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%
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(1)
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Regulatory leverage consists of preferred shares issued by the Fund, which is a part of the Funds capital
structure. Regulatory leverage is sometimes referred to as 1940 Act Leverage and is subject to asset coverage limits set forth in the 1940 Act.
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(2)
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Effective leverage is a Funds effective economic leverage, and includes both regulatory leverage and the
leverage effects of certain derivative investments in the Funds portfolio. Currently, the leverage effects of TOB inverse floater holdings, in addition to any regulatory leverage, are included in effective leverage ratios.
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Q:
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How will the Reorganization be effected?
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A: Assuming the Reorganization receives the requisite shareholder approvals, as well as certain consents, confirmations and/or waivers
from various third parties, including the liquidity provider with respect to the outstanding VRDP Shares, the Acquiring Fund will acquire substantially all of the Target Funds assets and assume substantially all of the Target Funds
liabilities in exchange solely for newly issued common shares and VRDP Shares of the Acquiring Fund, which will be distributed to the shareholders of the Target Fund (although cash may be distributed in lieu of fractional common shares). The Target
Fund will then terminate its registration under the 1940 Act, liquidate, dissolve and terminate in accordance with its charter and Maryland law. Shareholders of MYJ will become shareholders of the Acquiring Fund. Common shareholders of MYJ will
receive newly issued common shares of the Acquiring Fund, par value $0.10 per share, the aggregate NAV (not the market value) of which will equal the aggregate NAV (not the market value) of the common shares of MYJ such shareholders held immediately
prior to the Closing Date (although common shareholders of MYJ may receive cash for fractional common shares). The aggregate NAV of each Fund immediately prior to the Reorganization will reflect accrued expenses associated with such
Reorganization. The NAV of MYJ common shares will not be diluted as a result of the Reorganization. The common shareholders of each Fund have substantially similar voting rights and rights with respect to the payment of dividends and
distribution of assets upon liquidation of their respective Fund and have no preemptive, conversion or exchange rights.
Assuming the
Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a one-for-one basis one newly issued
Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and unpaid dividends that
x
have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing
Date), in exchange for each Target Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares will be Series W-7 VRDP Shares of the
Acquiring Fund. No fractional Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring Funds outstanding VRDP
Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued
Acquiring Fund VRDP Shares will be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate
on April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding. The terms of the Acquiring
Funds VRDP Shares may change from time to time, subject to Board approval.
The newly issued Acquiring Fund VRDP Shares will have terms that are
substantially similar to the terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to
have a mandatory redemption date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing
instrument for such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions
relating to the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and
June 17, 2022 for MYJ, unless extended. The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend
rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the
Preferred Shares of the Funds in the Joint Proxy Statement/Prospectus for additional information about the preferred shares of each Fund.
Shareholders of the Acquiring Fund will remain shareholders of the Acquiring Fund, which will have additional common shares and VRDP Shares outstanding after
the Reorganization.
Q:
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Will I have to pay any U.S. federal income taxes as a result of the Reorganization?
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A: The Reorganization is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code. If the Reorganization so qualifies, in general, common shareholders of MYJ will recognize no gain or loss for U.S. federal income tax purposes upon the exchange of their common shares for Acquiring Fund Shares
pursuant to the Reorganization (except with respect to cash received in lieu of fractional common shares). Additionally, MYJ will recognize no gain or loss for U.S. federal income tax purposes by reason of the Reorganization. Neither the Acquiring
Fund nor its shareholders will recognize any gain or loss for U.S. federal income tax purposes pursuant to the Reorganization.
As discussed above,
shareholders of each Fund may receive distributions prior to, or after, the consummation of the Reorganization, including distributions attributable to their proportionate share of each Funds undistributed net investment income declared prior
to the consummation of the Reorganization or the Combined Fund built-in gains, if any, recognized after the Reorganization, when such income and gains are eventually distributed by the Combined Fund. To the
extent that such a distribution is not an exempt interest dividend (as defined in the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
The Funds shareholders should consult their own tax advisers regarding the U.S. federal income tax consequences of the Reorganization, as well as the
effects of state, local and non-U.S. tax laws, including possible changes in tax laws.
xi
Q:
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Will I have to pay any sales load, commission or other similar fees in connection with the Reorganization?
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A: You will pay no sales loads or commissions in connection with the Reorganization. Regardless of whether
the Reorganization is completed, however, the costs associated with the Reorganization, including the costs associated with the Special Meeting, will be borne directly by each of the respective Funds incurring the expense.
Common shareholders of each Fund will indirectly bear a portion of the costs of the Reorganization. For MYJ, the expenses of the Reorganization are estimated
to be approximately $366,537, of which the Investment Advisor will bear approximately $129,586. For the Acquiring Fund, the expenses of the Reorganization are estimated to be approximately $357,561, of which the Investment Advisor will bear
approximately $161,495. The actual costs associated with the Reorganization may be more or less than the estimated costs discussed herein.
VRDP Holders
are not expected to bear any costs of the Reorganization.
Neither the Funds nor the Investment Advisor will pay any direct expenses of shareholders
arising out of or in connection with the Reorganization (e.g., expenses incurred by the shareholder as a result of attending the Special Meeting, voting on the Reorganization or other action taken by the shareholder in connection with the
Reorganization).
Q:
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What shareholder approvals are required to complete the Reorganization?
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A:
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The Reorganization is contingent upon the following approvals:
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1.
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The approval of the Reorganization Agreement and the transactions contemplated therein, including the
termination of MYJs registration under the 1940 Act and the dissolution of MYJ under Maryland law, by MYJs common shareholders and VRDP Holders voting as a single class;
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2.
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The approval of the Reorganization Agreement and the transactions contemplated therein, including the
termination of MYJs registration under the 1940 Act and the dissolution of MYJ under Maryland law, by MYJs VRDP Holders voting as a separate class;
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3.
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The approval of the Issuance by the Acquiring Funds common shareholders and Acquiring Fund VRDP Holders
voting as a single class; and
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4.
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The approval of the Reorganization Agreement and the transactions contemplated therein, including the issuance
of additional Acquiring Fund VRDP Shares, by Acquiring Fund VRDP Holders voting as a separate class.
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If the Reorganization is not
consummated, then each Fund would continue to exist and operate on a standalone basis.
If the requisite shareholder approvals for the Reorganization is
not obtained, or the Reorganization is not otherwise consummated, the Board of each Fund may take such actions as it deems in the best interests of the Fund, including conducting additional solicitations with respect to the Reorganization or
continuing to operate the Fund as a standalone Maryland corporation registered under the 1940 Act as a closed-end management investment company advised by the Investment Advisor. The Investment Advisor may, in
connection with the ongoing management of the Fund and its product line, recommend alternative proposals to the Board of the Fund.
In order for the
Reorganization to occur, each Fund must obtain all requisite shareholder approvals with respect to the Reorganization, as well as certain consents, confirmations and/or waivers from various third parties, including the liquidity provider with
respect to the outstanding VRDP Shares.
The preferred shares were issued on a private placement basis to one or a small number of institutional holders.
Please see Information about the Preferred Shares of the Funds for additional information. To the extent that one or more preferred shareholder(s) of MYJ or the Acquiring Fund owns, holds or controls, individually or in the aggregate,
all or a significant portion of such Funds outstanding preferred shares, the preferred shareholder approval required for the Reorganization may turn on the exercise of voting rights by such particular preferred shareholder(s) and its (or
xii
their) determination as to the favorability of the Reorganization with respect to its (or their) interests. The Funds exercise no influence or control over the determinations of such preferred
shareholder(s) with respect to the Reorganization; there is no guarantee that such preferred shareholder(s) will approve the Reorganization, over which it (or they) may exercise effective disposition power.
Q:
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Why is the vote of shareholders of the Acquiring Fund being solicited in connection with the Reorganization?
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A:
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The rules of the New York Stock Exchange (on which the Acquiring Fund common shares are listed) require the
Acquiring Funds shareholders to approve the Issuance. If the Issuance is not approved, then the Reorganization will not occur.
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We are also seeking the approval of the Reorganization Agreement and the transactions contemplated therein, including the issuance of additional Acquiring
Fund VRDP Shares, by the Acquiring Fund VRDP Holders voting as a separate class pursuant to the governing document of the Acquiring Fund VRDP Shares. If Acquiring Fund VRDP Holders do not approve the Reorganization Agreement as a separate class,
then the Reorganization will not occur.
Q:
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How does the Board of my Fund suggest that I vote?
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A:
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After careful consideration, the Board of your Fund unanimously recommends that you vote FOR the
proposal(s) relating to your Fund.
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Q:
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When and where will the Special Meeting be held?
|
A:
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The Special Meeting will be held on February 4, 2022, at 10:00 a.m.
(Eastern Time). Because of our concerns regarding the coronavirus disease (COVID-19) pandemic, the Special Meeting will be held in virtual meeting format only. Shareholders will not have to travel to attend
the Special Meeting, but will be able to view the Special Meeting live and cast their votes by accessing a web link. The Special Meeting will provide shareholders with a meaningful opportunity to participate, including the ability to ask questions
of management. To support these efforts, the Funds will:
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Provide for shareholders to begin logging into the Special Meeting at 9:30 a.m. (Eastern time) on
February 4, 2022, thirty minutes in advance of the Special Meeting.
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Permit shareholders attending the Special Meeting to submit questions via live webcast during the Special Meeting
by following the instructions available on the meeting website during the Special Meeting. Questions relevant to Special Meeting matters will be answered during the Special Meeting, subject to time constraints.
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Engage with and respond to shareholders who ask questions relevant to Special Meeting matters that are not
answered during the Special Meeting due to time constraints.
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Q:
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How do I vote my proxy?
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A:
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Shareholders of record of each Fund as of the close of business on December 7, 2021
(the Record Date) are entitled to notice of and to vote at the Special Meeting or any adjournment or postponement thereof. You may cast your vote by mail, phone, internet or by participating at the Special Meeting as described below.
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To vote by mail, please mark your vote on the enclosed proxy card and sign, date and return the card in the postage-paid envelope
provided.
If you choose to vote by phone or internet, please refer to the instructions found on the proxy card accompanying the Joint Proxy
Statement/Prospectus. To vote by phone or internet, you will need the control number that appears on the proxy card. In addition, we ask that you please note the following:
xiii
If your shares in a Fund are registered in your name, you may attend and participate in the Special Meeting
at https://meetnow.global/M5YSR7R by entering the control number found in the shaded box in your proxy card on the date and timing of the Special Meeting. You may vote during the Special Meeting by following the
instructions that will be available on the Special Meeting website during the Special Meeting.
Also, if you are a beneficial shareholder of a Fund,
you will not be able to vote at the virtual Special Meeting unless you have registered in advance to attend the Special Meeting. To register, you must submit proof of your proxy power (legal proxy), which you can obtain from your financial
intermediary or other nominee, reflecting your Fund holdings along with your name and email address to Georgeson LLC (Georgeson), each Funds tabulator. You may email an image of your legal proxy to
shareholdermeetings@computershare.com. Requests for registration must be received no later than 5:00 p.m. (Eastern time) three business days prior to the Special Meeting date. You will receive a confirmation email from Georgeson of your registration
and a control number and security code that will allow you to vote at the Special Meeting.
Even if you plan to attend the Special Meeting, please
promptly follow the enclosed instructions to submit voting instructions by telephone or via the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card you receive, and if received by mail, returning it in
the accompanying postage-paid return envelope.
Q:
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Whom do I contact for further information?
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A:
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You may contact your financial advisor for further information. You may also call Georgeson, the Funds
proxy solicitor, at 1-888-666-2580.
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Q:
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Will anyone contact me?
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A: You may receive a call from Georgeson, the proxy solicitor hired by the Funds, to verify that you received your proxy materials, to
answer any questions you may have about the proposals and to encourage you to vote your proxy.
We recognize the inconvenience of the proxy solicitation
process and would not impose on you if we did not believe that the matters being proposed were important. Once your vote has been registered with the proxy solicitor, your name will be removed from the solicitors
follow-up contact list.
Your vote is very important. We encourage you as a shareholder to participate by
returning your vote as soon as possible. If enough shareholders fail to cast their votes, a Fund may not be able to hold the Special Meeting or the vote on the applicable proposals, and will be required to incur additional solicitation costs in
order to obtain sufficient shareholder participation.
Important additional information about the Reorganization is set forth
in the accompanying Proxy Statement/Prospectus.
Please read it carefully.
xiv
BLACKROCK MUNIYIELD NEW JERSEY FUND, INC.
BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
100 Bellevue Parkway
Wilmington, Delaware 19809
(800) 882-0052
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 4, 2022
Notice is hereby given that a joint special meeting of shareholders (the Special Meeting) of BlackRock MuniYield New Jersey Fund, Inc. (NYSE
Ticker: MYJ) (MYJ) and BlackRock MuniHoldings New Jersey Quality Fund, Inc. (NYSE Ticker: MUJ) (MUJ or the Acquiring Fund and together with MYJ, the Funds, and each, a Fund) will be held on
February 4, 2022 at 10:00 a.m. (Eastern time) for the following purposes:
Proposal 1: The
Reorganization of the Funds
For Shareholders of MYJ:
Proposal 1(A): The common shareholders and holders of Variable Rate Demand Preferred Shares (VRDP Shares and the holders thereof, VRDP
Holders) of MYJ are being asked to vote as a single class on a proposal to approve an Agreement and Plan of Reorganization between MYJ and the Acquiring Fund (the Reorganization Agreement) and the transactions contemplated therein,
including (i) the acquisition by the Acquiring Fund of substantially all of MYJs assets and the assumption by the Acquiring Fund of substantially all of MYJs liabilities in exchange solely for newly issued common shares and VRDP
Shares of the Acquiring Fund, which will be distributed to the common shareholders (although cash may be distributed in lieu of fractional common shares) and VRDP Holders, respectively, of MYJ, and which shall constitute the sole consideration to be
distributed or paid to the common shareholders (although cash may be distributed in lieu of fractional common shares) and the VRDP Holders in respect of their common shares and VRDP Shares, respectively, and (ii) the termination by MYJ of its
registration under the Investment Company Act of 1940, as amended (the 1940 Act), and the liquidation, dissolution and termination of MYJ in accordance with its Charter and Maryland law (the Reorganization).
Proposal 1(B): The VRDP Holders of MYJ are being asked to vote as a separate class on a proposal to approve the Reorganization Agreement and the
Reorganization.
For Shareholders of the Acquiring Fund:
Proposal 1(C): The VRDP Holders of the Acquiring Fund are being asked to vote as a separate class on a proposal to approve the Reorganization Agreement
and the transactions contemplated therein, including the issuance of additional Acquiring Fund VRDP Shares.
Proposal 2: The Issuance of Additional
Acquiring Fund Common Shares
Proposal 2: The common shareholders and VRDP Holders of the Acquiring Fund are being asked to vote as a single
class on a proposal to approve the issuance of additional common shares of the Acquiring Fund in connection with the Reorganization Agreement.
Shareholders of record of each Fund as of the close of business on December 7, 2021 are entitled to notice of and to vote at the
Special Meeting or any adjournment or postponement thereof.
The Funds are soliciting the vote of their common shareholders on Proposal 1(A),
Proposal 1(C), and Proposal 2.
Each Fund is separately soliciting the votes of its respective preferred shareholders on each proposal through a separate
proxy statement and not through the joint proxy statement/prospectus.
i
Because of our concerns regarding the coronavirus
disease (COVID-19) pandemic, the Special Meeting will be held in a virtual meeting format only. Shareholders will not have to travel to attend the Special Meeting but will be able to view the meeting
live, have a meaningful opportunity to participate, including the ability to ask questions of management, and cast their votes by accessing a web link.
All shareholders are cordially invited to attend the Special Meeting. In order to avoid delay and additional expense for the Funds and to assure that your
shares are represented, please vote as promptly as possible, regardless of whether or not you plan to attend the Special Meeting. You may vote by mail, by telephone or over the Internet. To vote by mail, please mark, sign, date and mail the enclosed
proxy card or voting instruction form. No postage is required if mailed in the United States. To vote by telephone, please call the toll-free number located on your proxy card or voting instruction form and follow the recorded instructions. To vote
over the Internet, go to the Internet address provided on your proxy card or voting instruction form and follow the instructions.
If your
shares in a Fund are registered in your name, you may attend and participate in the Special Meeting at https://meetnow.global/M5YSR7R by entering the control number found in the shaded box on your proxy card on the date and time of the
Special Meeting. You may vote during the Special Meeting by following the instructions that will be available on the Special Meeting website during the Special Meeting.
If you are a beneficial shareholder of a Fund (that is if you hold your Fund shares through a bank, broker, financial intermediary or other nominee) and
want to attend the Special Meeting you must register in advance of the Special Meeting. To register, you must submit proof of your proxy power (legal proxy), which you can obtain from your financial intermediary or other nominee, reflecting your
Fund holdings along with your name and email address to Georgeson LLC, each Funds tabulator. You may email an image of your legal proxy to shareholdermeetings@computershare.com. Requests for registration must be received no later than 5:00
p.m. (Eastern time) three business days prior to the Special Meeting date. You will receive a confirmation email from Georgeson LLC of your registration and a control number and security code that will allow you to vote at the Special Meeting.
Even if you plan to attend the Special Meeting, please promptly follow the enclosed instructions to submit voting instructions by telephone or via
the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card or voting instruction form you receive, and if received by mail, returning it in the accompanying postage-paid return envelope.
The officers or directors of each Fund named as proxies by shareholders may participate in the Special Meeting by remote communications, including, without
limitation, by means of a conference telephone or similar communications equipment by means of which all persons participating in the Special Meeting can hear and be heard by each other, and the participation of such officers, directors or trustees
in the Special Meeting pursuant to any such communications system shall constitute presence at the Special Meeting.
THE BOARD OF DIRECTORS (EACH, A
BOARD) OF EACH OF THE FUNDS RECOMMENDS THAT YOU VOTE YOUR SHARES BY INDICATING YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATING AND SIGNING SUCH PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES, OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE INTERNET.
THE
BOARD OF EACH FUND UNANIMOUSLY RECOMMENDS THAT YOU CAST YOUR VOTE FOR THE REORGANIZATION AGREEMENT AND FOR THE ISSUANCE OF ADDITIONAL COMMON SHARES OF THE ACQUIRING FUND, IN EACH CASE, AS DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS FOR COMMON SHAREHOLDERS OR THE PROXY STATEMENT FOR PREFERRED SHAREHOLDERS, AS APPLICABLE.
ii
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT YOU MAIL YOUR PROXY CARD OR
RECORD YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE INTERNET PROMPTLY.
For the Board of each Fund,
JOHN M. PERLOWSKI
President and Chief Executive
Officer of the Funds
[●], 2021
YOUR VOTE IS IMPORTANT.
PLEASE VOTE PROMPTLY BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD OR BY RECORDING YOUR VOTING INSTRUCTIONS BY TELEPHONE OR VIA THE
INTERNET, NO MATTER HOW MANY SHARES YOU OWN.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE JOINT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 4, 2022.
THE PROXY STATEMENT FOR THIS MEETING IS AVAILABLE AT:
www.proxy-direct.com/blk-32392
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The information in this Joint Proxy Statement/Prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Joint Proxy Statement/Prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO
COMPLETION, DATED DECEMBER 15, 2021
JOINT PROXY STATEMENT/PROSPECTUS
Dated [●], 2021
BLACKROCK MUNIYIELD NEW JERSEY FUND, INC.
BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
100 Bellevue Parkway
Wilmington, Delaware 19809
(800) 882-0052
This Joint Proxy Statement/Prospectus is furnished to you as a common shareholder of BlackRock MuniYield New Jersey Fund, Inc. (NYSE Ticker: MYJ)
(MYJ or the Target Fund) and BlackRock MuniHoldings New Jersey Quality Fund, Inc. (NYSE Ticker: MUJ) (MUJ or the Acquiring Fund and together with MYJ, the Funds, and each, a
Fund) in connection with the solicitation of proxies by each Funds Board of Directors (the Board, the members of which are referred to as Board Members). The proxies will be voted at the joint special
meeting of the shareholders of each Fund and at any and all adjournments, postponements and delays thereof (the Special Meeting). The Special Meeting will be held on February 4, 2022
at 10:00 a.m. (Eastern time) to consider the proposals set forth below and discussed in greater detail elsewhere in this Joint Proxy Statement/Prospectus. Because of our concerns regarding the coronavirus
disease (COVID-19) pandemic, the Special Meeting will be held in a virtual meeting format only. Shareholders will not have to travel to attend the Special Meeting, but will be able to view the
meeting live, have a meaningful opportunity to participate, including the ability to ask questions of management, and cast their votes by accessing a web link. If you are unable to attend the Special Meeting or any adjournment or postponement
thereof, the Board of your Fund recommends that you vote your common shares, by completing and returning the enclosed proxy card or by recording your voting instructions by telephone or via the internet. The approximate mailing date of this Joint
Proxy Statement/Prospectus and accompanying form of proxy is December 20, 2021.
The purposes of the Special Meeting are:
Proposal 1: The Reorganization of the Funds
For
Shareholders of MYJ:
Proposal 1(A): The common shareholders and holders of Variable Rate Demand Preferred Shares (VRDP Shares and
the holders thereof, VRDP Holders) of MYJ are being asked to vote as a single class on a proposal to approve an Agreement and Plan of Reorganization between MYJ and the Acquiring Fund (the Reorganization Agreement) and the
transactions contemplated therein, including (i) the acquisition by the Acquiring Fund of substantially all of MYJs assets and the assumption by the Acquiring Fund of substantially all of MYJs liabilities in exchange solely for
newly issued common shares and VRDP Shares of the Acquiring Fund, which will be distributed to the common shareholders (although cash may be distributed in lieu of fractional common shares) and VRDP Holders, respectively, of MYJ, and which shall
constitute the sole consideration to be distributed or paid to the common shareholders (although cash may be distributed in lieu of fractional common shares) and the VRDP Holders in respect of their common shares and VRDP Shares, respectively, and
(ii) the termination by MYJ of its registration under the Investment Company Act of 1940, as amended (the 1940 Act), and the liquidation, dissolution and termination of MYJ in accordance with its Charter and Maryland law (the
Reorganization).
Proposal 1(B): The VRDP Holders of MYJ are being asked to vote as a separate class on a proposal to approve the
Reorganization Agreement and the Reorganization.
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For Shareholders of the Acquiring Fund:
Proposal 1(C): The VRDP Holders of the Acquiring Fund are being asked to vote as a separate class on a proposal to approve the Reorganization Agreement
and the transactions contemplated therein, including the issuance of additional Acquiring Fund VRDP Shares.
Proposal 2: The Issuance of Additional
Acquiring Fund Common Shares
Proposal 2: The common shareholders and VRDP Holders of the Acquiring Fund are being asked to vote as a single
class on a proposal to approve the issuance of additional common shares of the Acquiring Fund in connection with the Reorganization Agreement (the Issuance).
It is expected that the effective date (the Closing Date) of the Reorganization will be sometime during the second quarter of 2022,
but they may be at a different time as described herein. The term Combined Fund refers to the Acquiring Fund as the surviving Fund after the consummation of the Reorganization.
The Board of each Fund has determined that including these proposals applicable to common shareholders of the Funds in one Joint Proxy Statement/Prospectus
will reduce costs and is in the best interest of each Funds shareholders.
Distribution to the shareholders of this Joint Proxy
Statement/Prospectus and the accompanying materials will commence on or about December 20, 2021.
Shareholders of record of each Fund as of the close of
business on December 7, 2021 (the Record Date) are entitled to notice of and to vote at the Special Meeting or any adjournment or postponement thereof.
Shareholders of each Fund are entitled to one vote for each common share or VRDP Share, as applicable (each, a Share), held, with no Shares having
cumulative voting rights. Preferred shareholders of each Fund will have equal voting rights with the common shareholders of such Fund with respect to the proposals that require the vote of the Funds VRDP Shares and common shares as a single
class. The quorum and voting requirements for each Fund are described in the section herein entitled Voting Information and Requirements.
This Joint Proxy Statement/Prospectus is only being delivered to the common shareholders of each Fund. Each Fund is separately soliciting the votes of its
respective preferred shareholders on each of the foregoing proposals that require the vote of preferred shareholders through a separate proxy statement and not through this Joint Proxy Statement/Prospectus. MYJ and the Acquiring Fund are each formed
as a Maryland corporation. Each of MYJ and the Acquiring Fund is a non-diversified, closed-end management investment company registered under the 1940 Act. The
Reorganization seeks to achieve certain economies of scale and other operational efficiencies by combining two funds that have similar investment objectives, investment strategies, policies and restrictions.
Assuming the Reorganization receives the necessary approvals, the Acquiring Fund will acquire substantially all of the assets and assume substantially all of
the liabilities of MYJ in exchange solely for newly issued common shares and VRDP Shares of the Acquiring Fund in the form of book-entry interests. The Acquiring Fund will list the newly issued common shares on the New York Stock Exchange
(NYSE). Such newly issued Acquiring Fund Shares will be distributed to MYJ shareholders (although cash may be distributed in lieu of fractional common shares) and MYJ will terminate its registration under the 1940 Act. MYJ will
liquidate, dissolve and terminate in accordance with its respective charter and Maryland law. The Acquiring Fund will continue to operate after the Reorganization as a registered, non-diversified, closed-end management investment company with the investment objective, investment strategies, investment policies and investment restrictions described in this Joint Proxy Statement/Prospectus.
The Fund(s) in which you owned Shares on the Record Date is named on the proxy card. If you owned Shares in both Funds on the Record Date, you will receive
more than one proxy card. Even if you plan to attend the Special Meeting, please sign, date and return EACH proxy card you receive or, if you provide voting instructions by telephone or via the Internet, please vote on each proposal affecting EACH
Fund you own. If you vote by telephone or via the Internet, you will be asked to enter a unique code that has been assigned to you, which is printed on your proxy card(s). This code is designed to confirm your identity, provide access into the
voting website and confirm that your voting instructions are properly recorded.
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All properly executed proxies received prior to the Special Meeting will be voted in accordance with the
instructions marked thereon or otherwise as provided therein. On any matter coming before the Special Meeting as to which a shareholder has specified a choice on that shareholders proxy, the Shares will be voted accordingly. If a proxy card is
properly executed and returned and no choice is specified with respect to a proposal, the Shares will be voted FOR the proposal. Shareholders who execute proxies or provide voting instructions by telephone or via the Internet may revoke
them with respect to a proposal at any time before a vote is taken on the proposal by filing with the applicable Fund a written notice of revocation (addressed to the Secretary of the Fund at the principal executive offices of the Fund at the New
York address provided herein), by delivering a duly executed proxy bearing a later date or by attending the Special Meeting and voting by ballot, in all cases prior to the exercise of the authority granted in the proxy card. Merely attending the
Special Meeting, however, will not revoke any previously executed proxy. If you hold Shares through a bank or other intermediary, please consult your bank or intermediary regarding your ability to revoke voting instructions after such instructions
have been provided.
If your shares in a Fund are registered in your name, you may attend and participate in the Special Meeting at
https://meetnow.global/M5YSR7R by entering the control number found in the shaded box on your proxy card on the date and time of the Special Meeting. You may vote during the Special Meeting by following the instructions that will be available
on the Special Meeting website during the Special Meeting.
The Special Meeting will provide shareholders with a meaningful opportunity to
participate, including the ability to ask questions of management. To support these efforts, the Funds will:
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Provide for shareholders to begin logging into the Special Meeting at 9:30 a.m. (Eastern time) on
February 4, 2022, thirty minutes in advance of the Special Meeting.
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Permit shareholders attending the Special Meeting to submit questions via live webcast during the Special
Meeting by following the instructions available on the meeting website during the Special Meeting. Questions relevant to Meeting matters will be answered during the Special Meeting, subject to time constraints.
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Engage with and respond to shareholders who ask questions relevant to Special Meeting matters that are not
answered during the Special Meeting due to time constraints.
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If you are a beneficial shareholder of a Fund (that is if you
hold your Fund shares through a bank, broker, financial intermediary or other nominee) and want to attend the Special Meeting you must register in advance of the Special Meeting. To register, you must submit proof of your proxy power (legal proxy),
which you can obtain from your financial intermediary or other nominee, reflecting your Fund holdings along with your name and email address to Georgeson LLC, each Funds tabulator. You may email an image of your legal proxy to
shareholdermeetings@computershare.com. Requests for registration must be received no later than 5:00 p.m. (Eastern time) three business days prior to the Special Meeting date. You will receive a confirmation email from Georgeson LLC of your
registration and a control number and security code that will allow you to vote at the Special Meeting.
Even if you plan to attend the Special
Meeting, please promptly follow the enclosed instructions to submit voting instructions by telephone or via the Internet. Alternatively, you may submit voting instructions by signing and dating each proxy card you receive, and if received by mail,
returning it in the accompanying postage-paid return envelope.
For information regarding how to access the Special Meeting, please contact Georgeson
LLC, the firm assisting us in the solicitation of proxies, toll free at 1-888-666-2580.
This Joint Proxy Statement/Prospectus sets forth concisely the information that common shareholders of each Fund should know before voting on the proposals
set forth herein. Please read it carefully and retain it for future reference. A Statement of Additional Information, dated [●], 2021, relating to this Joint Proxy Statement/Prospectus (the Statement of Additional Information) has
been filed with the United States Securities and Exchange Commission (the SEC) and is incorporated herein by reference. Copies of each Funds most recent annual report and semi-
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annual report can be obtained on a website maintained by BlackRock, Inc. (BlackRock) at www.blackrock.com. In addition, each Fund will furnish, without charge, a copy of the Statement
of Additional Information, or its most recent annual report or semi-annual report to any shareholder upon request. Any such request should be directed to BlackRock by calling (800) 882-0052 or by
writing to the respective Fund at 100 Bellevue Parkway, Wilmington, Delaware 19809. The Statement of Additional Information and the annual and semi-annual reports of each Fund are available on the EDGAR Database on the SECs website at
www.sec.gov. The address of the principal executive offices of the Funds is 100 Bellevue Parkway, Wilmington, Delaware 19809, and the telephone number is (800) 882-0052.
Each Fund is subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act) and the 1940 Act and, in
accordance therewith, file reports, proxy statements, proxy materials and other information with the SEC. Materials filed with the SEC can be downloaded from the SECs website at www.sec.gov. You may also request copies of these materials, upon
payment at the prescribed rates of a duplicating fee, by electronic request to the SECs e-mail address (publicinfo@sec.gov). Reports, proxy statements and other information concerning the Funds may also
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
BlackRock updates performance information and certain other data for
the Funds on a monthly basis on its website in the Closed-End Funds section of www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others
are advised to check the website for updated performance information and the release of other material information about the Funds. References to BlackRocks website are intended to allow investors public access to information regarding the
Funds and do not, and are not intended to, incorporate BlackRocks website in this Joint Proxy Statement/Prospectus.
Please note that only one copy
of shareholder documents, including annual or semi-annual reports and proxy materials, may be delivered to two or more shareholders of the Funds who share an address, unless the Funds have received instructions to the contrary. This practice is
commonly called householding and it is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. To
request a separate copy of any shareholder document or for instructions as to how to request a separate copy of these documents or as to how to request a single copy if multiple copies of these documents are received, shareholders should contact the
respective Fund at the address and phone number set forth above.
The common shares of BlackRock MuniHoldings Quality Fund, Inc. are listed on the NYSE
under the ticker symbol MUJ and will continue to be so listed after the completion of the Reorganization. The common shares of BlackRock MuniYield New Jersey Fund, Inc. are listed on the NYSE under the ticker symbol MYJ.
This Joint Proxy Statement/Prospectus serves as a prospectus of the Acquiring Fund in connection with the Issuance. No person has been authorized to give
any information or make any representation not contained in this Joint Proxy Statement/Prospectus and, if so given or made, such information or representation must not be relied upon as having been authorized. This Joint Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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SUMMARY
The following is a summary of certain information contained elsewhere in this Joint Proxy Statement/Prospectus and in the Statement of Additional
Information and is qualified in its entirety by reference to the more complete information contained in this Joint Proxy Statement/Prospectus and in the Statement of Additional Information. Shareholders should read the entire Joint Proxy
Statement/Prospectus carefully.
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The Reorganization
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Assuming the Reorganization receives the requisite shareholder approvals, as well as certain consents, confirmations and/or waivers from various third parties, including the liquidity provider with respect to the outstanding VRDP
Shares, the Acquiring Fund will acquire substantially all of the assets and assume substantially all of the liabilities of MYJ in exchange solely for newly issued Acquiring Fund Shares in the form of book-entry interests. The Acquiring Fund will
list the newly issued common shares on the NYSE. Such newly issued Acquiring Fund Shares will be distributed to MYJ shareholders (although cash may be distributed in lieu of fractional common shares) and MYJ will terminate its registration under the
1940 Act and liquidate, dissolve and terminate in accordance with its charter and Maryland law. The Acquiring Fund will continue to operate after the Reorganization as a registered, non-diversified, closed-end management investment company with the investment objective, investment strategies, investment policies and investment restrictions described in this Joint Proxy Statement/Prospectus.
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As a result of the Reorganization, each common shareholder of MYJ will own Acquiring Fund common shares that (except for cash payments received in lieu of fractional common shares) will have an aggregate NAV (not the market value)
immediately after the Closing Date equal to the aggregate NAV (not the market value) of that shareholders MYJ common shares immediately prior to the Closing Date. The aggregate NAV of the Fund immediately prior to the Reorganization will
reflect accrued expenses associated with the Reorganization. The value of the Funds net assets will be calculated net of the liquidation preference (including accumulated and unpaid dividends) of all outstanding VRDP Shares of the
Fund.
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On the Closing Date of the Reorganization, each outstanding VRDP Share of MYJ will, without any action on the part of the holder thereof, be exchanged for one newly issued VRDP Share of the Acquiring Fund. The terms of the
Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to
the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period
(including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on April 15, 2022, unless extended (as described
below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding.
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The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of
May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the VRDP Shares as a special rate
period subject to the restrictions and requirements set forth in the governing instrument for such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing
instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year special
rate period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless
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extended (each, a Special Rate Period). The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that
each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See
Information About the Preferred Shares of the Funds for additional information about the preferred shares of each Fund.
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Subject to the requisite approval of the shareholders of each Fund with respect to the Reorganization, as well as certain consents, confirmations and/or waivers from various third parties, including the liquidity provider with
respect to the outstanding VRDP Shares, it is expected that the Closing Date of the Reorganization will be sometime during the second quarter of 2022, but it may be at a different time as described herein.
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If the requisite shareholder approvals for the Reorganization are not obtained, or the Reorganization is not otherwise consummated, the Board of each Fund may take such actions as it deems in the best interests of the Fund,
including conducting additional solicitations with respect to the Reorganization or continuing to operate the Fund as a standalone Maryland corporation registered under the 1940 Act as a closed-end management
investment company advised by Investment Advisor. The Investment Advisor may, in connection with the ongoing management of the Fund and its product line, recommend alternative proposals to the Board of such Fund.
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Background and Reasons for the Reorganization
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The proposed Reorganization seeks to achieve certain economies of scale and other operational efficiencies by combining two funds that have similar investment objectives, investment strategies, policies and restrictions and are
managed by the same investment adviser.
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The proposed Reorganization is intended to result in the following potential benefits to common shareholders: (i) lower net total expenses (excluding interest expense) per Common Share for common shareholders of each Fund (as
common shareholders of the Combined Fund following the Reorganization) due to economies of scale resulting from the larger size of the Combined Fund; (ii) improved net earnings yield on NAV for common shareholders of the Acquiring Fund;
(iii) improved secondary market trading of the common shares of the Combined Fund; and (iv) operating and administrative efficiencies for the Combined Fund, including the potential for the following: (a) greater investment flexibility
and investment options; (b) greater diversification of portfolio investments; (c) the ability to trade in larger positions and more favorable transaction terms; (d) additional sources of leverage or more competitive leverage terms and
more favorable transaction terms; (e) benefits from having fewer closed-end funds offering similar products in the market, including an increased focus by investors on the remaining funds in the market
(including the Combined Fund) and additional research coverage; and (f) benefits from having fewer similar funds in the same fund complex, including a simplified operational model and a reduction in risk of operational, legal and financial
errors.
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The Board of each Fund, including the Board Members who are not interested persons of each Fund (as defined in the 1940 Act) (Independent Board Members), has unanimously approved the Reorganization,
concluding that the Reorganization is in the best interests of its Fund and that the interests of existing common shareholders and preferred shareholders of its Fund will not be diluted with respect to NAV and liquidation preference, respectively,
as a result of the Reorganization. As a result of the Reorganization, however, common and preferred shareholders of each Fund may hold a reduced percentage of ownership in the larger Combined Fund than they did in any of the individual Funds before
the Reorganization. Each Boards conclusion was based on each Board Members business judgment after consideration of all relevant factors taken as a whole with respect to its Fund and the Funds common and preferred shareholders,
although individual Board Members
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may have placed different weight on various factors and assigned different degrees of materiality to various factors. Please see Reasons for the Reorganization for additional information about the factors considered by
each Board.
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Net and Managed Assets
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As of December 6, 2021, MYJ had approximately $386.3 million in net assets and approximately $622.2 million in managed assets and the Acquiring Fund had approximately
$478.6 million in net assets and approximately $781.9 million in managed assets. Managed assets means the total assets of the relevant Fund, including any assets attributable to VRDP Shares and tender option bond
(TOB) trusts, minus the sum of accrued liabilities.
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Total Expenses and Management Fees
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As of July 31, 2021 for MYJ, the Acquiring Fund and the Combined Fund, the historical and pro forma Total Expense Ratios applicable to the Reorganization are as follows:
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MYJ
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Acquiring
Fund
(MUJ)
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Pro forma
Combined
Fund
(MYJ into
MUJ)
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1.39
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%
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1.44
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%
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1.36
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%
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Total Expenses means a Funds total annual operating expenses (including interest expense). Total
Expense Ratio means a Funds Total Expenses expressed as a percentage of its average net assets attributable to its common shares.
The Funds estimate that the completion of the Reorganization would result in a Total Expense Ratio (excluding interest expense) for
the Combined Fund of 0.86% on a historical and pro forma basis for the fiscal year ended July 31, 2021, representing a reduction in the Total Expense Ratio (excluding interest expense) for the common shareholders of MYJ and the
Acquiring Fund by 0.03% and 0.03%, respectively.
Each
Funds Total Expenses include interest expense associated with such Funds VRDP Shares. For the fiscal year ended July 31, 2021, the Total Expense Ratios (excluding interest expense) of MYJ and the Acquiring Fund were 0.89% and
0.89%, respectively.
The Funds estimate that the completion of
all of the Reorganization would result in a Total Expense Ratio (including interest expense) for the Combined Fund of 1.36% on a historical and pro forma basis for the fiscal year ended July 31, 2021, representing a reduction in
the Total Expense Ratio (including interest expense) for the common shareholders of MYJ and the Acquiring Fund by 0.03% and 0.08%, respectively.
The Combined Fund will have the same annual contractual investment management fee rate as MYJ and the Acquiring Fund. Each Fund currently
pays the Investment Advisor a monthly fee at an annual contractual investment management fee rate of 0.50% of the average daily value of its net assets. For purposes of calculating these fees, net assets means the total assets of each
Fund minus the sum of its accrued liabilities (which does not include liabilities represented by tender option bond (TOB) trusts and the liquidation preference of any outstanding preferred shares). It is understood that the liquidation
preference of any outstanding preferred shares (other than accumulated dividends) and TOB Trusts is not considered a liability in determining the relevant Funds NAV.
If the Reorganization is consummated, the annual contractual investment management fee rate of the Acquiring Fund will be the annual
contractual investment management fee rate of the Combined Fund, which will be 0.50% of the average daily net assets of the Combined Fund. The annual contractual investment management fee rate of the Combined Fund is the same as the annual
contractual investment management fee rate for each Fund. Please see Expense Table For Common Shareholders in the Joint Proxy Statement/Prospectus for additional information.
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There can be no assurance that future expenses of the Combined Fund will not increase or that any expense savings for any Fund will be realized as a result of the Reorganization.
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Earnings, Distributions and Undistributed Net Investment Income
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Earnings and Distribution Rate: The Combined Funds net earnings yield on NAV for common shareholders following the Reorganization is expected to be potentially higher than the current net earnings yield on NAV for the
Acquiring Fund and potentially the same as the current net earnings yield on NAV for MYJ. The distribution level of any fund is subject to change based upon a number of factors, including the current and projected level of the funds earnings,
and may fluctuate over time; thus, subject to a number of other factors, including the funds distribution policy, a higher net earnings profile may potentially have a positive impact on such funds distribution level over time. The
Combined Funds earnings and distribution rate on NAV will change over time, and depending on market conditions, may be higher or lower than each Funds earnings and distribution rate on NAV prior to the Reorganization. A Funds
earnings and net investment income are variables which depend on many factors, including its asset mix, portfolio turnover level, the amount of leverage utilized by the Fund, the costs of such leverage, the performance of its investments, the
movement of interest rates and general market conditions. There can be no assurance that the future earnings of a Fund, including the Combined Fund after the Reorganization, will remain constant.
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Distribution Policy: Each Fund intends to make regular monthly cash distributions of all or a portion of its net investment income to holders of such Funds common shares, except as described below under
Undistributed Net Investment Income. Each Fund intends to pay any capital gains distributions at least annually. A Funds net investment income or net realized capital gains may not be sufficient to support the level of
distributions paid. To the extent that distributions exceed a Funds current and accumulated earnings and profits in the current fiscal year, the excess may be treated as a return of capital. A return of capital distribution may involve a
return of the common shareholders original investment. Though not currently taxable, such a distribution may lower a common shareholders basis in such Fund, thus potentially subjecting the common shareholder to future tax consequences in
connection with the sale of Fund common shares, even if sold at a loss to the common shareholders original investment. See Dividends and DistributionsTax Treatment of Distributions. When total distributions exceed total
return performance for the period, the difference will reduce a Funds total assets and NAV and, therefore, could have the effect of increasing the Funds expense ratio and reducing the amount of assets the Fund has available for long-term
investment.
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Automatic Dividend Reinvestment: Common shareholders of each Fund will automatically have all dividends and distributions reinvested in common shares of such Fund in accordance with such Funds dividend reinvestment
plan, unless an election is made to receive cash by contacting the Reinvestment Plan Agent (as defined herein), at (800) 699-1236. See Automatic Dividend Reinvestment Plan.
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Undistributed Net Investment Income: If the Reorganization is approved by shareholders, then the greater of (1) substantially all of the undistributed net investment income (UNII), if any, or (2) the
monthly distribution of each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date (the Pre-Reorganization Declared UNII Distributions). The declaration
date, ex-dividend date (the Ex-Dividend Date) and record date of the Pre-Reorganization Declared UNII Distributions
will occur prior to the Closing Date. However, all or a significant portion of the Pre-Reorganization Declared UNII Distributions may be paid in one or more distributions to common shareholders of the Funds
entitled to such Pre-Reorganization Declared UNII Distributions after the Closing Date. Former MYJ shareholders entitled to such Pre-Reorganization Declared UNII
Distributions paid after the Closing Date will receive such distributions in cash.
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Persons who purchase common shares of any of the Funds on or after the Ex-Dividend Date for the Pre-Reorganization Declared UNII Distributions should
not expect to receive any distributions from any Fund until distributions, if any, are declared by the Board of the Combined Fund and paid to shareholders entitled to any such distributions. No such distributions are expected to be paid by the
Combined Fund until at least approximately one month following the Closing Date.
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Additionally, the Acquiring Fund, in order to seek to provide its common shareholders with distribution rate stability, may include in its Pre-Reorganization Declared UNII Distribution amounts
in excess of its undistributed net investment income and net investment income accrued through the Closing Date. This would result in the Acquiring Fund issuing incrementally more common shares in the Reorganization since its NAV as of the business
day prior to the Closing Date of the Reorganization (the Valuation Time) would be lower relative to a scenario where such excess amounts were not included in the Acquiring Funds
Pre-Reorganization Declared UNII Distribution.
|
|
|
|
|
The Combined Fund is anticipated to retain a lower UNII balance after the Reorganization than the Acquiring Fund prior to the Reorganization. The lower anticipated UNII balance for the Combined Fund relative to the UNII
balance of the Acquiring Fund poses risks for shareholders of the Combined Fund. UNII balances, in part, support the level of a funds regular distributions and provide a cushion in the event a funds net earnings for a particular
distribution period are insufficient to support the level of its regular distribution for that period. If the Combined Funds net earnings are below the level of its current distribution rate, the Combined Funds UNII balance could be more
likely to contribute to a determination to decrease the Combined Funds distribution rate, or could make it more likely that the Combined Fund will make distributions consisting in part of a return of capital to maintain the level of its
regular distributions. See Dividends and Distributions. Moreover, because a funds UNII balance, in part, supports the level of a funds regular distributions, the UNII balance of the Combined Fund could impact the trading
market for the Combined Funds common shares and the magnitude of the trading discount to NAV of the Combined Funds common shares. However, the Combined Fund is anticipated to benefit from a lower expense ratio, a potentially higher net
earnings profile (compared to the Acquiring Fund) and other anticipated benefits of economies of scale as discussed herein. Each Fund, including the Combined Fund, reserves the right to change its distribution policy with respect to common share
distributions and the basis for establishing the rate of its distributions for the common shares at any time and may do so without prior notice to common shareholders. The payment of any distributions by any Fund, including the Combined Fund, is
subject to, and will only be made when, as, and if, declared by the Board of such Fund. There is no assurance the Board of any Fund, including the Combined Fund, will declare any distributions for such Fund.
|
|
|
|
|
To the extent any Pre-Reorganization Declared UNII Distribution is not an exempt interest dividend (as defined in the Internal Revenue Code of 1986, as amended (the
(Code)), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
|
|
|
Premium/ Discount to NAV of Common Shares
|
|
The common shares of each Fund have historically traded at both a premium and a discount. The table below sets forth the market price, NAV, and the premium/discount to NAV of each Fund as of December 6,
2021.
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Market Price
|
|
NAV
|
|
|
Premium/(Discount)
to NAV
|
MYJ
|
|
$15.84
|
|
$
|
16.01
|
|
|
(1.1)%
|
Acquiring Fund (MUJ)
|
|
$15.48
|
|
$
|
15.91
|
|
|
(2.7)%
|
5
|
|
|
|
|
To the extent MYJs common shares are trading at a wider discount (or a narrower premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders would have the potential for an economic
benefit by the narrowing of the discount or widening of the premium. To the extent MYJs common shares are trading at a narrower discount (or wider premium) than the Acquiring Fund at the time of the Reorganization, MYJs common
shareholders may be negatively impacted if the Reorganization is consummated. Acquiring Fund common shareholders would only benefit from a premium/discount perspective to the extent the post-Reorganization discount (or premium) of the Acquiring Fund
common shares improves.
|
|
|
|
|
There can be no assurance that, after the Reorganization, common shares of the Combined Fund will trade at a narrower discount to NAV or wider premium to NAV than the common shares of any individual Fund prior to the Reorganization.
Upon consummation of the Reorganization, the Combined Fund common shares may trade at a price that is less than the current market price of Acquiring Fund common shares. In the Reorganization, common shareholders of MYJ will receive Acquiring Fund
common shares based on the relative NAVs (not the market values) of the respective Funds common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of the Fund prior to the
Reorganization.
|
|
|
Preferred Shares
|
|
As of December 6, 2021, MYJ had 1,800 Series W-7 VRDP Shares outstanding and the Acquiring Fund had 2,371 Series W-7 VRDP
Shares outstanding.
|
|
|
|
|
For the fiscal year ended July 31, 2021, the annualized dividend rates for the VRDP Shares of MYJ and the Acquiring Fund were 0.82% and 0.91%, respectively.
|
|
|
|
|
In connection with the Reorganization, the Acquiring Fund expects to issue 1,800 additional VRDP Shares to MYJ VRDP Holders. Following the completion of the Reorganization, the Combined Fund is expected to have 4,171 VRDP Shares
outstanding.
|
|
|
|
|
Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a
one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and
unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in exchange for each Target
Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares may be of the same series as the Acquiring Funds Series W-7 VRDP
Shares or a substantially identical series. No fractional Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring
Funds outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the
Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such
special rate period will terminate on April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently
outstanding.
|
|
|
|
|
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of
May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the
|
6
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|
|
|
|
VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the
terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the
Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless extended. The terms currently applicable to the VRDP Shares of the Acquiring
Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap
Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the Funds for additional information about the preferred shares of each
Fund.
|
|
|
|
|
None of the expenses of the Reorganization are expected to be borne by the VRDP Holders of the Funds. See SummaryExpenses of the Reorganization for additional information.
|
|
|
|
|
Following the Reorganization, the VRDP Holders of each Fund will be VRDP Holders of the larger Combined Fund that will have a larger asset base and more VRDP Shares outstanding than either Fund individually. With
respect to matters requiring all preferred shareholders to vote separately or common and preferred shareholders to vote together as a single class, following the Reorganization, VRDP Holders of the Combined Fund will hold a smaller percentage of the
outstanding preferred shares of the Combined Fund as compared to their percentage holdings of outstanding preferred shares of their respective Fund prior to the Reorganization.
|
|
|
|
|
Please see Information about the Preferred Shares of the Funds for additional information.
|
|
|
Expenses of the Reorganization
|
|
Common shareholders of each Fund will indirectly bear a portion of the costs of the Reorganization. For MYJ, the expenses of the Reorganization are estimated to be approximately $366,537, of which the Investment Advisor will bear
approximately $129,586. For the Acquiring Fund, the expenses of the Reorganization are estimated to be approximately $357,561, of which the Investment Advisor will bear approximately $161,495. The actual costs associated with the Reorganization may
be more or less than the estimated costs discussed herein.
|
|
|
Appraisal Rights
|
|
Under Maryland law, except in limited circumstances, stockholders are not entitled to demand the fair value of their shares in connection with a reorganization if any shares of the class or series of the stock are listed on a
national securities exchange, such as the common shares of MYJ and the Acquiring Fund, on the Record Date.
|
|
|
U.S. Federal Income Tax Consequences of the Reorganization
|
|
The Reorganization is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code. If the Reorganization so qualifies, in general, common shareholders of MYJ will recognize no gain or
loss for U.S. federal income tax purposes upon the exchange of their common shares for Acquiring Fund Shares pursuant to the Reorganization (except with respect to cash received in lieu of fractional common shares). Additionally, MYJ will recognize
no gain or loss for U.S. federal income tax purposes by reason of the Reorganization. Neither the Acquiring Fund nor its shareholders will recognize any gain or loss for U.S. federal income tax purposes pursuant to the Reorganization.
|
|
|
|
|
As discussed above, shareholders of each Fund may receive distributions prior to, or after, the consummation of the Reorganization, including distributions attributable to their proportionate share of each Funds undistributed
net investment income declared prior to the consummation of the Reorganization or the Combined Fund built-in gains, if any,
|
7
|
|
|
|
|
recognized after the Reorganization, when such income and gains are eventually distributed by the Combined Fund. To the extent that such a distribution is not an exempt interest dividend (as defined in the Code), the
distribution may be taxable to shareholders for U.S. federal income tax purposes.
|
|
|
|
|
The Funds shareholders should consult their own tax advisers regarding the U.S. federal income tax consequences of the Reorganization, as well as the effects of state, local and non-U.S.
tax laws, including possible changes in tax laws.
|
|
|
General Information and History
|
|
MYJ and the Acquiring Fund are each formed as a Maryland corporation. Each of MYJ and the Acquiring Fund is a non-diversified, closed-end management
investment company registered under the 1940 Act.
|
|
|
|
|
Each Funds principal office is located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and its telephone number is (800) 882-0052.
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|
|
|
|
Each of the Acquiring Fund and MYJ have a July 31 fiscal year end.
|
|
|
|
|
The Acquiring Funds common shares are listed on the NYSE as MUJ.
|
|
|
|
|
MYJs common shares are listed on the NYSE as MYJ.
|
|
|
|
|
Each of MYJ and the Acquiring Fund has VRDP Shares outstanding. Each Funds VRDP Shares are not listed on a national stock exchange and have not been registered under the Securities Act of 1933, as amended (the Securities
Act), or any state securities laws, and unless so registered, may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities laws.
|
|
|
Investment Objective and Policies
|
|
The investment objective, significant investment strategies and operating policies, and investment restrictions of the Combined Fund will be those of the Acquiring Fund, which are similar to those of MYJ, although there are some
differences.
|
|
|
|
|
Investment Objective:
MYJs investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes and New Jersey personal
income tax as is consistent with its investment policies and prudent investment management.
The Acquiring Funds investment objective is to provide shareholders with current income exempt from U.S. federal income tax and New Jersey personal
income taxes.
|
|
|
|
|
Municipal Bonds:
MYJ seeks to achieve its investment objective by investing at least 80% of an aggregate of its net assets (including proceeds from the issuance of any
preferred stock) and the proceeds of any borrowings for investment purposes, in a portfolio of municipal obligations issued by or on behalf of the State of New Jersey, its political subdivisions, agencies and instrumentalities and by other
qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes (except that the interest may be includable in taxable income for purposes of
the federal alternative minimum tax) and exempt from New Jersey personal income tax (MYJ New Jersey Municipal Bonds).
|
8
|
|
|
|
|
The Acquiring Fund seeks to achieve its investment objective by investing substantially all (at least 80%) of its assets in municipal
obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from federal income tax and New Jersey personal income taxes (MUJ New Jersey Municipal Bonds), except at times when the Investment Advisor
considers that MUJ New Jersey Municipal Bonds of sufficient quantity and quality are unavailable at suitable prices.
Please see below a comparison of the approximate amount invested in municipal bonds as a percentage of total assets for (i) each Fund as of July 31,
2021, and (ii) the Combined Fund, assuming the Reorganization was consummated as of July 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MYJ
|
|
Acquiring
Fund
(MUJ)
|
|
|
Pro
Forma
Combined
Fund
(MYJ into
MUJ)
|
|
|
|
|
99%
|
|
|
99
|
%
|
|
|
99
|
%
|
|
|
|
|
|
Investment Grade Securities:
|
|
|
|
|
Under normal market conditions, MYJ expects to invest primarily in a portfolio of long-term municipal obligations issued by or on behalf
of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S.
federal income tax purposes but is not exempt from gross income for New Jersey personal income tax purposes (MYJ Municipal Bonds) that are commonly referred to as investment grade securities, or are considered by the
Investment Advisor to be of comparable quality, at the time of investment.
MUJ
invests in investment grade MUJ New Jersey Municipal Bonds and municipal obligations exempt from federal income taxes but not New Jersey personal income taxes (MUJ Municipal Bonds) or, if unrated, those that are considered to be of
comparable quality by the Investment Advisor.
Investment grade quality means that
such bonds are rated, at the time of investment, within the four highest grades (Baa or BBB or better by Moodys Investor Service, Inc. (Moodys), S&P Global Ratings (S&P) or Fitch Ratings
(Fitch)) or are unrated but judged to be of comparable quality by the Investment Advisor.
|
|
|
|
|
Bond Maturity:
|
|
|
|
|
For MYJ, the average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and
market conditions by the Investment Advisor. The Funds portfolio at any given time may include long-term, intermediate-term and short-term municipal bonds.
The Acquiring Fund invests primarily in long-term MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with a maturity of more than ten years. However, the
Acquiring Fund may also invest in intermediate-term MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with a maturity of between three years and ten years. The Fund may also invest in short-term
tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Investments in such short-term securities or cash will not exceed 20% of the Acquiring Funds total assets,
except during interim periods pending investment of the net proceeds from public offerings of the Acquiring Funds securities or
|
9
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|
|
|
|
in anticipation of the repurchase or redemption of the Acquiring Funds securities and temporary periods when, in the opinion of the Investment Advisor, prevailing market or economic conditions warrant. Under normal
circumstances, at least 80% of the Acquiring Funds assets will be invested in municipal obligations with remaining maturities of one year or more.
|
|
|
|
|
Leverage:
|
|
|
|
|
Each Fund utilizes leverage through the issuance of VRDP Shares and TOBs. See The Acquiring Funds InvestmentsLeverage; General Risks of Investing in the Acquiring FundLeverage Risk; and
General Risks of Investing in the Acquiring FundTender Option Bond Risk. The Acquiring Fund is expected to continue to leverage its assets through the use of VRDP Shares and TOBs after the Closing Date of the Reorganization. After
the consummation of the Reorganization, common shareholders of the Acquiring Fund, including former Target Fund common shareholders, will bear the leverage costs associated with the Acquiring Fund VRDP Shares and will be subject to the terms of the
Acquiring Fund VRDP Shares, including that the Acquiring Fund VRDP Shares will be senior in priority to the Acquiring Fund common shares as to the payment of dividends and the distribution of assets upon dissolution liquidation or winding up of the
affairs of the Acquiring Fund. Please see Information about the Preferred Shares of the Funds for additional information about the preferred shares of each Fund.
|
|
|
|
|
The annualized dividend rates for the preferred shares for each Funds most recent fiscal year end were as follows:
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Preferred Shares
|
|
|
Rate
|
|
MYJ
|
|
|
VRDP Shares
|
|
|
|
0.82
|
%
|
Acquiring Fund (MUJ)
|
|
|
VRDP Shares
|
|
|
|
0.91
|
%
|
|
|
|
|
|
Please see below a comparison of certain important ratios related to (i) each Funds use of leverage as of December 6, 2021, and (ii) the Combined Funds estimated use of leverage,
assuming the Reorganization had taken place as of July 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
MYJ
|
|
|
Acquiring
Fund
(MUJ)
|
|
|
Pro forma
Combined
Fund
(MYJ into
MUJ)
|
|
|
|
Asset Coverage Ratio
|
|
|
314.6
|
%
|
|
|
301.9
|
%
|
|
|
307.4
|
%
|
Regulatory Leverage Ratio(1)
|
|
|
31.8
|
%
|
|
|
33.1
|
%
|
|
|
32.5
|
%
|
Effective Leverage Ratio(2)
|
|
|
38
|
%
|
|
|
38.9
|
%
|
|
|
38.5
|
%
|
|
(1)
|
Regulatory leverage consists of preferred shares issued by the Fund, which is a part of the Funds capital
structure. Regulatory leverage is sometimes referred to as 1940 Act Leverage and is subject to asset coverage limits set forth in the 1940 Act.
|
|
(2)
|
Effective leverage is a Funds effective economic leverage, and includes both regulatory leverage and the
leverage effects of certain derivative investments in the Funds portfolio. Currently, the leverage effects of TOB inverse floater holdings, in addition to any regulatory leverage, are included in effective leverage ratios.
|
|
|
|
Fund Management
|
|
The Board of each Fund is responsible for the overall supervision of the operations of its respective Fund and performs the various duties imposed on the trustees of investment companies by the 1940 Act and under applicable state
law. Each Fund has the same Board Members and officers.
|
10
|
|
|
Investment Advisor
|
|
BlackRock Advisors, LLC serves as the investment adviser for each Fund and is expected to continue to serve as investment adviser for the Combined Fund.
|
|
|
Portfolio Management Team
|
|
MYJ and the Acquiring Fund are managed by a team of investment professionals led by Phillip Soccio, CFA and Theodore R. Jaeckel, Jr., CFA. Following the Reorganization, it is expected that the Combined Fund will be managed by a team
of investment professionals lead by Phillip Soccio, CFA, Theodore R. Jaeckel, Jr., CFA and Christian Romaglino.
|
|
|
Other Service Providers
|
|
The other professional service providers for the Funds are or will be as follows:
|
|
|
|
|
|
|
|
Service
|
|
Service Providers to the Funds
|
|
|
Accounting Agent
|
|
State Street Bank and Trust Company
|
|
|
|
|
|
Custodian
|
|
State Street Bank and Trust Company
|
|
|
|
|
|
Transfer Agent, Dividend Disbursing Agent and Registrar
|
|
Computershare Trust Company, N.A.
|
|
|
|
|
|
Liquidity Provider to Acquiring Fund VRDP Shares
|
|
Bank of America, N.A.
|
|
|
|
|
|
Remarketing Agent to Acquiring Fund VRDP Shares
|
|
BofA Securities, Inc.
|
|
|
|
|
|
Liquidity Provider to MYJ VRDP Shares
|
|
Wells Fargo Bank, N.A.
|
|
|
|
|
|
Remarketing Agent to MYJ VRDP Shares
|
|
Wells Fargo Securities, LLC
|
|
|
|
|
|
Tender and Paying Agent to VRDP Shares
|
|
The Bank of New York Mellon
|
|
|
|
|
|
Independent Registered Public Accounting Firm
|
|
Deloitte & Touche LLP
|
|
|
|
|
|
Fund Counsel
|
|
Willkie Farr & Gallagher LLP
|
|
|
|
|
|
Counsel to the Independent Board Members
|
|
Stradley Ronon Stevens & Young, LLP
|
11
EXPENSE TABLE FOR COMMON SHAREHOLDERS
The purpose of the comparative fee table below is to assist shareholders of each Fund in understanding the various costs and expenses of investing in common
shares of each Fund and Combined Fund. The information in the table reflects (i) the fees and expenses incurred by MYJ and the Acquiring Fund during the fiscal year ended July 31, 2021 (unaudited) and (ii) the pro forma
expenses of the Combined Fund for the fiscal year ended July 31, 2021, for the Combined Fund, assuming the Reorganization had taken place on August 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MYJ
|
|
|
Acquiring Fund
(MUJ)
|
|
|
Combined Fund
(MYJ into MUJ)
|
|
Shareholder Transaction Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Sales Load (as a percentage of the offering price) imposed on purchases of common shares(1)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
Dividend Reinvestment Plan Fees(2)
|
|
|
$0.02 per share for
open market
purchases
of common
shares
|
|
|
|
$0.02 per share for
open market
purchases
of common
shares
|
|
|
|
$0.02 per share
for open
market
purchases
of common
shares
|
|
Annual Total Expenses (as a percentage of average net assets attributable to common
shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management Fees(3)(4)
|
|
|
0.81%
|
|
|
|
0.81%
|
|
|
|
0.81%
|
|
Other Expenses
|
|
|
0.08%
|
|
|
|
0.08%
|
|
|
|
0.05%
|
|
Interest Expense(5)
|
|
|
0.50%
|
|
|
|
0.55%
|
|
|
|
0.50%
|
|
Total Annual Fund Operating
Expenses(5)
|
|
|
1.39%
|
|
|
|
1.44%
|
|
|
|
1.36%
|
|
(1)
|
No sales load will be charged in connection with the issuance of Acquiring Fund common shares as part of the
Reorganization. Common shares are not available for purchase from the Funds but may be purchased on the NYSE through a broker-dealer subject to individually negotiated commission rates. Common shares purchased in the secondary market may be subject
to brokerage commissions or other charges.
|
(2)
|
The Reinvestment Plan Agents fees for the handling of the reinvestment of dividends will be paid by the
Fund. However, you will pay a $0.02 per share fee incurred in connection with open-market purchases, which will be deducted from the value of the dividend. Participants in MYJ and the Acquiring Fund that request a sale of shares
are subject to a $0.02 per share sold brokerage commission. Per share fees include any applicable brokerage commissions the Reinvestment Plan Agent is required to pay. See Automatic Dividend Reinvestment Plan for additional information.
|
(3)
|
Each Fund currently pays the Investment Advisor a monthly fee at an annual contractual investment management fee
rate of 0.50% of the average daily value of its net assets. For purposes of calculating these fees, net assets means the total assets of the relevant 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). If the Reorganization is consummated, the annual contractual investment management fee rate of the Acquiring Fund will be the annual contractual
investment management fee rate of the Combined Fund, which will be 0.50% of the average daily net assets of the Combined Fund. The annual contractual investment management fee rate of the Combined Fund represents no change in the annual contractual
investment management fee rate for each Fund.
|
(4)
|
Each Fund and the Investment Advisor have entered into a fee waiver agreement (the Fee Waiver
Agreement), pursuant to which the Investment Advisor has contractually agreed to waive the management fee with respect to any portion of each Funds assets attributable to investments in any equity and fixed-income mutual funds and
exchange-traded funds managed by the Investment Advisor or its affiliates that have a contractual fee, through June 30, 2023. In addition, pursuant to the Fee Waiver Agreement, the Investment Advisor has contractually agreed to waive its
management fees by the amount of investment advisory fees each Fund pays to the Investment Advisor indirectly through its investment in money market funds managed by the Investment Advisor or its affiliates, through June 30, 2023. The Fee
Waiver Agreement may be terminated at any time, without the payment of any penalty, only by the Funds (upon the vote of a majority of the Independent Board Members or a majority of the outstanding voting securities of each Fund), upon 90 days
written notice by each Fund to the Investment Advisor.
|
(5)
|
The total expense table includes interest expense associated with the Funds investments in TOBs (also
known as inverse floaters). Although such interest expense is actually paid by special purpose vehicles in which the Funds invest, they are recorded on the Funds financial statements for accounting purposes. The total expense table
also includes, in interest expense, dividends associated with the VRDP Shares because the VRDP Shares are considered debt of the Funds for financial reporting purposes.
|
12
|
Each Fund uses leverage to seek to enhance its returns to common shareholders. This leverage generally takes two
forms: the issuance of preferred shares and investment in TOBs. Both forms of leverage benefit common shareholders if the cost of the leverage is lower than the returns earned by a Fund when it invests the proceeds from the leverage. In order to
help you better understand the costs associated with the Funds leverage strategy, the Total Annual Fund Operating Expenses (excluding interest expense) for the Funds are presented below:
|
|
|
|
|
|
MYJ
|
|
Acquiring Fund
(MUJ)
|
|
Pro Forma
Combined Fund
(MYJ into MUJ)
|
0.89%
|
|
0.89%
|
|
0.86%
|
The following example is intended to help you compare the costs of investing in the common shares of the Combined Fund pro
forma if the Reorganization is completed with the costs of investing MYJ and the Acquiring Fund without the Reorganization. An investor in common shares would pay the following expenses on a $1,000 investment, assuming (1) the Total
Annual Fund Operating Expenses for each Fund set forth in the total expenses table above and (2) a 5% annual return throughout the period:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
MYJ
|
|
$
|
14
|
|
|
$
|
44
|
|
|
$
|
76
|
|
|
$
|
167
|
|
Acquiring Fund (MUJ)
|
|
$
|
15
|
|
|
$
|
46
|
|
|
$
|
79
|
|
|
$
|
172
|
|
Pro forma Combined Fund (MYJ into MUJ)
|
|
$
|
14
|
|
|
$
|
43
|
|
|
$
|
74
|
|
|
$
|
164
|
|
The examples set forth above assume common shares of each Fund were owned as of the completion of the Reorganization and the
reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by SEC regulations. The examples should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or
annual rates of return may be more or less than those assumed for purposes of the examples.
Common shareholders of each Fund will indirectly bear a
portion of the costs of the Reorganization. For MYJ, the expenses of the Reorganization are estimated to be approximately $366,537, of which the Investment Advisor will bear approximately $129,586. For the Acquiring Fund, the expenses of the
Reorganization are estimated to be approximately $357,561, of which the Investment Advisor will bear approximately $161,495. The actual costs associated with the Reorganization may be more or less than the estimated costs discussed herein.
VRDP Holders are not expected to bear any costs of the Reorganization.
13
RISK FACTORS AND SPECIAL CONSIDERATIONS
Comparison of Risks
The
Combined Fund will be managed in accordance with the same investment objective and investment strategies and policies, and subject to the same risks, as the Acquiring Fund. The Funds have similar investment objectives, investment strategies,
policies and restrictions and are subject to similar investment risks.
Each Fund utilizes leverage through the issuance of VRDP Shares and TOBs. See
The Acquiring Funds InvestmentsLeverage; General Risks of Investing in the Acquiring FundLeverage Risk; and General Risks of Investing in the Acquiring FundTender Option Bond Risk. The
Acquiring Fund is expected to continue to leverage its assets through the use of VRDP Shares and TOBs after the Closing Date of the Reorganization. After the consummation of the Reorganization, common shareholders of the Acquiring Fund, including
former Target Fund common shareholders, will bear the leverage costs associated with the Acquiring Fund VRDP Shares and will be subject to the terms of the Acquiring Fund VRDP Shares, including that the Acquiring Fund VRDP Shares will be senior in
priority to the Acquiring Fund common shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. Please see Information about the Preferred Shares of
the Funds for additional information about the preferred shares of each Fund.
Risks that predominately affect the common shares of the Funds
include risks associated with municipal obligations, including New Jersey municipal obligations, such as interest rate risk, credit risk, non-diversification risk and leverage risk. In addition, as
exchange-traded closed-end funds, the Funds are subject to the risk that the Funds common shares may trade at a discount from the Funds NAV. Accordingly, the Funds are primarily designed for
long-term investors and should not be considered a vehicle for trading purposes. In the normal course of business, each Fund invests in securities and enters 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; pandemics, epidemics and other global health events; 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.
Risk is inherent in all investing. An investment in the common shares of the Acquiring Fund should not be considered a complete investment program. Each
shareholder should take into account the Acquiring Funds investment objective as well as the shareholders other investments when considering an investment in the Acquiring Fund. You may lose part or all of your investment in the
Acquiring Fund or your investment may not perform as well as other similar investments.
Risks Related to the Reorganization
Expenses
While the Funds currently estimate that
the Reorganization will result in reduced aggregate expenses of the Combined Fund by approximately $259,724 per year, the realization of these reduced expenses will not affect common shareholders of the Funds proportionately, and may take longer
than expected to be realized or may not be realized at all.
Please see the Expense Table for Common Shareholders for additional
information about the Funds expenses.
Earnings and Distribution Rate.
The Combined Funds net earnings yield on NAV for common shareholders following the Reorganization is expected to be potentially higher than the current
net earnings yield on NAV for the Acquiring Fund and potentially the same as the current net earnings yield on NAV for MYJ. The distribution level of any fund is subject to change based upon
14
a number of factors, including the current and projected level of the funds earnings, and may fluctuate over time; thus, subject to a number of other factors, including the funds
distribution policy, a higher net earnings profile may potentially have a positive impact on such funds distribution level over time. The Combined Funds earnings and distribution rate on NAV will change over time, and depending on market
conditions, may be higher or lower than each Funds earnings and distribution rate on NAV prior to the Reorganization. A Funds earnings and net investment income are variables which depend on many factors, including its asset mix,
portfolio turnover level, the amount of leverage utilized by the Fund, the costs of such leverage, the performance of its investments, the movement of interest rates and general market conditions. There can be no assurance that the future earnings
of a Fund, including the Combined Fund after the Reorganization, will remain constant.
Undistributed Net Investment Income
If the Reorganization is approved by shareholders, then the greater of (1) substantially all of the undistributed net investment income (previously
defined as UNII), if any, or (2) the monthly distribution of each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date (the
Pre-Reorganization Declared UNII Distributions). The declaration date, ex-dividend date (the Ex-Dividend
Date) and record date of the Pre-Reorganization Declared UNII Distributions will occur prior to the Closing Date. However, all or a significant portion of the
Pre-Reorganization Declared UNII Distributions may be paid in one or more distributions to common shareholders of the Funds entitled to such Pre-Reorganization Declared
UNII Distributions after the Closing Date. Former MYJ shareholders entitled to such Pre-Reorganization Declared UNII Distributions paid after the Closing Date will receive such distributions in cash.
Persons who purchase common shares of any of the Funds on or after the Ex-Dividend Date for the Pre-Reorganization Declared UNII Distributions should not expect to receive any distributions from any Fund until distributions, if any, are declared by the Board of the Combined Fund and paid to shareholders
entitled to any such distributions. No such distributions are expected to be paid by the Combined Fund until at least approximately one month following the Closing Date.
Additionally, the Acquiring Fund, in order to seek to provide its common shareholders with distribution rate stability, may include in its Pre-Reorganization Declared UNII Distribution amounts in excess of its undistributed net investment income and net investment income accrued through the Closing Date. This would result in the Acquiring Fund issuing
incrementally more common shares in the Reorganization since its NAV as of the Valuation Time would be lower relative to a scenario where such excess amounts were not included in the Acquiring Funds
Pre-Reorganization Declared UNII Distribution.
The Combined Fund is anticipated to retain a lower UNII balance
after the Reorganization than the Acquiring Fund prior to the Reorganization. The lower anticipated UNII balance for the Combined Fund relative to the UNII balance of the Acquiring Fund poses risks for shareholders of the Combined Fund. UNII
balances, in part, support the level of a funds regular distributions and provide a cushion in the event a funds net earnings for a particular distribution period are insufficient to support the level of its regular distribution for that
period. If the Combined Funds net earnings are below the level of its current distribution rate, the Combined Funds UNII balance could be more likely to contribute to a determination to decrease the Combined Funds distribution
rate, or could make it more likely that the Combined Fund will make distributions consisting in part of a return of capital to maintain the level of its regular distributions. See Dividends and Distributions. Moreover, because a
funds UNII balance, in part, supports the level of a funds regular distributions, the UNII balance of the Combined Fund could impact the trading market for the Combined Funds common shares and the magnitude of the trading discount
to NAV of the Combined Funds common shares. However, the Combined Fund is anticipated to benefit from a lower expense ratio, a potentially higher net earnings profile (compared to the Acquiring Fund) and other anticipated benefits of economies
of scale as discussed herein. Each Fund, including the Combined Fund, reserves the right to change its distribution policy with respect to common share distributions and the basis for establishing the rate of its distributions for the common shares
at any time and may do so without prior notice to common shareholders. The payment of any distributions by any Fund, including the Combined Fund, is subject to, and will only be made when, as, and if, declared by the Board of such Fund. There is no
assurance the Board of any Fund, including the Combined Fund, will declare any distributions for such Fund.
15
To the extent any Pre-Reorganization Declared UNII Distribution is not an
exempt interest dividend (as defined in the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
Premium/Discount to NAV
As with any capital stock, the
price of each Funds common shares will fluctuate based on market conditions and other factors. If common shares are sold, the price received may be more or less than the original investment. Each Funds common shares are designed for
long-term investors and should not be treated as trading vehicles. Shares of closed-end management investment companies frequently trade at a discount from their NAV. This risk may be greater for investors who
sell their common shares in a relatively short period of time after the completion of the Reorganization.
The common shares of each Fund have
historically traded at both a premium and a discount. The table below sets forth the market price, NAV, and the premium/discount to NAV of each Fund as of December 6, 2021.
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|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Market Price
|
|
|
NAV
|
|
|
Premium/(Discount) to
NAV
|
|
MYJ
|
|
$
|
15.84
|
|
|
$
|
16.01
|
|
|
|
(1.1
|
)%
|
Acquiring Fund (MUJ)
|
|
$
|
15.48
|
|
|
$
|
15.91
|
|
|
|
(2.7
|
)%
|
To the extent MYJs common shares are trading at a wider discount (or a narrower premium) than the Acquiring Fund at
the time of the Reorganization, MYJs common shareholders would have the potential for an economic benefit by the narrowing of the discount or widening of the premium. To the extent MYJs common shares are trading at a narrower discount
(or wider premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders may be negatively impacted if the Reorganization is consummated. Acquiring Fund common shareholders would only benefit from a
premium/discount perspective to the extent the post-Reorganization discount (or premium) of the Acquiring Fund common shares improves.
There can be no
assurance that, after the Reorganization, common shares of the Combined Fund will trade at a narrower discount to NAV or wider premium to NAV than the common shares of any individual Fund prior to the Reorganization. Upon consummation of the
Reorganization, the Combined Fund common shares may trade at a price that is less than the current market price of Acquiring Fund common shares. In the Reorganization, common shareholders of MYJ will receive Acquiring Fund common shares based on the
relative NAVs (not the market values) of the respective Funds common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of each respective Fund prior to the Reorganization.
Tax Considerations
The Reorganization is intended
to qualify as a reorganization within the meaning of Section 368(a) of the Code. If the Reorganization so qualifies, in general, common shareholders of MYJ will recognize no gain or loss for U.S. federal income tax purposes upon the
exchange of their common shares for Acquiring Fund Shares pursuant to the Reorganization (except with respect to cash received in lieu of fractional common shares). Additionally, MYJ will recognize no gain or loss for U.S. federal income tax
purposes by reason of the Reorganization. Neither the Acquiring Fund nor its shareholders will recognize any gain or loss for U.S. federal income tax purposes pursuant to the Reorganization.
As discussed above, shareholders of each Fund may receive distributions prior to, or after, the consummation of the Reorganization, including distributions
attributable to their proportionate share of each Funds undistributed net investment income declared prior to the consummation of the Reorganization or the Combined Fund built-in gains, if any,
recognized after the Reorganization, when such income and gains are eventually distributed by the Combined Fund. To the extent that such a distribution is not an exempt interest dividend (as defined in the Code), the distribution may be
taxable to shareholders for U.S. federal income tax purposes.
The Funds shareholders should consult their own tax advisers regarding the U.S.
federal income tax consequences of the Reorganization, as well as the effects of state, local and non-U.S. tax laws, including possible changes in tax laws.
16
See U.S. Federal Income Tax Consequences of the Reorganization for a summary of U.S. federal income
tax consequences generally applicable to the Reorganization.
General Risks of Investing in the Acquiring Fund
Because of their similar investment objectives and investment strategies, each Fund is subject to similar investment risks associated with an investment in
common shares of the relevant Fund. With respect to the differences in risks, those risks of MYJ that are not shared with the Acquiring Fund are generally a result of differences in the Funds principal investment strategies described above
under SummaryInvestment Objective and Policies.
The Combined Fund will be managed in accordance with the same investment objective,
investment strategies and investment policies, and subject to the same risks, as the Acquiring Fund. Risk is inherent in all investing. The value of your investment in the Acquiring Fund, as well as the amount of return you receive on your
investment, may fluctuate significantly from day to day and over time. The Acquiring Fund is not meant to provide a vehicle for those who wish to exploit short-term swings in the stock market and is intended for long-term investors. An investment in
common shares of the Acquiring Fund should not be considered a complete investment program. Each shareholder should take into account the Acquiring Funds investment objective as well as the shareholders other investments when considering
an investment in the Acquiring Fund. You may lose part or all of your investment in the Acquiring Fund or your investment may not perform as well as other similar investments.
The risks that predominately affect common shares of the Acquiring Fund, and therefore, the Combined Fund, include the following:
Non-Diversified Status. The Acquiring Fund is a non-diversified fund.
As defined in the 1940 Act, a non-diversified fund may have a significant part of its investments in a smaller number of issuers than can a diversified fund. Having a larger percentage of assets in a smaller
number of issuers makes a non-diversified fund, like the Acquiring Fund, more susceptible to the risk that one single event or occurrence can have a significant adverse impact upon the Acquiring Fund.
Investment and Market Discount Risk. An investment in the Acquiring Funds common shares is subject to investment risk, including the possible
loss of the entire amount that you invest. As with any stock, the price of the Acquiring Funds common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or less than the original
investment. The Acquiring Funds common shares are designed for long-term investors and the Acquiring Fund should not be treated as a trading vehicle. Shares of closed-end management investment companies
frequently trade at a discount from their NAV. This risk is separate and distinct from the risk that the Acquiring Funds NAV could decrease as a result of its investment activities. At any point in time an investment in the Acquiring
Funds common shares may be worth less than the original amount invested, even after taking into account distributions paid by the Acquiring Fund. This risk may be greater for investors who sell their common shares in a relatively short period
of time after completion of the Reorganization. During periods in which the Acquiring Fund may use leverage, the Acquiring Funds investment, market discount and certain other risks will be magnified.
Municipal Bond Market Risk. Economic exposure to the municipal securities market involves certain risks. The Acquiring Funds economic exposure to
municipal securities includes municipal securities in the Acquiring Funds portfolio and municipal securities to which the Acquiring Fund is exposed through the ownership of residual interests in municipal TOBs (TOB Residuals). The
municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and during the financial crisis of 2007-2009 these firms capital was severely constrained. As a result, some firms were
unwilling to commit their capital to purchase and to serve as a dealer for municipal securities. Certain municipal securities may not be registered with the SEC or any state securities commission and will not be listed on any national securities
exchange. The amount of public information available about the municipal securities to which the Acquiring Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Acquiring Fund
may therefore be more dependent on the analytical abilities of the Investment Advisor than would be a fund investing solely in stocks or taxable bonds. The secondary market for municipal securities, particularly the below investment grade securities
to which the Acquiring Fund may be economically exposed, also tends to be less well-developed or liquid than many
17
other securities markets, which may adversely affect the Acquiring Funds ability to sell such securities at attractive prices or at prices approximating those at which the Acquiring Fund
currently values them.
In addition, many state and municipal governments that issue securities are under significant economic and financial stress and
may not be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among federal,
state and local governments. The taxing power of any governmental entity may be limited by provisions of state constitutions or laws and an entitys credit will depend on many factors, including the entitys tax base, the extent to which
the entity relies on federal or state aid, and other factors which are beyond the entitys control. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations or on the ability of municipalities to levy taxes. Issuers of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an
issuer, holders of municipal securities could experience delays in collecting principal and interest and such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its rights in
the event of a default in the payment of interest or repayment of principal, or both, the Acquiring Fund may take possession of and manage the assets securing the issuers obligations on such securities, which may increase the Acquiring
Funds operating expenses. Any income derived from the Acquiring Funds ownership or operation of such assets may not be tax-exempt or may fail to generate qualifying income for purposes of the
income tests applicable to regulated investment companies (RICs).
Risk Factors and Special Considerations Relating to New Jersey
Municipal Bonds. The Acquiring Fund ordinarily will invest at least 80% of its assets in MUJ New Jersey Municipal Bonds; therefore, it is more susceptible to factors adversely affecting issuers of MUJ New Jersey Municipal Bonds than is a
municipal bond fund that is not concentrated in issuers of MUJ New Jersey Municipal Bonds to this degree. Briefly summarized below are important financial concerns relating to the Acquiring Funds investments in New Jersey municipal
obligations. The information set forth below and in Appendix A to the Statement of Additional InformationFactors Affecting Municipal Securities in New Jersey is derived from sources that are generally available to
investors. This information is intended to give a recent historical description and is not intended to indicate future or continuing trends in the financial or other positions of the State of New Jersey. It should be noted that the information
recorded here primarily is based on the economic and budget forecasts found in certain recent publications issued by New Jersey. The accuracy and completeness of those publications have not been independently verified. There may be significant
changes in circumstances altering the economic and budget predictions since the time of those publications or after the publication of this Joint Proxy Statement/Prospectus.
The Acquiring Fund is susceptible to certain factors which could adversely affect issuers of New Jersey municipal obligations. The ability of issuers to pay
interest on, and repay principal of, New Jersey municipal obligations may be affected by: (1) amendments to the Constitution of the State of New Jersey and other statutes that limit the taxing and spending authority of New Jersey government
entities; (2) the general financial and economic profile as well as the political climate of New Jersey, its public authorities and political subdivisions; and (3) a change in New Jersey laws and regulations or subsequent court decisions
that may affect, directly or indirectly, New Jersey municipal obligations. The Funds yield and share price are sensitive to these factors as one or more of such factors could undermine New Jersey issuers efforts to borrow, inhibit
secondary market liquidity and erode credit ratings. Furthermore, it should be noted that the creditworthiness of obligations issued by local New Jersey issuers may be unrelated to the creditworthiness of obligations issued by New Jersey and that
there is no obligation on the part of New Jersey to make payment on such local obligations in the event of default.
Due to improving economic and fiscal
conditions, in addition to a one-time boost from the new Pass-Through Business Alternative Income Tax (discussed below), the Fiscal Year 2021 revenue forecast has improved substantially. The Governors
Fiscal Year 2022 Budget Message anticipates Fiscal Year 2021 revenues of $44.2 billion, and revenue growth between Fiscal Year 2020 and Fiscal Year 2021 is now projected at $6.2 billion, up 16.3% overall. However, baseline Fiscal Year 2021
revenues are forecast to increase by about $1.9 billion to $39.9 billion, or 5.0%, when excluding the $4.288 billion of Emergency General Obligation Bond funds. Moreover, this revised Fiscal Year 2021 revenue total of
$39.9 billion is $1.25 billion below the amount forecasted in February 2020, indicating that State revenues have not fully recovered to pre-pandemic levels.
18
Even before the start of Fiscal Year 2021, the fallout from the COVID-19
Pandemic changed the course of State revenue collections. Through the end of March 2020, State revenues were up $1.3 billion, or 6.2% above the same nine month period in the prior fiscal year. Due to the
COVID-19 Pandemic-induced public health restrictions on social and economic activity, total revenues dropped by nearly $1.6 billion during the remaining months. Revenues fell from $38.3 billion in
Fiscal Year 2019 to $38.0 billion in Fiscal Year 2020, a year-over-year decline of $303 million, or 0.8%, and $1.4 billion below the amount of revenues anticipated in the pre-Pandemic
Governors Fiscal Year 2021 Budget Message delivered in February 2020.
As of June 30, 2020, New Jerseys outstanding long-term debt
obligations for governmental activities decreased 6.2% to $204.2 billion, which includes a net decrease in bonded obligations of $33.7 million. During the fiscal year, the State issued $4.8 billion in bonds. New money issuances
represented $2.2 billion primarily for transportation program improvements, while $2.6 billion represented refunding transactions that provided the State with $168.9 million in net present value savings. During Fiscal Year 2020, the
State paid $5.2 billion in debt service on its long-term obligations.
New Jerseys various outstanding general obligation bonds were rated
A with a negative outlook by Fitch as of September 5, 2014, A3 by Moodys as of March 27, 2017, and A- by S&P as of November 14, 2016.
Kroll Bond Rating Agency has also assigned an A rating to New Jerseys general obligation debt. These ratings reflect New Jerseys credit quality only, and do not indicate the creditworthiness of
other tax-exempt securities in which the Acquiring Fund may invest.
The foregoing information
constitutes only a brief summary of some of the general factors that may impact certain issuers of municipal bonds and does not purport to be a complete or exhaustive description of all adverse conditions to which the issuers of municipal bonds held
by the Acquiring Fund are subject. See Appendix A to the Statement of Additional Information for a further discussion of factors affecting New Jersey municipal securities. The information set forth above and in Appendix
A to the Statement of Additional Information is derived from sources that are generally available to investors. This information is intended to give a recent historical description and is not intended to indicate future or
continuing trends in the financial or other positions of the State of New Jersey.
Taxable Municipal Securities Risk. Build America Bonds
involve similar risks as municipal bonds, including credit and market risk. In particular, should a Build America Bonds issuer fail to continue to meet the applicable requirements imposed on the bonds as provided by the American Recovery and
Reinvestment Act (ARRA), it is possible that such issuer may not receive federal cash subsidy payments, impairing the issuers ability to make scheduled interest payments. The Build America Bond program expired on December 31,
2010 and no further issuance is permitted unless Congress renews the program. As a result, the number of available Build America Bonds is limited, which may negatively affect the value of the Build America Bonds. In addition, there can be no
assurance that Build America Bonds will be actively traded. It is difficult to predict the extent to which a market for such bonds will continue, meaning that Build America Bonds may experience greater illiquidity than other municipal obligations.
The Build America Bonds outstanding as of December 31, 2010 will continue to be eligible for the federal interest rate subsidy, which continues for the life of the Build America Bonds; however, no bonds issued following expiration of the Build
America Bond program will be eligible for the U.S. federal tax subsidy.
Municipal Securities Risks. Municipal securities risks include the ability
of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative changes which could affect the market for and the value of municipal securities. These
risks include:
General Obligation Bonds Risks. General obligation bonds are typically secured by the issuers pledge of its faith, credit and
taxing power for the repayment of principal and the payment of interest. The taxing power of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entitys creditworthiness will depend on many
factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the states industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax
base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on federal or state aid, access to capital markets or other factors beyond the states or entitys
control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuers maintenance of its tax base.
19
Revenue Bonds Risks. Revenue or special obligation bonds are typically payable only from the revenues
derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed. Accordingly, the timely payment
of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source. Revenue bonds issued by state or local agencies to
finance the development of low-income, multi-family housing involve special risks in addition to those associated with municipal securities generally, including that the underlying properties may not generate
sufficient income to pay expenses and interest costs. Such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay
interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay
interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.
Private Activity Bonds Risks. The Acquiring Fund may invest in certain tax-exempt securities classified as
private activity bonds. These bonds may subject certain investors in the Acquiring Fund to the federal alternative minimum tax.
Moral
Obligation Bonds Risks. Municipal bonds may also include moral obligation bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment
of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.
Municipal Notes Risks. Municipal
notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, repayment on the note may be delayed or the
note may not be fully repaid, and the Acquiring Fund may lose money.
Municipal Lease Obligations Risks. Also included within the general category
of municipal bonds are certificates of participation (COPs) issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. COPs represent participations in a lease, an
installment purchase contract or a conditional sales contract (hereinafter collectively called lease obligations) relating to such equipment, land or facilities. Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. Although lease obligations do not constitute general obligations of the issuer for which the issuers unlimited taxing power is pledged, a lease obligation is frequently backed by the
issuers covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain non-appropriation clauses which provide that the
issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although non-appropriation lease obligations
are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult and the value of the property may be insufficient to issue lease obligations. Certain investments in lease obligations may be illiquid.
The ability of issuers of municipal leases to make timely lease payments may be adversely impacted in general economic downturns and as relative
governmental cost burdens are allocated and reallocated among federal, state and local governmental units. Such non-payment would result in a reduction of income to the Acquiring Fund, and could result in a
reduction in the value of the municipal lease experiencing non-payment and a potential decrease in the NAV of the Acquiring Fund. Issuers of municipal lease obligations might seek protection under the
bankruptcy laws. In the event of bankruptcy of such an issuer, the Acquiring Fund could experience delays and limitations with respect to the collection of principal and interest on such municipal leases and the Acquiring Fund may not, in all
circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in lease payments, the Acquiring Fund might take possession of and manage the assets securing the issuers
obligations on such securities, which may increase the Acquiring Funds operating expenses and adversely affect the NAV of the Acquiring Fund. When the lease contains a non-appropriation clause, however,
the failure to pay would not be a default and the Acquiring Fund would not have the right to take possession of the assets. Any income derived from the Acquiring Funds ownership or operation of such assets may not be tax-exempt or may fail to generate qualifying income for purposes of the income tests applicable to regulated investment companies. In addition, the Acquiring Funds intention to qualify as a regulated
investment company under the Code, may limit the extent to which the Acquiring Fund may exercise its rights by taking possession of such assets, because as a regulated investment company the Acquiring Fund is subject to certain limitations on its
investments and on the nature of its income.
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Liquidity of Investments. Certain municipal securities in which the Acquiring Fund invests may lack an
established secondary trading market or are otherwise considered illiquid. Liquidity of a security relates to the ability to easily dispose of the security and the price to be obtained and does not generally relate to the credit risk or likelihood
of receipt of cash at maturity. Illiquid securities may trade at a discount from comparable, more liquid investments.
The financial markets in general,
and certain segments of the municipal securities markets in particular, have in recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and
substantially below traditional measures of intrinsic value. During such periods some securities could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time.
Tax-Exempt Status Risk. In making investments, the Acquiring Fund and the Investment Advisor will rely on the
opinion of issuers bond counsel and, in the case of derivative securities, sponsors counsel, on the tax-exempt status of interest on municipal obligations and payments under tax-exempt derivative securities. Neither the Acquiring Fund nor the Investment Advisor will independently review the bases for those tax opinions. If any of those tax opinions are ultimately determined to be
incorrect or if events occur after the security is acquired that impact the securitys tax-exempt status, the Acquiring Fund and its shareholders could be subject to substantial tax liabilities. An
assertion by the Internal Revenue Service (the IRS) that a portfolio security is not exempt from U.S. federal income tax (contrary to indications from the issuer) could affect the Acquiring Funds and its shareholders income
tax liability for the current or past years and could create liability for information reporting penalties. In addition, an IRS assertion of taxability may cause the Acquiring Fund to be ineligible to pay exempt-interest dividends or may impair the
liquidity and the fair market value of the securities.
Taxability Risk. The Acquiring Fund intends to minimize the payment of taxable income to
shareholders by investing in tax-exempt or municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable
from gross income for U.S. federal income tax purposes. Such securities, however, may be determined to pay, or have paid, taxable income subsequent to the Acquiring Funds acquisition of the securities. In that event, the IRS may demand that
the Acquiring Fund pay U.S. federal income taxes on the affected interest income, and, if the Acquiring Fund agrees to do so, the Acquiring Funds yield could be adversely affected. In addition, the treatment of dividends previously paid or to
be paid by the Acquiring Fund as exempt interest dividends could be adversely affected, subjecting the Acquiring Funds shareholders to increased U.S. federal income tax liabilities. In addition, future laws, regulations, rulings or
court decisions may cause interest on municipal securities to be subject, directly or indirectly, to U.S. federal income taxation or interest on state municipal securities to be subject to state or local income taxation, or the value of state
municipal securities to be subject to state or local intangible personal property tax, or may otherwise prevent the Acquiring Fund from realizing the full current benefit of the tax-exempt status of such
securities. Any such change could also affect the market price of such securities, and thus the value of an investment in the Acquiring Fund.
Alternative Minimum Tax Risk. The Acquiring Fund expects that a portion of the interest or income it produces will be includable in
alternative minimum taxable income. Exempt interest dividends also are likely to be subject to state and local income taxes. Distributions of any capital gain or other taxable income will be taxable to shareholders. The Acquiring Fund may not be a
suitable investment for investors who are subject to the federal alternative minimum tax or who would become subject to such tax by purchasing shares of the Acquiring Fund. The suitability of an investment in the Acquiring Fund will depend upon a
comparison of the after-tax yield likely to be provided from the Acquiring Fund with that from comparable tax-exempt investments not subject to the alternative minimum
tax, and from comparable fully taxable investments, in light of each such investors tax position. Special considerations apply to corporate investors.
Nonpayment Risk. Municipal bonds, like other debt obligations, are subject to the risk of nonpayment. The ability of issuers of municipal securities to
make timely payments of interest and principal may be adversely impacted in general economic downturns and as relative governmental cost burdens are allocated and reallocated among federal, state and local governmental units. Such nonpayment would
result in a reduction of income to the Acquiring Fund and could result in a reduction in the value of the municipal security experiencing nonpayment and a potential decrease in the net asset value of the Acquiring Fund.
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Fixed Income Securities Risks. Fixed income securities in which the Acquiring Fund may invest are
generally subject to the following risks:
Interest Rate Risk. The market value of bonds and other fixed-income securities changes in response to
interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Acquiring Fund may be subject to a greater
risk of rising interest rates due to the current period of historically low interest rates, including the Federal Reserves recent lowering of the target for the federal funds rate to a range of 0%0.25% as part of its efforts to ease the
economic effects of the coronavirus pandemic. The magnitude of these fluctuations in the market price of bonds and other fixed-income securities is generally greater for those securities with longer maturities. Fluctuations in the market price of
the Acquiring Funds investments will not affect interest income derived from instruments already owned by the Acquiring Fund, but will be reflected in the Acquiring Funds NAV. The Acquiring Fund may lose money if short-term or long-term
interest rates rise sharply in a manner not anticipated by the Acquiring Funds management. To the extent the Acquiring Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-related securities), the
sensitivity of such securities to changes in interest rates may increase (to the detriment of the Acquiring Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes
in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of the Acquiring Fund to the extent that it invests in floating rate debt securities. These basic principles of bond
prices also apply to U.S. Government securities. A security backed by the full faith and credit of the U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like
other fixed-income securities, government-guaranteed securities will fluctuate in value when interest rates change.
The Acquiring Funds use of
leverage, as described below, will tend to increase the Acquiring Funds interest rate risk. The Acquiring Fund may utilize certain strategies, including taking positions in futures or interest rate swaps, for the purpose of reducing the
interest rate sensitivity of fixed income securities held by the Acquiring Fund and decreasing the Acquiring Funds exposure to interest rate risk. The Acquiring Fund is not required to hedge its exposure to interest rate risk and may choose
not to do so. In addition, there is no assurance that any attempts by the Acquiring Fund to reduce interest rate risk will be successful or that any hedges that the Acquiring Fund may establish will perfectly correlate with movements in interest
rates.
The Acquiring Fund may invest in variable and floating rate debt instruments, which generally are less sensitive to interest rate changes than
longer duration fixed rate instruments, but may decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise as much, or as quickly, as market interest rates in general. Conversely, variable
and floating rate instruments generally will not increase in value if interest rates decline. The Acquiring Fund also may invest in inverse floating rate debt securities, which may decrease in value if interest rates increase, and which also may
exhibit greater price volatility than fixed rate debt obligations with similar credit quality. To the extent the Acquiring Fund holds variable or floating rate instruments, a decrease (or, in the case of inverse floating rate securities, an
increase) in market interest rates will adversely affect the income received from such securities, which may adversely affect the NAV of the Acquiring Funds common shares.
Issuer Risk. The value of fixed income securities may decline for a number of reasons which directly relate to the issuer, such as management
performance, financial leverage, reduced demand for the issuers goods and services, historical and prospective earnings of the issuer and the value of the assets of the issuer.
Credit Risk. Credit risk is the risk that one or more fixed income securities in the Acquiring Funds portfolio will decline in price or fail to
pay interest or principal when due because the issuer of the security experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness of the issuer deteriorates. To
the extent the Acquiring Fund invests in below investment grade securities, it will be exposed to a greater amount of credit risk than a fund which only invests in investment grade securities. In addition, to the extent the Acquiring Fund uses
credit derivatives, such use will expose it to additional risk in the event that the bonds underlying the derivatives default. The degree of credit risk depends on the issuers financial condition and on the terms of the securities. If rating
agencies lower their ratings of municipal securities in the Acquiring Funds
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portfolio, the value of those securities could decline, which could jeopardize rating agencies ratings of Acquiring Fund VRDP Shares. Because a significant source of income for the
Acquiring Fund is the interest and principal payments on the municipal securities in which it invests, any default by an issuer of a municipal security could have a negative impact on the Acquiring Funds ability to pay dividends on common
shares or any VRDP Shares then outstanding and could result in the redemption of some or all of any VRDP Shares then outstanding.
Prepayment Risk.
During periods of declining interest rates, borrowers may exercise their option to prepay principal earlier than scheduled. For fixed rate securities, such payments often occur during periods of declining interest rates, forcing the Acquiring Fund
to reinvest in lower yielding securities, resulting in a possible decline in the Acquiring Funds income and distributions to shareholders. This is known as prepayment or call risk. Below investment grade securities frequently have
call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified price (typically greater than par) only if certain prescribed conditions are met (call protection). For premium bonds (bonds
acquired at prices that exceed their par or principal value) purchased by the Acquiring Fund, prepayment risk may be enhanced.
Reinvestment Risk.
Reinvestment risk is the risk that income from the Acquiring Funds portfolio will decline if the Acquiring Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the Acquiring
Fund portfolios current earnings rate.
Duration and Maturity Risk. The Investment Advisor may seek to adjust the portfolios duration
or maturity based on its assessment of current and projected market conditions and all factors that the Investment Advisor deems relevant. In comparison to maturity (which is the date on which the issuer of a debt instrument is obligated to repay
the principal amount), duration is a measure of the price volatility of a debt instrument as a result in changes in market rates of interest, based on the weighted average timing of the instruments expected principal and interest payments.
Specifically, duration measures the anticipated percentage change in NAV that is expected for every percentage point change in interest rates. The two have an inverse relationship. Duration can be a useful tool to estimate anticipated price changes
to a fixed pool of income securities associated with changes in interest rates. For example, a duration of five years means that a 1% decrease in interest rates will increase the NAV of the portfolio by approximately 5%; if interest rates increase
by 1%, the NAV will decrease by 5%. However, in a managed portfolio of fixed income securities having differing interest or dividend rates or payment schedules, maturities, redemption provisions, call or prepayment provisions and credit qualities,
actual price changes in response to changes in interest rates may differ significantly from a duration-based estimate at any given time. Actual price movements experienced by a portfolio of fixed income securities will be affected by how interest
rates move (i.e., changes in the relationship of long-term interest rates to short-term interest rates and in the relationship of interest rates for highly rated securities and rates for below investment grade securities), the magnitude of any move
in interest rates, actual and anticipated prepayments of principal through call or redemption features, the extension of maturities through restructuring, the sale of securities for portfolio management purposes, the reinvestment of proceeds from
prepayments on and from sales of securities, and credit quality-related considerations whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors. Accordingly, while duration maybe a useful tool
to estimate potential price movements in relation to changes in interest rates, investors are cautioned that duration alone will not predict actual changes in the net asset or market value of the Acquiring Funds shares and that actual price
movements in the Acquiring Funds portfolio may differ significantly from duration-based estimates. Duration differs from maturity in that it takes into account a securitys yield, coupon payments and its principal payments in addition to
the amount of time until the security finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter
durations. In general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration. Any decisions as to the targeted duration or maturity of any particular
category of investments or of the Acquiring Funds portfolio generally will be made based on all pertinent market factors at any given time. The Acquiring Fund may incur costs in seeking to adjust the portfolios average duration or
maturity. There can be no assurances that the Investment Advisors assessment of current and projected market conditions will be correct or that any strategy to adjust the portfolios duration or maturity will be successful at any given
time.
Leverage Risk. The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks
for the common shareholders. The Acquiring Fund cannot assure you that the use of leverage, if employed, will result in a higher yield on the common shares. Any leveraging strategy the Acquiring
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Fund employs may not be successful. Leverage involves risks and special considerations for common shareholders, including:
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the likelihood of greater volatility of NAV, market price and dividend rate of the common shares than a
comparable portfolio without leverage;
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the risk that fluctuations in interest rates or dividend rates on any leverage that the Acquiring Fund must pay
will reduce the return to the common shareholders;
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the effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the common
shares than if the Acquiring Fund were not leveraged, which may result in a greater decline in the market price of the common shares;
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when the Acquiring Fund uses financial leverage, the investment advisory fee payable to the Investment Advisor
will be higher than if the Acquiring Fund did not use leverage; and
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leverage may increase operating costs, which may reduce total return.
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Any decline in the NAV of the Acquiring Funds investments will be borne entirely by the common shareholders. Therefore, if the market value of the
Acquiring Funds portfolio declines, leverage will result in a greater decrease in NAV to the common shareholders than if the Acquiring Fund were not leveraged. This greater NAV decrease will also tend to cause a greater decline in the market
price for the common shares. While the Acquiring Fund may from time to time consider reducing any outstanding leverage in response to actual or anticipated changes in interest rates in an effort to mitigate the increased volatility of current income
and NAV associated with leverage, there can be no assurance that the Acquiring Fund will actually reduce any outstanding leverage in the future or that any reduction, if undertaken, will benefit the common shareholders. Changes in the future
direction of interest rates are very difficult to predict accurately. If the Acquiring Fund were to reduce any outstanding leverage based on a prediction about future changes to interest rates, and that prediction turned out to be incorrect, the
reduction in any outstanding leverage would likely operate to reduce the income and/or total returns to common shareholders relative to the circumstance where the Acquiring Fund had not reduced any of its outstanding leverage. The Acquiring Fund may
decide that this risk outweighs the likelihood of achieving the desired reduction to volatility in income and share price if the prediction were to turn out to be correct, and determine not to reduce any of its outstanding leverage as described
above.
The Acquiring Fund currently utilizes leverage through the issuance of VRDP Shares (see Information about the Preferred Shares of the
Funds) and investments in TOB Residuals (see Tender Option Bond Risk). The use of TOB Residuals may require the Acquiring Fund to segregate or designate on its books and records assets to cover its obligations. While the
segregated or earmarked assets may be invested in liquid assets, they may not be used for other operational purposes. Consequently, the use of leverage may limit the Acquiring Funds flexibility and may require that the Acquiring Fund sell
other portfolio investments to pay Fund expenses, to maintain assets in an amount sufficient to cover the Acquiring Funds leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such assets.
Certain types of leverage used by the Acquiring Fund may result in the Acquiring Fund being subject to covenants relating to asset coverage and portfolio
composition requirements. The Acquiring Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which issue ratings for the VRDP Shares issued by the Acquiring Fund or the governing instrument
for the Acquiring Fund VRDP Shares. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Investment Advisor does not believe that these covenants or
guidelines will impede it from managing the Acquiring Funds portfolio in accordance with the Acquiring Funds investment objective and policies.
While there are any preferred shares of the Acquiring Fund outstanding, the Acquiring Fund may not declare any cash dividend or other distribution on its
common shares, unless at the time of such declaration, (i) all accrued preferred shares dividends have been paid and (ii) the value of the Acquiring Funds total assets (determined after deducting the amount of such dividend or other
distribution), less all liabilities and indebtedness of the Acquiring Fund, is at least
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200% (as required by the 1940 Act) of the liquidation preference of the outstanding preferred shares (expected to equal the aggregate original purchase price of the outstanding preferred shares
plus any accrued and unpaid dividends thereon, whether or not earned or declared on a cumulative basis). In addition to the requirements of the 1940 Act, the Acquiring Fund may be required to comply with other asset coverage requirements as a
condition of the Acquiring Fund obtaining a rating of its preferred shares from a nationally recognized rating service or other asset coverage requirements under an agreement with the liquidity provider of the Acquiring Fund VRDP Shares.
These requirements may include an asset coverage test more stringent than that under the 1940 Act. This limitation on the Acquiring Funds ability to
make distributions on its common shares could in certain circumstances impair the ability of the Acquiring Fund to maintain its qualification for taxation as a regulated investment company under the Code. The Acquiring Fund may, however, to the
extent possible, purchase or redeem preferred shares from time to time to maintain compliance with such asset coverage requirements and may pay special dividends to the holders of the preferred shares in certain circumstances in connection with any
such impairment of the Acquiring Funds status as a regulated investment company under the Code.
In addition to the foregoing, the use of leverage
treated as indebtedness of the Acquiring Fund for U.S. federal income tax purposes may reduce the amount of Acquiring Fund dividends that are otherwise eligible for the dividends received deduction in the hands of corporate shareholders.
The Acquiring Fund may utilize leverage through investment derivatives. The use of certain derivatives will require the Acquiring to segregate assets to cover
its obligations. While the segregated assets may be invested in liquid assets, they may not be used for other operational purposes. Consequently, the use of leverage may limit the Acquiring Funds flexibility and may require that the Acquiring
Fund sell other portfolio investments to pay Acquiring Fund expenses, to maintain assets in an amount sufficient to cover the Acquiring Funds leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such
assets.
The Acquiring Fund may invest in the securities of other investment companies. Such investment companies may also be leveraged, and will
therefore be subject to the leverage risks described above. This additional leverage may in certain market conditions reduce the NAV of the Acquiring Funds common shares and the returns to the common shareholders.
Tender Option Bond Risk. The Acquiring Fund currently leverages its assets through the use of TOB Residuals, which are derivative interests in
municipal bonds. The TOB Residuals in which the Acquiring Fund may invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax. No independent investigation will
be made to confirm the tax-exempt status of the interest or income paid by TOB Residuals held by the Acquiring Fund. There is no assurance that the Acquiring Funds strategy of using TOB Residuals to
leverage its assets will be successful.
TOB Residuals represent beneficial interests in a special purpose trust formed for the purpose of holding
municipal bonds contributed by one or more funds (a TOB Trust). A TOB Trust typically issues two classes of beneficial interests: short-term floating rate interests (TOB Floaters), which are sold to third-party investors, and
TOB Residuals, which are generally issued to the fund(s) that transferred municipal bonds to the TOB Trust. TOB Floaters may have first priority on the cash flow from the municipal bonds held by the TOB Trust and are enhanced with a liquidity
support arrangement provided by a third-party bank or other financial institution (the TOBs Liquidity Provider) which allows holders to tender their position at par (plus accrued interest). The Acquiring Fund, as a holder of TOB
Residuals, is paid the residual cash flow from the TOB Trust. As result, distributions on TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid to the Acquiring Fund will
be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters
sold by the TOB Trust relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB Floaters sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. Short-term interest rates
are at historic lows and may be more likely to rise in the current market environment.
The municipal bonds transferred to a TOB Trust typically are high
grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOB Trust transaction includes a credit
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enhancement feature that provides for the timely payment of principal and interest on the bonds to the TOB Trust by a credit enhancement provider. The TOB Trust would be responsible for the
payment of the credit enhancement fee and the Acquiring Fund, as a TOB Residual holder, would be responsible for reimbursement of any payments of principal and interest made by the credit enhancement provider.
Any economic leverage achieved through the Acquiring Funds investment in TOB Residuals will increase the possibility that common share long-term returns
will be diminished if the cost of the TOB Floaters issued by a TOB Trust exceeds the return on the securities in the TOB Trust. If the income and gains earned on municipal securities owned by a TOB Trust that issues TOB Residuals to the Acquiring
Fund are greater than the payments due on the TOB Floaters issued by the TOB Trust, the Acquiring Funds returns will be greater than if it had not invested in the TOB Residuals.
Although the Acquiring Fund generally would unwind a TOB transaction rather than try to sell a TOB Residual, if it did try to sell a TOB Residual, its ability
to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in the TOB Trust. The market price of TOB Residuals is
more volatile than the underlying municipal bonds due to leverage.
The leverage attributable to the Acquiring Funds use of TOB Residuals may be
called away on relatively short notice and therefore may be less permanent than more traditional forms of leverage. The TOB Trust may be collapsed without the consent of the Acquiring Fund upon the occurrence of termination events, as
defined in the TOB Trust agreements. 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 of the TOB Floaters and
the TOBs Liquidity Provider. Upon certain termination events, the holders of the TOB Floaters would be paid before the TOB Residual holders (i.e., the Acquiring Fund) whereas in other termination events, the holders of TOB Floaters and the TOB
Residual holders would be paid pro rata.
The Acquiring Fund may invest in a TOB Trust on either a non-recourse or
recourse basis. If the Acquiring Fund invests in a TOB Trust on a recourse basis, it will typically enter into a reimbursement agreement with the TOBs Liquidity Provider pursuant to which the Acquiring Fund is required to reimburse the TOBs
Liquidity Provider the balance, if any, of the amount owed under the liquidity facility over the liquidation proceeds (the Liquidation Shortfall). As a result, if the Acquiring Fund invests in a recourse TOB Trust, the Acquiring Fund
will bear the risk of loss with respect to any Liquidation Shortfall.
The use of TOB Residuals will require the Acquiring Fund to earmark or segregate
liquid assets in an amount equal to any TOB Floaters, plus any accrued but unpaid interest due on the TOB Floaters, issued by TOB Trusts sponsored by, or on behalf of, the Acquiring Fund that are not owned by the Acquiring Fund. The use of TOB
Residuals may also require the Acquiring Fund to earmark or segregate liquid assets in an amount equal to loans provided by the TOBs Liquidity Provider to the TOB Trust to purchase tendered TOB Floaters. While the segregated assets may be invested
in liquid securities, they may not be used for other operational purposes. Consequently, the use of leverage through TOB Residuals may limit the Acquiring Funds flexibility and may require that the Acquiring Fund sell other portfolio
investments to pay the Acquiring Funds expenses, to maintain assets in an amount sufficient to cover the Acquiring Funds leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such assets. Future
regulatory requirements or SEC guidance may necessitate more onerous contractual or regulatory requirements, which may increase the costs or reduce the degree of potential economic benefits of TOB Trust transactions or limit the Acquiring
Funds ability to enter into or manage TOB Trust transactions.
The Acquiring 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.
The SEC and various federal banking and housing agencies adopted credit risk retention rules for securitizations (the Risk Retention Rules). The
Risk Retention Rules require the sponsor of a TOB Trust to retain at least 5% of the credit risk of the underlying assets supporting the TOB Trusts municipal bonds. The Risk Retention Rules may adversely affect the Acquiring Funds
ability to engage in TOB Trust transactions or increase the costs of such transactions in certain circumstances.
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TOB Trusts constitute an important component of the municipal bond market. Any modifications or changes to the
rules governing TOB Trusts may adversely impact the municipal market and the Acquiring Fund, 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 market and the overall municipal market is not yet certain.
Please see The Acquiring Funds
InvestmentsLeverageTender Option Bonds for additional information.
Insurance Risk. With respect to an insured municipal
security, insurance guarantees that interest payments on the municipal security will be made on time and that the principal will be repaid when the security matures. Insurance is expected to protect the Acquiring Fund against losses caused by a
municipal security issuers failure to make interest and principal payments. However, insurance does not protect the Acquiring Fund or its shareholders against losses caused by declines in a municipal securitys value. Also, the Acquiring
Fund cannot be certain that any insurance company will make the payments it guarantees. Certain significant providers of insurance for municipal securities incurred significant losses as a result of exposure to
sub-prime mortgages and other lower credit quality investments that experienced defaults or otherwise suffered extreme credit deterioration during the financial crisis of 2007-2009. These losses have reduced
the insurers capital and called into question their continued ability to perform their obligations under such insurance if they are called upon to do so in the future. While an insured municipal security will typically be deemed to have the
rating of its insurer, if the insurer of a municipal security suffers a downgrade in its credit rating or the market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more relevant
and the value of the municipal security would more closely, if not entirely, reflect such rating. The Acquiring Fund may lose money on its investment if the insurance company does not make payments it guarantees. If a municipal securitys
insurer fails to fulfill its obligations or loses its credit rating, the value of the security could drop.
Yield and Ratings Risk. The yields
on debt obligations are dependent on a variety of factors, including general market conditions, conditions in the particular market for the obligation, the financial condition of the issuer, the size of the offering, the maturity of the obligation
and the ratings of the issue. The ratings of Moodys, S&P and Fitch, which are described in Appendix B to the Statement of Additional Information, represent their respective opinions as to the quality of the obligations which
they undertake to rate. Ratings, however, are general and are not absolute standards of quality. Consequently, obligations with the same rating, maturity and interest rate may have different market prices. Subsequent to its purchase by the Acquiring
Fund, a rated security may cease to be rated. The Investment Advisor will consider such an event in determining whether the Acquiring Fund should continue to hold the security.
Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an initial criterion for selection of portfolio investments, the Investment Advisor also will independently evaluate these securities and the ability of the issuers of such
securities to pay interest and principal. To the extent that the Acquiring Fund invests in lower grade securities that have not been rated by a rating agency, the Acquiring Funds ability to achieve its investment objective will be more
dependent on the Investment Advisors credit analysis than would be the case when the Acquiring Fund invests in rated securities.
High
Yield Securities Risk. Subject to its investment policies, the Acquiring Fund may invest in securities rated, at the time of investment, below investment grade quality such as those rated Ba or below by Moodys, BB or below by S&P
or Fitch, or securities comparably rated by other rating agencies or in unrated securities determined by the Investment Advisor to be of comparable quality. Such securities, sometimes referred to as high yield or junk bonds,
are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve greater price volatility than securities in higher rating categories. Often the
protection of interest and principal payments with respect to such securities may be very moderate and issuers of such securities face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Lower grade securities, though high yielding, are characterized by high risk. They
may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated securities. The secondary market for lower grade securities may be less liquid than that of higher rated
securities. Adverse conditions could make it difficult at times for the Acquiring Fund to sell certain securities or could result in lower prices than those used in calculating the Acquiring Funds NAV.
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The prices of fixed-income securities generally are inversely related to interest rate changes; however, the
price volatility caused by fluctuating interest rates of securities also is inversely related to the coupons of such securities. Accordingly, below investment grade securities may be relatively less sensitive to interest rate changes than higher
quality securities of comparable maturity because of their higher coupon. The investor receives this higher coupon in return for bearing greater credit risk. The higher credit risk associated with below investment grade securities potentially can
have a greater effect on the value of such securities than may be the case with higher quality issues of comparable maturity.
Lower grade securities may
be particularly susceptible to economic downturns. It is likely that an economic recession could severely disrupt the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such
economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. The ratings of Moodys, S&P, Fitch and other
rating agencies represent their opinions as to the quality of the obligations which they undertake to rate. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do
not evaluate the market value risk of such obligations. Although these ratings may be an initial criterion for selection of portfolio investments, the Investment Advisor also will independently evaluate these securities and the ability of the
issuers of such securities to pay interest and principal. To the extent that the Acquiring Fund invests in lower grade securities that have not been rated by a rating agency, the Acquiring Funds ability to achieve its investment objective will
be more dependent on the Investment Advisors credit analysis than would be the case when the Acquiring Fund invests in rated securities.
Unrated
Securities Risk. Because the Acquiring Fund may purchase securities that are not rated by any rating organization, the Investment Advisor may, after assessing their credit quality, internally assign ratings to certain of those securities in
categories similar to those of rating organizations. Some unrated securities may not have an active trading market or may be difficult to value, which means the Acquiring Fund might have difficulty selling them promptly at an acceptable price. To
the extent that the Acquiring Fund invests in unrated securities, the Acquiring Funds ability to achieve its investment objective will be more dependent on the Investment Advisors credit analysis than would be the case when the Acquiring
Fund invests in rated securities.
Zero-Coupon Securities Risk. Municipal bonds may include zero-coupon
bonds. Zero-coupon securities are bonds that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the total amount of interest the security will accrue and compound over the period
until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a zero-coupon security is entitled to receive the par value of the
security.
While interest payments are not made on zero-coupon securities, holders of such securities are deemed
to have received income (phantom income) annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the
implicit yield on the zero-coupon bond, but at the same time eliminates the holders ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to
substantially greater price fluctuations during periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero-coupon bonds are more exposed to interest
rate risk than shorter term zero-coupon bonds. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash.
The Acquiring Fund accrues income with respect to these securities for U.S. federal income tax and accounting purposes
prior to the receipt of cash payments. Zero-coupon securities may be subject to greater fluctuation in value and less liquidity in the event of adverse market conditions than comparably rated securities that pay cash interest at regular intervals.
Further, to maintain its qualification for pass-through treatment under the federal tax laws, the Acquiring Fund is required to distribute income to its
shareholders and, consequently, may have to dispose of other, more liquid portfolio securities under disadvantageous circumstances or may have to leverage itself by borrowing in order to generate the cash to satisfy these distributions. The required
distributions may result in an increase in the Acquiring Funds exposure to zero-coupon securities.
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In addition to the above-described risks, there are certain other risks related to investing in zero-coupon securities. During a period of severe market conditions, the market for such securities may become even less liquid. In addition, as these securities do not pay cash interest, the Acquiring Funds
investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Acquiring Funds portfolio.
Variable Rate Demand Obligations Risk. Variable rate demand obligations (VRDOs) are floating rate securities that combine an interest in a
long-term municipal bond with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution is unable to pay, the Acquiring Fund may lose money.
Indexed and Inverse Securities Risk. Investments in inverse floaters, residual interest TOBs and similar instruments expose the Acquiring Fund to the
same risks as investments in fixed income securities and derivatives, as well as other risks, including those associated with leverage and increased volatility. An investment in these securities typically will involve greater risk than an investment
in a fixed rate security. Distributions on inverse floaters, residual interest TOBs and similar instruments will typically bear an inverse relationship to short-term interest rates and typically will be reduced or, potentially, eliminated as
interest rates rise. Inverse floaters, residual interest TOBs and similar instruments will underperform the market for fixed rate securities in a rising interest rate environment. Inverse floaters may be considered to be leveraged to the extent that
their interest rates vary by a magnitude that exceeds the magnitude of the change in a reference rate of interest (typically a short-term interest rate). The leverage inherent in inverse floaters is associated with greater volatility in their market
values. Investments in inverse floaters, residual interest TOBs and similar instruments that have fixed income securities underlying them will expose the Acquiring Fund to the risks associated with those fixed income securities and the values of
those investments may be especially sensitive to changes in prepayment rates on the underlying fixed income securities.
When-Issued, Forward
Commitment and Delayed Delivery Transactions Risk. The Acquiring Fund may purchase securities on a when-issued basis (including on a forward commitment or TBA (to be announced) basis) and may purchase or sell those securities for
delayed delivery. When-issued and delayed delivery transactions occur when securities are purchased or sold by the Acquiring Fund with payment and delivery taking place in the future to secure an advantageous yield or price. Securities purchased on
a when-issued or delayed delivery basis may expose the Acquiring Fund to counterparty risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Acquiring Fund will not accrue income
with respect to a when-issued or delayed delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed delivery basis can involve the additional risk that the price or yield available in the market when the
delivery takes place may not be as favorable as that obtained in the transaction itself.
Repurchase Agreements Risk. Repurchase agreements
typically involve the acquisition by the Acquiring Fund of fixed income securities from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that the Acquiring Fund will sell the
securities back to the institution at a fixed time in the future. The Acquiring Fund does not bear the risk of a decline in the value of the underlying security unless the seller defaults under its repurchase obligation. In the event of the
bankruptcy or other default of a seller of a repurchase agreement, the Acquiring Fund could experience both delays in liquidating the underlying securities and losses, including possible decline in the value of the underlying security during the
period in which the Acquiring Fund seeks to enforce its rights thereto; possible lack of access to income on the underlying security during this period; and expenses of enforcing its rights. While repurchase agreements involve certain risks not
associated with direct investments in fixed income securities, the Acquiring Fund follows procedures approved by the Board that are designed to minimize such risks. The value of the collateral underlying the repurchase agreement will be at least
equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, the Acquiring Fund generally will seek to liquidate such collateral.
However, the exercise of the Acquiring Funds right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase
price, the Acquiring Fund could suffer a loss.
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Reverse Repurchase Agreements Risk. Reverse repurchase agreements involve the risks that the interest
income earned on the investment of the proceeds will be less than the interest expense of the Acquiring Fund, that the market value of the securities sold by the Acquiring Fund may decline below the price at which the Acquiring Fund is obligated to
repurchase the securities and that the securities may not be returned to the Acquiring Fund. There is no assurance that reverse repurchase agreements can be successfully employed.
Securities Lending Risk. The Acquiring Fund may lend securities to financial institutions. Securities lending involves exposure to certain risks,
including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), gap risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Acquiring
Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. If a securities lending counterparty were to default, the Acquiring Fund would be subject to the risk of a possible delay in receiving collateral or in recovering
the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return the Acquiring Funds securities as agreed, the Acquiring Fund may experience losses if the proceeds received from liquidating the
collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Acquiring
Fund. The Acquiring Fund could lose money if its short-term investment of the collateral declines in value over the period of the loan. Substitute payments for dividends received by the Acquiring Fund for securities loaned out by the Acquiring Fund
will generally not be considered qualified dividend income. The securities lending agent will take the tax effects on shareholders of this difference into account in connection with the Acquiring Funds securities lending program. Substitute
payments received on tax-exempt securities loaned out will generally not be tax-exempt income.
Restricted and Illiquid Securities Risk. The Acquiring Fund may invest in illiquid or less liquid investments or investments in which no secondary
market is readily available or which are otherwise illiquid, including private placement securities. The Acquiring Fund may not be able to readily dispose of such investments at prices that approximate those at which the Acquiring Fund could sell
such investments if they were more widely-traded and, as a result of such illiquidity, the Acquiring Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity
can also affect the market price of investments, thereby adversely affecting the Acquiring Funds NAV and ability to make dividend distributions. The financial markets have in recent years experienced periods of extreme secondary market supply
and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some investments could be sold only at arbitrary prices and with
substantial losses. Periods of such market dislocation may occur again at any time.
Restricted securities are securities that may not be sold to the
public without an effective registration statement under the Securities Act, or that may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. For example, Rule 144A under the Securities Act provides an
exemption from the registration requirements of the Securities Act for the resale of certain restricted securities to qualified institutional buyers, such as the Acquiring Fund. However, an insufficient number of qualified institutional buyers
interested in purchasing the Rule 144A-eligible securities that the Acquiring Fund holds could affect adversely the marketability of certain Rule 144A securities, and the Acquiring Fund might be unable to dispose of such securities promptly or at
reasonable prices. When registration is required to sell a security, the Acquiring Fund may be obligated to pay all or part of the registration expenses and considerable time may pass before the Acquiring Fund is permitted to sell a security under
an effective registration statement. If adverse market conditions develop during this period, the Acquiring Fund might obtain a less favorable price than the price that prevailed when the Acquiring Fund decided to sell. The Acquiring Fund may be
unable to sell restricted and other illiquid investments at opportune times or prices.
Investment Companies Risk. Subject to the limitations set
forth in the 1940 Act and the Acquiring Funds governing documents or as otherwise permitted by the SEC, the Acquiring Fund may acquire shares in other affiliated and unaffiliated investment companies, including exchange-traded funds
(ETFs) and business development companies (BDCs). The market value of the shares of other investment companies may differ from their NAV. As an investor in investment companies, including ETFs or BDCs, the Acquiring Fund
would bear its ratable share of that entitys expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and administration fees and other expenses. As a result, shareholders will be absorbing
duplicate levels of fees with respect to investments in other investment companies, including ETFs or BDCs.
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The securities of other investment companies, including ETFs or BDCs, in which the Acquiring Fund may invest may
be leveraged. As a result, the Acquiring Fund may be indirectly exposed to leverage through an investment in such securities. An investment in securities of other investment companies, including ETFs or BDCs, that use leverage may expose the
Acquiring Fund to higher volatility in the market value of such securities and the possibility that the Acquiring Funds long-term returns on such securities (and, indirectly, the long-term returns of the Acquiring Funds common shares)
will be diminished.
ETFs are generally not actively managed and may be affected by a general decline in market segments relating to its index. An ETF
typically invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive positions in declining markets.
Strategic Transactions and Derivatives Risk. The Acquiring Fund may engage in various derivative transactions or portfolio strategies (Strategic
Transactions) for duration management and other risk management purposes, including to attempt to protect against possible changes in the market value of the Acquiring Funds portfolio resulting from trends in the securities markets and
changes in interest rates or to protect the Acquiring Funds unrealized gains in the value of its portfolio securities, to facilitate the sale of portfolio securities for investment purposes or to establish a position in the securities markets
as a temporary substitute for purchasing particular securities or to enhance income or gain. Derivatives are financial contracts or instruments whose value depends on, or is derived from, the value of an underlying asset, reference rate or index (or
relationship between two indices). The Acquiring Fund also may use derivatives to add leverage to the portfolio and/or to hedge against increases in the Acquiring Funds costs associated with any leverage strategy that it may employ. The use of
Strategic Transactions to enhance current income may be particularly speculative.
Strategic Transactions involve risks. The risks associated with
Strategic Transactions include (i) the imperfect correlation between the value of such instruments and the underlying assets, (ii) the possible default of the counterparty to the transaction, (iii) illiquidity of the derivative
instruments, and (iv) high volatility losses caused by unanticipated market movements, which are potentially unlimited. Although both over-the-counter
(OTC) and exchange-traded derivatives markets may experience a lack of liquidity, OTC non-standardized derivative transactions are generally less liquid than exchange-traded instruments. The
illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and
operational or system failures. In addition, daily limits on price fluctuations and speculative position limits on exchanges on which the Acquiring Fund may conduct its transactions in derivative instruments may prevent prompt liquidation of
positions, subjecting the Acquiring Fund to the potential of greater losses. Furthermore, the Acquiring Funds ability to successfully use Strategic Transactions depends on the Investment Advisors ability to predict pertinent securities
prices, interest rates, currency exchange rates and other economic factors, which cannot be assured. The use of Strategic Transactions may result in losses greater than if they had not been used, may require the Acquiring Fund to sell or purchase
portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Acquiring Fund can realize on an investment or may cause the Acquiring Fund to hold a security that it might otherwise
sell. Additionally, segregated or earmarked liquid assets, amounts paid by the Acquiring Fund as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Acquiring Fund for
investment purposes. Please see the Statement of Additional Information for a more detailed description of Strategic Transactions and the various derivative instruments the Acquiring Fund may use and the various risks associated with them.
Exchange-traded derivatives and OTC derivative transactions submitted for clearing through a central counterparty are also subject to minimum initial and
variation margin requirements set by the relevant clearinghouse, as well as possible SEC- or Commodity Futures Trading Commission (CFTC) mandated margin requirements. The CFTC and federal banking
regulators also have imposed margin requirements on non-cleared OTC derivatives, and the SEC has proposed (but not yet finalized) such non-cleared margin requirements.
As applicable, margin requirements will increase the overall costs for the Acquiring Fund.
Many OTC derivatives are valued on the basis of dealers
pricing of these instruments. However, the price at which dealers value a particular derivative and the price that the same dealers would actually be willing to pay for such derivative should the Acquiring Fund wish or be forced to sell such
position may be materially different. Such differences can result in an overstatement of the Acquiring Funds NAV and may materially adversely affect the Acquiring Fund in situations in which the Acquiring Fund is required to sell derivative
instruments.
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While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject
to imperfect matching between the derivative and the underlying security, and there can be no assurances that the Acquiring Funds hedging transactions will be effective.
Derivatives may give rise to a form of leverage and may expose the Acquiring Fund to greater risk and increase its costs. Recent legislation calls for new
regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise
adversely affect the value or performance of derivatives.
On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by
registered investment companies (Rule 18f-4). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented,
Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat
derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
Counterparty Risk. The Acquiring Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the
Acquiring Fund. Because derivative transactions in which the Acquiring Fund may engage may involve instruments that are not traded on an exchange or cleared through a central counterparty but are instead traded between counterparties based on
contractual relationships, the Acquiring Fund is subject to the risk that a counterparty will not perform its obligations under the related contracts. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial
difficulties, the Acquiring Fund may experience significant delays in obtaining any recovery in bankruptcy or other reorganization proceedings. The Acquiring Fund may obtain only a limited recovery, or may obtain no recovery, in such circumstances.
Although the Acquiring Fund intends to enter into transactions only with counterparties that the Investment Advisor believes to be creditworthy, there can be no assurances that, as a result, a counterparty will not default and that the Acquiring
Fund will not sustain a loss on a transaction. In the event of the counterpartys bankruptcy or insolvency, the Acquiring Funds collateral may be subject to the conflicting claims of the counterpartys creditors, and the Acquiring
Fund may be exposed to the risk of a court treating the Acquiring Fund as a general unsecured creditor of the counterparty, rather than as the owner of the collateral.
The counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally a clearing organization
becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties performance under the contract as each party to a trade looks only to the clearing organization for performance of financial
obligations under the derivative contract. However, there can be no assurances that a clearing organization, or its members, will satisfy its obligations to the Acquiring Fund, or that the Acquiring Fund would be able to recover the full amount of
assets deposited on its behalf with the clearing organization in the event of the default by the clearing organization or the Acquiring Funds clearing broker. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit
from such protections. This exposes the Acquiring Fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or
because of a credit or liquidity problem, thus causing the Acquiring Fund to suffer a loss. Such counterparty risk is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the
Acquiring Fund has concentrated its transactions with a single or small group of counterparties.
In addition, the Acquiring Fund is subject to the risk
that issuers of the instruments in which it invests and trades may default on their obligations under those instruments, and that certain events may occur that have an immediate and significant adverse effect on the value of those instruments. There
can be no assurances that an issuer of an instrument in which the Acquiring Fund invests will not default, or that an event that has an immediate and significant adverse effect on the value of an instrument will not occur, and that the Acquiring
Fund will not sustain a loss on a transaction as a result.
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Swaps Risk. Swaps are a type of derivative. Swap agreements involve the risk that the party with which the
Acquiring Fund has entered into the swap will default on its obligation to pay the Acquiring Fund and the risk that the Acquiring Fund will not be able to meet its obligations to pay the other party to the agreement. In order to seek to hedge the
value of the Acquiring Funds portfolio, to hedge against increases in the Acquiring Funds cost associated with interest payments on any outstanding borrowings or to seek to increase the Acquiring Funds return, the Acquiring Fund
may enter into swaps, including interest rate swap, total return swap and/or credit default swap transactions. In interest rate swap transactions, there is a risk that yields will move in the direction opposite of the direction anticipated by the
Acquiring Fund, which would cause the Acquiring Fund to make payments to its counterparty in the transaction that could adversely affect Acquiring Fund performance. In addition to the risks applicable to swaps generally (including counterparty risk,
high volatility, liquidity risk and credit risk), credit default swap transactions involve special risks because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid
the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty).
Historically, swap transactions have been individually negotiated non-standardized transactions entered into in OTC
markets and have not been subject to the same type of government regulation as exchange-traded instruments. However, since the global financial crisis, the OTC derivatives markets have recently become subject to comprehensive statutes and
regulations. In particular, in the United States, the Dodd-Frank Act requires that certain derivatives with U.S. persons must be executed on a regulated market and a substantial portion of OTC derivatives must be submitted for clearing to regulated
clearinghouses. As a result, swap transactions entered into by the Acquiring Fund may become subject to various requirements applicable to swaps under the Dodd-Frank Act, including clearing, exchange-execution, reporting and recordkeeping
requirements, which may make it more difficult and costly for the Acquiring Fund to enter into swap transactions and may also render certain strategies in which the Acquiring Fund might otherwise engage impossible or so costly that they will no
longer be economical to implement. Furthermore, the number of counterparties that may be willing to enter into swap transactions with the Acquiring Fund may also be limited if the swap transactions with the Acquiring Fund are subject to the swap
regulation under the Dodd-Frank Act.
Credit default and total return swap agreements may effectively add leverage to the Acquiring Funds portfolio
because, in addition to its managed assets, the Acquiring Fund would be subject to investment exposure on the notional amount of the swap. Total return swap agreements are subject to the risk that a counterparty will default on its payment
obligations to the Acquiring Fund thereunder. The Acquiring Fund is not required to enter into swap transactions for hedging purposes or to enhance income or gain and may choose not to do so. In addition, the swaps market is subject to a changing
regulatory environment. It is possible that regulatory or other developments in the swaps market could adversely affect the Acquiring Funds ability to successfully use swaps.
Legal, Tax and Regulatory Risks. Legal, tax and regulatory changes could occur that may have material adverse effects on the Acquiring Fund. For
example, the regulatory and tax environment for derivative instruments in which the Acquiring Fund may participate is evolving, and such changes in the regulation or taxation of derivative instruments may have material adverse effects on the value
of derivative instruments held by the Acquiring Fund and the ability of the Acquiring Fund to pursue its investment strategies.
To qualify for the
favorable U.S. federal income tax treatment generally accorded to RICs, the Acquiring Fund must, among other things, derive in each taxable year at least 90% of its gross income from certain prescribed sources and distribute for each taxable year at
least 90% of its investment company taxable income (generally, ordinary income plus the excess, if any, of net short-term capital gain over net long-term capital loss) and at least 90% of its net
tax-exempt interest income, if any. If for any taxable year the Acquiring Fund does not qualify as a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at
regular corporate rates without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of the Acquiring Funds current and accumulated earnings and profits.
The Biden presidential administration has called for significant changes to U.S. fiscal, tax, trade, healthcare, immigration, foreign, and government
regulatory policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels. Recent events have created a climate of heightened
uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching
implications. There has been a corresponding meaningful increase in the
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uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or the current presidential administration
implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and
other areas. Although the Acquiring Fund cannot predict the impact, if any, of these changes to the Acquiring Funds business, they could adversely affect the Acquiring Funds business, financial condition, operating results and cash
flows. Until the Acquiring Fund knows what policy changes are made and how those changes impact the Acquiring Funds business and the business of the Acquiring Funds competitors over the long term, the Acquiring Fund will not know if,
overall, the Acquiring Fund will benefit from them or be negatively affected by them.
The rules dealing with U.S. federal income taxation are constantly
under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The Acquiring Fund cannot predict how any changes in the tax laws might affect its investors or the Acquiring Fund itself. New legislation,
U.S. Treasury regulations, administrative interpretations or court decisions, with or without retroactive application, could significantly and negatively affect the Acquiring Funds ability to qualify as a RIC or the U.S. federal income tax
consequences to its investors and itself of such qualification, or could have other adverse consequences. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and
proposals and their potential effect on an investment in the Acquiring Funds shares.
1940 Act Regulation. The Acquiring Fund is a registered
closed-end management investment company and as such is subject to regulations under the 1940 Act. Generally speaking, any contract or provision thereof that is made, or where performance involves a violation
of the 1940 Act or any rule or regulation thereunder is unenforceable by either party unless a court finds otherwise.
LIBOR Risk. The Acquiring
Fund may be exposed to financial instruments that are tied to the London Interbank Offered Rate (LIBOR) to determine payment obligations, financing terms, hedging strategies or investment value. The Acquiring Funds investments may
pay interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Acquiring Fund may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Acquiring Fund may also
reference LIBOR.
The United Kingdoms Financial Conduct Authority announced a phase out of LIBOR such that after December 31, 2021, all
sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings will cease to be published or will no longer be
representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and
12-month U.S. dollar LIBOR settings will cease to be published or will no longer be representative. The Acquiring Fund may have investments linked to other interbank offered rates, such as the Euro Overnight
Index Average (EONIA), which may also cease to be published. Various financial industry groups have begun planning for the transition away from LIBOR, but there are challenges to converting certain securities and transactions to a new
reference rate (e.g., the Secured Overnight Financing Rate (SOFR), which is intended to replace the U.S. dollar LIBOR).
Neither the effect of
the LIBOR transition process nor its ultimate success can yet be known. The transition process 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. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the
effectiveness of any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add
alternative rate-setting provisions in certain existing instruments. In addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There may also be challenges for the Acquiring Fund to
enter into hedging transactions against such newly-issued instruments until a market for such hedging transactions develops. All of the aforementioned may adversely affect the Acquiring Funds performance or NAV.
Risks Associated with Recent Market Events. Stresses associated with the 2008 financial crisis in the United States and global economies peaked
approximately a decade ago, but periods of unusually high volatility in the financial markets and restrictive credit conditions, sometimes limited to a particular sector or a geography, continue to recur. Some countries, including the United States,
have adopted and/or are considering the adoption of more protectionist
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trade policies, a move away from the tighter financial industry regulations that followed the financial crisis, and/or substantially reducing corporate taxes. The exact shape of these policies is
still being considered, but the equity and debt markets may react strongly to expectations of change, which could increase volatility, especially if the markets expectations are not borne out. A rise in protectionist trade policies, and the
possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time. In addition, geopolitical and other risks, including environmental and public
health, may add to instability in world economies and markets generally. Economies and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not the Fund invests in securities of issuers located in
or with significant exposure to countries experiencing economic, political and/or financial difficulties, the value and liquidity of the Funds investments may be negatively affected by such events.
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and has now developed into a global pandemic.
This pandemic has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty.
Disruptions in markets can adversely impact a Fund and its investments. Further, certain local markets have been or may be subject to closures, and there can be no certainty regarding whether trading will continue in any local markets in which a
Fund may invest, when any resumption of trading will occur or, once such markets resume trading, whether they will face further closures. Any suspension of trading in markets in which a Fund invests will have an impact on the Fund and its
investments and will impact the Funds ability to purchase or sell securities in such market. The outbreak could also impair the information technology and other operational systems upon which a Funds service providers, including
BlackRock, rely, and could otherwise disrupt the ability of employees of a Funds service providers to perform critical tasks relating to the Fund. The impact of this outbreak has adversely affected the economies of many nations and the entire
global economy and may impact individual issuers and capital markets in ways that cannot be foreseen. In the past, governmental and quasi-governmental authorities and regulators through the world have at times responded to major economic disruptions
with a variety of fiscal and monetary policy changes, including direct capital infusions into companies and other issuers, new monetary policy tools, and lower interest rates. An unexpected or sudden reversal of these policies, or the
ineffectiveness of such policies, is likely to increase market volatility, which could adversely affect a Funds investments. Public health crises caused by the outbreak may exacerbate other preexisting political, social and economic risks in
certain countries or globally. Other infectious illness outbreaks that may arise in the future could have similar or other unforeseen effects. The duration of this outbreak or others and their effects cannot be determined with certainty.
EMU and Redenomination Risk. As the European debt crisis progressed, the possibility of one or more Eurozone countries exiting the EMU, or even the
collapse of the Euro as a common currency, arose, creating significant volatility at times in currency and financial markets generally. The effects of the collapse of the Euro, or of the exit of one or more countries from the EMU, on the U.S. and
global economy and securities markets are impossible to predict and any such events could have a significant adverse impact on the value and risk profile of the Acquiring Funds portfolio. Any partial or complete dissolution of the EMU could
have significant adverse effects on currency and financial markets, and on the values of the Acquiring Funds portfolio investments. If one or more EMU countries were to stop using the Euro as its primary currency, the Acquiring Funds
investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are
redenominated may be subject to foreign currency risk, illiquidity risk and valuation risk to a greater extent than similar investments currently denominated in Euros. To the extent a currency used for redenomination purposes is not specified in
respect of certain EMU-related investments, or should the Euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult
to value or dispose of. The Acquiring Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.
Market Disruption and Geopolitical Risk. The occurrence of events similar to those in recent years, such as the aftermath of the war in Iraq,
instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, new and ongoing epidemics and pandemics of infectious diseases and other global health events, natural/environmental disasters, terrorist attacks in the
United States and around the world, social and political discord, debt crises (such as the Greek crisis), sovereign debt downgrades, increasingly strained relations between the United States and a number of foreign countries, including traditional
allies, such as certain European countries, and historical
35
adversaries, such as North Korea, Iran, China and Russia, and the international community generally, new and continued political unrest in various countries, such as Venezuela and Spain, the exit
or potential exit of one or more countries from the European Union (the EU) or the European Monetary Union (the EMU), continued changes in the balance of political power among and within the branches of the U.S. government,
among others, may result in market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the United States and worldwide. The coronavirus pandemic has led to illiquidity
and volatility in the municipal bond markets and may lead to downgrades in the credit quality of certain municipal issuers.
China and the United States
have each recently imposed tariffs on the other countrys products. These actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible
failure of individual companies and/or large segments of Chinas export industry, which could have a negative impact on the Acquiring Funds performance. U.S. companies that source material and goods from China and those that make large
amounts of sales in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the U.S. dollar to decline against safe haven
currencies, such as the Japanese yen and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in the future.
The decision made in the British referendum of June 23, 2016 to leave the EU, an event widely referred to as Brexit, has led to volatility in
the financial markets of the United Kingdom (UK) and more broadly across Europe and may also lead to weakening in consumer, corporate and financial confidence in such markets. Pursuant to an agreement between the UK and the EU, the UK
left the EU on January 31, 2020. The UK and EU have reached an agreement effective January 1, 2021 on the terms of their future trading relationship relating principally to the trading of goods; however, negotiations are ongoing for
matters not covered by the agreement, such as the trade of financial services. The longer term economic, legal, political and social framework to be put in place between the UK and the EU remains unclear at this stage and ongoing political and
economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets may continue for some time. In particular, the decision made in Brexit may lead to a call for similar referendums in other European jurisdictions
which may cause increased economic volatility in the European and global markets. This uncertainty may have an adverse effect on the economy generally and on the ability of the Acquiring Fund to execute their strategies and to receive attractive
returns. In particular, currency volatility may mean that the returns of the Acquiring Fund and its investments are adversely affected by market movements and may make it more difficult, or more expensive, for the Acquiring Fund to execute prudent
currency hedging policies. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential downgrading of the UKs sovereign credit rating, may also have an impact on the performance of
portfolio companies or investments located in the UK or Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the Acquiring Fund, its investments or its organization more
generally.
The occurrence of any of these above events could have a significant adverse impact on the value and risk profile of the Acquiring Funds
portfolio. The Acquiring Fund does not know how long the securities markets may be affected by similar events and cannot predict the effects of similar events in the future on the U.S. economy and securities markets. There can be no assurance that
similar events and other market disruptions will not have other material and adverse implications.
Cybersecurity incidents affecting particular companies
or industries may adversely affect the economies of particular countries of the world in which the Acquiring Fund invests.
Regulation and Government
Intervention Risk. The U.S. Government and the Federal Reserve, as well as certain foreign governments, recently have taken unprecedented actions designed to support certain financial institutions and segments of the financial markets that have
experienced extreme volatility, such as implementing stimulus packages, providing liquidity in fixed-income, commercial paper and other markets, and providing tax breaks, among other actions. Such actions may have unintended and adverse
consequences, such as causing or contributing to an increased risk of inflation. See Inflation Risk. The reduction or withdrawal of Federal Reserve or other U.S. or non-U.S. governmental support
could negatively affect financial markets generally and reduce the value and liquidity of certain securities. Additionally, with the cessation of certain market support activities, the Acquiring Fund may face a heightened level of interest rate risk
as a result of a rise or increased volatility in interest rates.
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Federal, state, and other governments, their regulatory agencies or self-regulatory organizations may take
actions that affect the regulation of the issuers in which the Acquiring Fund invests. Legislation or regulation may also change the way in which the Acquiring Fund is regulated. Such legislation or regulation could limit or preclude the Acquiring
Funds ability to achieve its investment objective.
In the aftermath of the global financial crisis, there appears to be a renewed popular,
political and judicial focus on finance related consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case of transactions between financial institutions and the general public,
there may be a greater tendency toward strict interpretation of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk allocation and/or where consumers are perceived as not having
had an opportunity to exercise informed consent to the transaction. In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as the Acquiring
Fund and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of retail investors. The Acquiring Fund may be affected by governmental action in ways that are not foreseeable, and there is a
possibility that such actions could have a significant adverse effect on the Acquiring Fund and its ability to achieve its investment objective.
Investment Company Act Regulations. The Acquiring Fund is a registered closed-end management investment company
and as such is subject to regulations under the 1940 Act. Generally speaking, any contract or provision thereof that is made, or where performance involves a violation of the 1940 Act or any rule or regulation thereunder is unenforceable by either
party unless a court finds otherwise.
Potential Conflicts of Interest of the Investment Advisor and Others. The investment activities of
BlackRock, Inc. (BlackRock), the ultimate parent company of the Investment Advisor, and its affiliates (including BlackRock and its subsidiaries (collectively, the Affiliates)), and their respective directors, officers
or employees, in the management of, or their interest in, their own accounts and other accounts they manage, may present conflicts of interest that could disadvantage the Acquiring Fund and its shareholders. BlackRock and its Affiliates provide
investment management services to other funds and discretionary managed accounts that may follow investment programs similar to that of the Acquiring Fund. Subject to the requirements of the 1940 Act, BlackRock and its Affiliates intend to engage in
such activities and may receive compensation from third parties for their services. Neither BlackRock nor any Affiliate is under any obligation to share any investment opportunity, idea or strategy with the Acquiring Fund. As a result, BlackRock and
its Affiliates may compete with the Acquiring Fund for appropriate investment opportunities. The results of the Acquiring Funds investment activities, therefore, may differ from those of an Affiliate and of other accounts managed by BlackRock
or an Affiliate and it is possible that the Acquiring Fund could sustain losses during periods in which one or more Affiliates and other accounts achieve profits on their trading for proprietary or other accounts. BlackRock has adopted policies and
procedures designed to address potential conflicts of interests. For additional information about potential conflicts of interest and the way in which BlackRock addresses such conflicts, please see Conflicts of Interest in the Statement
of Additional Information.
Market and Selection Risk. Market risk is the possibility that the market values of securities owned by the Acquiring
Fund will decline. There is a risk that equity and/or bond markets will go down in value, including the possibility that such markets will go down sharply and unpredictably.
Stock markets are volatile, and the price of equity securities fluctuates based on changes in a companys financial condition and overall market and
economic conditions. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Acquiring Fund. Also, the price of common stocks is sensitive to general movements in the stock market and
a drop in the stock market may depress the price of common stocks to which the Acquiring Fund has exposure. Common stock prices fluctuate for several reasons, including changes in investors perceptions of the financial condition of an issuer
or the general condition of the relevant stock market, or when political or economic events affecting the issuers occur.
The prices of fixed income
securities tend to fall as interest rates rise, and such declines tend to be greater among fixed income securities with longer maturities. Market risk is often greater among certain types of fixed income securities, such as zero-coupon bonds that do not make regular interest payments but are instead bought at a discount to their face values and paid in full upon maturity. As interest rates change, these securities often fluctuate more
in price than securities that make regular interest payments and therefore subject the Acquiring Fund to greater market risk than a fund that does not own these types of securities.
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When-issued and delayed delivery transactions are subject to changes in market conditions from the time of the
commitment until settlement, which may adversely affect the prices or yields of the securities being purchased. The greater the Acquiring Funds outstanding commitments for these securities, the greater the Acquiring Funds exposure to
market price fluctuations.
Selection risk is the risk that the securities that the Acquiring Funds management selects will underperform the equity
and/or bond market, the market relevant indices or other funds with similar investment objectives and investment strategies.
Defensive Investing
Risk. For defensive purposes, the Acquiring Fund may allocate assets into cash or short-term fixed income securities. In doing so, the Acquiring Fund may succeed in avoiding losses but may otherwise fail to achieve its investment objective.
Further, the value of short-term fixed income securities may be affected by changing interest rates and by changes in credit ratings of the investments. If the Acquiring Fund holds cash uninvested it will be subject to the credit risk of the
depository institution holding the cash.
Decision-Making Authority Risk. Investors have no authority to make decisions or to exercise business
discretion on behalf of the Acquiring Fund, except as set forth in the Acquiring Funds governing documents. The authority for all such decisions is generally delegated to the Board, which in turn, has delegated the day-to-day management of the Acquiring Funds investment activities to the Investment Advisor, subject to oversight by the Board.
Management Risk. The Acquiring Fund is subject to management risk because it is an actively managed investment portfolio. The Investment Advisor and
the individual portfolio managers will apply investment techniques and risk analyses in making investment decisions for the Acquiring Fund, but there can be no guarantee that these will produce the desired results. The Acquiring Fund may be subject
to a relatively high level of management risk because the Acquiring Fund may invest in derivative instruments, which may be highly specialized instruments that require investment techniques and risk analyses different from those associated with
equities and bonds.
Valuation Risk. The Acquiring Fund is subject to valuation risk, which is the risk that one or more of the securities in which
the Acquiring Fund invests are valued at prices that the Acquiring Fund is unable to obtain upon sale due to factors such as incomplete data, market instability or human error. The Investment Advisor may use an independent pricing service or prices
provided by dealers to value securities at their market value. Because the secondary markets for certain investments may be limited, such instruments may be difficult to value. When market quotations are not available, the Investment Advisor may
price such investments pursuant to a number of methodologies, such as computer-based analytical modeling or individual security evaluations. These methodologies generate approximations of market values, and there may be significant professional
disagreement about the best methodology for a particular type of financial instrument or different methodologies that might be used under different circumstances. In the absence of an actual market transaction, reliance on such methodologies is
essential, but may introduce significant variances in the ultimate valuation of the Acquiring Funds investments. Technological issues and/or errors by pricing services or other third-party service providers may also impact the Acquiring
Funds ability to value its investments and the calculation of the Acquiring Funds NAV.
When market quotations are not readily available or
are deemed to be inaccurate or unreliable, the Acquiring Fund values its investments at fair value as determined in good faith pursuant to policies and procedures approved by the Board. Fair value is defined as the amount for which assets could be
sold in an orderly disposition over a reasonable period of time, taking into account the nature of the asset. Fair value pricing may require determinations that are inherently subjective and inexact about the value of a security or other asset. As a
result, there can be no assurance that fair value priced assets will not result in future adjustments to the prices of securities or other assets, or that fair value pricing will reflect a price that the Acquiring Fund is able to obtain upon sale,
and it is possible that the fair value determined for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually
could be or is realized upon the sale of that security or other asset. For example, the Acquiring Funds NAV could be adversely affected if the Acquiring Funds determinations regarding the fair value of the Acquiring Funds
investments were materially higher than the values that the Acquiring Fund ultimately realizes upon the disposal of such investments. Where
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market quotations are not readily available, valuation may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation in such
cases than for investments with a more active secondary market because there is less reliable objective data available. The Acquiring Fund prices its shares daily and therefore all assets, including assets valued at fair value, are valued daily.
Reliance on the Investment Advisor Risk. The Acquiring Fund is dependent upon services and resources provided by the Investment Advisor, and
therefore the Investment Advisors parent, BlackRock. The Investment Advisor is not required to devote its full time to the business of the Acquiring Fund and there is no guarantee or requirement that any investment professional or other
employee of the Investment Advisor will allocate a substantial portion of his or her time to the Acquiring Fund. The loss of one or more individuals involved with the Investment Advisor could have a material adverse effect on the performance or the
continued operation of the Acquiring Fund.
Reliance on Service Providers Risk. The Acquiring Fund must rely upon the performance of service
providers to perform certain functions, which may include functions that are integral to the Acquiring Funds operations and financial performance. Failure by any service provider to carry out its obligations to the Acquiring Fund in accordance
with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Acquiring Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Acquiring Funds
performance and returns to common shareholders. The termination of the Acquiring Funds relationship with any service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of the
Acquiring Fund and could have a material adverse effect on the Acquiring Funds performance and returns to common shareholders.
Information
Technology Systems Risk. The Acquiring Fund is dependent on the Investment Advisor for certain management services as well as back-office functions. The Investment Advisor depends on information technology systems in order to assess investment
opportunities, strategies and markets and to monitor and control risks for the Acquiring Fund. It is possible that a failure of some kind which causes disruptions to these information technology systems could materially limit the Investment
Advisors ability to adequately assess and adjust investments, formulate strategies and provide adequate risk control. Any such information technology-related difficulty could harm the performance of the Acquiring Fund. Further, failure of the
back-office functions of the Investment Advisor to process trades in a timely fashion could prejudice the investment performance of the Acquiring Fund.
Cyber Security Risk. With the increased use of technologies such as the Internet to conduct business, the Acquiring Fund is susceptible to operational,
information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through
hacking or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber security
failures by or breaches of the Investment Advisor and other service providers (including, but not limited to, fund accountants, custodians, transfer agents and administrators), and the issuers of securities in which the Acquiring Fund invests, have
the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Acquiring Funds ability to calculate its NAV, impediments to trading, the inability of shareholders to transact
business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. In addition, substantial costs may be incurred in order to
prevent any cyber incidents in the future. While the Acquiring Fund has established business continuity plans in the event of, and risk management systems to prevent, such cyber-attacks, there are inherent limitations in such plans and systems
including the possibility that certain risks have not been identified. Furthermore, the Acquiring Fund cannot control the cyber security plans and systems put in place by service providers to the Acquiring Fund and issuers in which the Acquiring
Fund invests. As a result, the Acquiring Fund or its shareholders could be negatively impacted.
Misconduct of Employees and of Service Providers
Risk. Misconduct or misrepresentations by employees of the Investment Advisor or the Acquiring Funds service providers could cause significant losses to the Acquiring Fund. Employee misconduct may include binding the Acquiring Fund to
transactions that exceed authorized limits or present unacceptable risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making
misrepresentations regarding any of the foregoing. Losses could also result from actions by the Acquiring Funds service providers, including, without limitation, failing
39
to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation or serious
financial harm, including limiting the Acquiring Funds business prospects or future marketing activities. Despite the Investment Advisors due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully
comprehended, thereby potentially undermining the Investment Advisors due diligence efforts. As a result, no assurances can be given that the due diligence performed by the Investment Advisor will identify or prevent any such misconduct.
Inflation Risk. Inflation risk is the risk that the value of assets or income from investment will be worth less in the future, as inflation decreases
the value of money. As inflation increases, the real value of the common shares and distributions on those shares can decline. In addition, during any periods of rising inflation, interest rates on any borrowings by the Acquiring Fund would likely
increase, which would tend to further reduce returns to the common shareholders.
Deflation Risk. Deflation risk is the risk that prices throughout
the economy decline over time, which may have an adverse effect on the market valuation of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default
more likely, which may result in a decline in the value of the Acquiring Funds portfolio.
Portfolio Turnover Risk. The Acquiring Funds
annual portfolio turnover rate may vary greatly from year to year, as well as within a given year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Acquiring Fund. A higher portfolio
turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Acquiring Fund. High portfolio turnover may result in an increased realization of net short-term capital gains by the
Acquiring Fund which, when distributed to common shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create realized capital losses.
Anti-Takeover Provisions Risk. The charter and bylaws of the Acquiring Fund and Maryland law include provisions that could limit the ability of other
entities or persons to acquire control of the Acquiring Fund or convert the Acquiring Fund to open-end status or to change the composition of the Board. Such provisions could limit the ability of common
shareholders to sell their common shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Acquiring Fund. See Certain Provisions in the Charters and Bylaws.
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INFORMATION ABOUT THE REORGANIZATION
The Reorganization seeks to combine two funds that have the same investment adviser, the same Board Members, and similar investment objectives, investment
strategies, policies and restrictions.
Description of the Reorganization
The Reorganization Agreement (a form of which is attached as Appendix A to this Joint Proxy Statement/Prospectus) provides for the Acquiring Funds
acquisition of substantially all of the assets of the Target Fund and assumption of substantially all of the liabilities of the applicable Target Fund in exchange for newly issued Acquiring Fund common shares, with a par value $0.10 per share, and
newly issued Acquiring Fund VRDP Shares, with a par value of $0.10 per share and liquidation preference of $100,000 per share (plus any accumulated and unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day
immediately preceding the Closing Date if such dividends have not been paid prior to the Closing Date). The Acquiring Fund will list the newly issued common shares on the NYSE. The Target Fund will distribute Acquiring Fund Shares received by it pro
rata to its shareholders (although cash may be paid in lieu of any fractional common shares). The newly-issued Acquiring Fund Shares will be issued in the form of book-entry interests. Such distribution of Acquiring Fund Shares to Target Fund
shareholders will be accomplished by opening new accounts on the books of the Acquiring Fund in the names of the Target Fund shareholders and transferring to those shareholder accounts Acquiring Fund Shares.
Each newly-opened account on the books of the Acquiring Fund for the former common shareholders of MYJ will represent the respective pro rata number of
Acquiring Fund common shares (rounded down, in the case of fractional common shares held other than in an automatic dividend reinvestment plan account (Plan Account), to the next largest number of whole common shares) due such common
shareholder. No fractional Acquiring Fund common shares will be issued (except for common shares held in a Plan Account). In the event there are fractional common shares in an account other than a Plan Account, the Acquiring Funds transfer
agent will aggregate all such fractional MYJ common shares and sell the resulting whole common shares on the NYSE for the account of all holders of such fractional interests, and each such holder will be entitled to the pro rata share of the
proceeds from such sale upon being issued book-entry interests for the Acquiring Fund common shares. See Terms of the Reorganization AgreementBook-Entry Interests for a description of the procedures to be followed by MYJ
common shareholders to obtain their Acquiring Fund common shares (and cash in lieu of fractional common shares, if any). Similarly, each newly-opened account on the books of the Acquiring Fund MYJ VRDP Holders would represent the number of Acquiring
Fund VRDP Shares issued on a one-for-one basis for each such VRDP Holders holdings of MYJ VRDP Shares.
As a result of the Reorganization, each common shareholder of MYJ will own Acquiring Fund common shares that (except for cash payments received in lieu
of fractional common shares) will have an aggregate NAV (not the market value) immediately after the Closing Date equal to the aggregate NAV (not the market value) of that shareholders MYJ common shares immediately prior to the Closing Date.
The aggregate NAV of each Fund immediately prior to the applicable Reorganization will reflect accrued expenses associated with such Reorganization. The NAV of MYJ common shares will not be diluted as a result of the Reorganization. The value
of each Funds net assets will be calculated net of the liquidation preference (including accumulated and unpaid dividends) of all outstanding VRDP Shares of such Fund. The market value of the common shares of the Combined Fund may be less than
the market value of the common shares of each respective Fund prior to the Reorganization. Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and
unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in exchange for each Target
Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares will be Series W-7 VRDP Shares of the Acquiring Fund. No fractional
Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity
with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will
be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP
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Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on April 15, 2022, unless extended (as described below). The Reorganization
will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding. The terms of the Acquiring Funds VRDP Shares may change from time to time, subject to Board approval.
The newly issued Acquiring Fund VRDP Shares will have terms that are similar to the terms of the outstanding Target Fund VRDP Shares, with certain
differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund may designate any succeeding
subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for such Funds VRDP Shares. During a special rate period, a Fund may choose to
modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares
of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless extended. The terms currently applicable to the VRDP Shares of the
Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the Funds for additional information about the preferred shares of each
Fund.
Since the Acquiring Fund VRDP Shares would be issued at a liquidation preference and value per share equal to the liquidation preference and value
per share of the VRDP Shares of MYJ, the interests of MYJ VRDP Holders will not be diluted as a result of the Reorganization.
As a result of
the Reorganization, a common or preferred shareholder of any of the Funds may hold a reduced percentage of ownership in the Combined Fund than they did MYJ. No sales charge or fee of any kind will be charged to shareholders of MYJ in connection with
their receipt of Acquiring Fund Shares in the Reorganization.
As soon as practicable after the Closing Date for the Reorganization, MYJ will deregister
as an investment company under the 1940 Act and liquidate, dissolve and terminate in accordance with its charter and Maryland law. The Acquiring Fund will continue to operate after the Reorganization as a registered,
non-diversified, closed-end management investment company with the investment objective, investment strategies, investment policies and investment restrictions described
in this Joint Proxy Statement/Prospectus.
If the Reorganization is not consummated, then each Fund would continue to exist and operate on a standalone
basis. Both the Target Fund and the Acquiring Fund will continue to be advised by the Investment Advisor. If the Reorganization is not consummated, the Investment Advisor may recommend alternative proposals to the Board of each Fund.
The Boards Recommendation
The Board of MYJ recommends that the common shareholders of MYJ vote FOR the proposed Reorganization Agreement at the Special Meeting.
The Board of the Acquiring Fund recommends that common shareholders of the Acquiring Fund vote FOR the proposed Issuance at the Special Meeting.
Shareholder approval of the Reorganization Agreement requires (i) with respect to Proposal 1(A), the affirmative vote of the holders of a majority
of the outstanding MYJ common shares and MYJ VRDP Shares voting as a single class, (ii) with respect to Proposal 1(B), the affirmative vote of the holders of a 1940 Act Majority of MYJ VRDP Shares voting as a separate class and
(iii) with respect to Proposal 1(C), the affirmative vote of the holders of a 1940 Act Majority of Acquiring Fund VRDP Shares voting as a separate class.
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Each issuance of additional common shares of the Acquiring Fund in connection with the Reorganization Agreement
contemplated by Proposal 2 requires the affirmative vote of the holders of a majority of the Acquiring Fund common shares and Acquiring Fund VRDP Shares entitled to vote voting as a single class.
A 1940 Act Majority means the affirmative vote of either (i) 67% or more of the voting securities present at the Special Meeting, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy or (ii) more than 50% of the outstanding voting securities of the Fund, whichever is less.
In order for the Reorganization to occur, each Fund must obtain all requisite shareholder approvals with respect to the Reorganization, as well as certain
consents, confirmations and/or waivers from various third parties, including the liquidity provider with respect to the outstanding VRDP Shares. Because the closing of the Reorganization with respect to MYJ is contingent upon such Fund and the
Acquiring Fund obtaining the requisite shareholder approvals and third-party consents and satisfying (or obtaining the waiver of) other closing conditions, it is possible that the Reorganization will not occur, even if shareholders of a Fund
entitled to vote on the Reorganization approve the Reorganization and such Fund satisfies all of its closing conditions, if the other Fund in the Reorganization does not obtain its requisite shareholder approvals or satisfy its closing conditions.
If the Reorganization is not consummated, then each Fund would continue to exist and operate on a standalone basis.
The preferred shares of the Funds were issued on a private placement basis to one or a small number of institutional holders. Please see Information
about the Preferred Shares of the Funds for additional information. To the extent that one or more preferred shareholder of MYJ or the Acquiring Fund owns, holds or controls, individually or in the aggregate, all or a significant portion of
such Funds outstanding preferred shares, the preferred shareholder approval required for the Reorganization may turn on the exercise of voting rights by such particular preferred shareholder(s) and its (or their) determination as to the
favorability of the Reorganization with respect to its (or their) interests. The Funds exercise no influence or control over the determinations of such preferred shareholder(s) with respect to the Reorganization; there is no guarantee that such
preferred shareholder(s) will approve the Reorganization, over which it (or they) may exercise effective disposition power.
Subject to the requisite
approval of the shareholders of each Fund with respect to the Reorganization, as well as certain consents, confirmations and/or waivers from various third parties, including the liquidity provider with respect to the outstanding VRDP Shares, it is
expected that the Closing Date of the Reorganization will be sometime during the second quarter of 2022, but it may be at a different time as described herein.
For additional information regarding voting requirements, see Voting Information and Requirements.
Reasons for the Reorganization
The Board of each Fund, including the Independent Board Members, considered the Reorganization at a meeting held on September 24,
2021. Each Board, including the Independent Board Members, has unanimously approved the Reorganization Agreement (the Approval). Based on the considerations below, the Board of each Fund, including the Independent Board Members, has
determined that the Reorganization is in the best interests of such Fund and that the interests of its existing common shareholders and VRDP Holders would not be diluted with respect to NAV and the liquidation preference, respectively, as a result
of the Reorganization. As a result of the Reorganization, however, common and VRDP Holders of each Fund may hold a reduced percentage of ownership in the larger Combined Fund than they did in any of the individual Funds before the Reorganization.
Each Boards determination to approve the Reorganization was made on the basis of each Board Members business judgment after
consideration of all of the factors taken as a whole with respect to each Fund and its shareholders, although individual Board Members may have placed different weight and assigned different degrees of materiality to various factors. If the
Reorganization is not consummated, then the Investment Advisor may, in connection with ongoing management of the Funds and its product line, recommend alternative proposals to the Board of the Funds. Before reaching these conclusions, the Board of
each Fund, including the Independent Board Members, engaged in a thorough review process relating to the Reorganization, as well as alternatives to the Reorganization. The Board of each Fund also received a memorandum outlining, among other things,
the legal standards and certain other considerations relevant to the Boards deliberations.
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The Board of each Fund considered the Reorganization over a series of meetings. In preparation for the Approval,
the Investment Advisor provided each Board with information regarding the Reorganization, including the rationale therefor and alternatives considered to the Reorganization.
Each Board considered a number of factors presented at the time of the Approval or prior meetings in reaching their determinations, including, but not limited
to, the following, which are discussed in further detail below:
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potential for improved economies of scale and a lower Total Expense Ratio (excluding interest expense) with
respect to each Fund;
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the potential effects of the Reorganization on the earnings and distributions of each Fund;
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the potential effects of the Reorganization on each Funds premium/discount to NAV of common shares;
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the potential effects of the Reorganization on each Funds VRDP Shares;
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the compatibility of the Funds investment objectives, investment strategies and policies and related risks
and risk profiles;
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consistency of portfolio management and portfolio composition;
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the potential for improved secondary market trading, including the potential for greater secondary market
liquidity for the Combined Funds common shares, which may result in tighter bid-ask spreads and better trade execution for the Combined Funds common shareholders when purchasing or selling the
Combined Funds common shares;
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the potential for operating and administrative efficiencies for the Combined Fund, including the potential for
the following benefits:
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greater investment flexibility and investment options, greater diversification of portfolio investments, the
ability to trade in larger positions, additional sources of leverage or more competitive leverage terms and more favorable transaction terms;
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benefits from having fewer closed-end funds offering similar products in
the market, including an increased focus by investors on the remaining funds in the market (including the Combined Fund) and additional research coverage; and
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benefits from having fewer similar funds in the same fund complex, including a simplified operational model and a
reduction in risk of operational, legal and financial errors;
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the anticipated tax-free nature of the Reorganization (except with
respect to taxable distributions, if any, from any Fund prior to, or after, the consummation of the Reorganization, and the receipt of cash in lieu of fractional Shares);
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the potential effects on the Funds capital loss carryforwards;
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the potential effects on each Funds undistributed net investment income;
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the expected costs of the Reorganization;
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the terms of the Reorganization and whether the Reorganization would dilute the interests of shareholders of the
Funds;
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the effect of the Reorganization on shareholder rights;
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alternatives to the Reorganization for each Fund; and
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any potential benefits of the Reorganization to the Investment Advisor and its affiliates.
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Potential for Improved Economies of Scale and Potential for a Lower Expense Ratio. Each Board considered the fees and Total Operating Expenses of its
Fund (including estimated expenses of the Combined Fund after the Reorganization). As of July 31, 2021, the Reorganization is expected to result in a Total Expense Ratio for the Combined Fund that is lower than the Total Expense Ratio of each
Fund. Total Expenses means a Funds total annual operating expenses (including interest expense). Total Expense Ratio means a Funds Total Expenses expressed as a percentage of its average net assets attributable to
its common shares.
Potential Effects of the Reorganization on Earnings and Distributions. The Boards noted that the Combined Funds net
earnings yield on NAV for common shareholders following the Reorganization is expected to be potentially higher than the current net earnings yield on NAV for the Acquiring Fund and potentially the same as the current net earnings yield on NAV for
MYJ. The distribution level of any fund is subject to change based upon a number of factors, including the current and projected level of the funds earnings, and may fluctuate over time; thus, subject to a number of other factors, including
the funds distribution policy, a higher earnings profile may potentially have a positive impact on such funds distribution level over time. The Combined Funds earnings and distribution rate on NAV will change over time, and
depending on market conditions, may be higher or lower than each Funds earnings and distribution rate on NAV prior to the Reorganization. A Funds earnings and net investment income are variables which depend on many factors, including
its asset mix, portfolio turnover level, the amount of leverage utilized by the Fund, the costs of such leverage, the performance of its investments, the movement of interest rates and general market conditions. In addition, the Combined Funds
future earnings will vary depending upon the combination of completed Reorganization. There can be no assurance that the future earnings of a Fund, including the Combined Fund after the Reorganization, will remain constant.
Potential Effects of the Reorganization on Premium/Discount to NAV of Common Shares. Each Board noted that the common shares of its Fund have
historically traded at both a premium and a discount. As of December 6, 2021, the NAV per common share of MYJ was $16.01 and the market price per Common Share of MYJ was $15.84, representing a discount to NAV of
-1.1% and the NAV per Common Share of the Acquiring Fund was $15.91 and the market price per Common Share of the Acquiring Fund was $15.48, representing a discount to NAV of -2.7%. The Board of MYJ noted that to the extent MYJs common shares
are trading at a wider discount (or a narrower premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders would have the potential for an economic benefit by the narrowing of the discount or widening of the
premium. The Board of MYJ also noted that to the extent the MYJs common shares are trading at a narrower discount (or wider premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders may be negatively
impacted if the Reorganization is consummated. The Board of the Acquiring Fund noted that Acquiring Fund common shareholders would only benefit from a premium/discount perspective to the extent the post-Reorganization discount (or premium) of the
Acquiring Fund common shares improves. There can be no assurance that, after the Reorganization, common shares of the Combined Fund will trade at a narrower discount to NAV or wider premium to NAV than the common shares of any individual Fund prior
to the Reorganization. Upon consummation of the Reorganization, the Combined Fund common shares may trade at a price that is less than the current market price of Acquiring Fund common shares. In the Reorganization, common shareholders of MYJ will
receive Acquiring Fund common shares based on the relative NAVs (not the market values) of the respective Funds common shares. The market value of the common shares of the Combined Fund may be less than the market value of the common shares of
each respective Fund prior to the Reorganization.
Potential Effects of the Reorganization on the Preferred Shares. As of the date of
the enclosed Joint Proxy Statement/Prospectus, MYJ and the Acquiring Fund each have VRDP Shares outstanding. As of December 6, MYJ had 1,800 Series W-7 VRDP Shares
outstanding and the Acquiring Fund had 2,371 Series W-7 VRDP Shares
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outstanding. In connection with the Reorganization, the Acquiring Fund expects to issue 1,800 additional VRDP Shares to MYJ VRDP Holders. Following the completion of the Reorganization, the
Combined Fund is expected to have 4,171 VRDP Shares outstanding. The Board noted that, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a
one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and
unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in exchange for the
Target Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares may be of the same series as the Acquiring Funds Series
W-7 VRDP Shares or a substantially identical series. No fractional Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the
Reorganization will be identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP
Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of
the Acquiring Funds VRDP Shares currently outstanding.
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially
similar to the terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a
mandatory redemption date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for
such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to
the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for
MYJ, unless extended. The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on
the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of
the Funds for additional information about the preferred shares of each Fund.
The Board noted that none of the expenses of the Reorganization
are expected to be borne by the VRDP Holders of the Funds.
Following the Reorganization, the VRDP Holders of each Fund will be VRDP Holders of the
larger Combined Fund that will have a larger asset base and more VRDP Shares outstanding than either Fund individually. With respect to matters requiring all preferred shareholders to vote separately or common and preferred
shareholders to vote together as a single class, following the Reorganization, VRDP Holders of the Combined Fund will hold a smaller percentage of the outstanding preferred shares of the Combined Fund as compared to their percentage holdings
of outstanding preferred shares of their respective Fund prior to the Reorganization.
Compatibility of Investment Objectives, Investment
Strategies and Policies and Related Risks and Risk Profiles. Each Board noted that its Funds shareholders will remain invested in an exchange-listed, closed-end management investment company
registered under the 1940 Act that will have substantially greater net assets and a similar investment objective, investment strategies, policies and restrictions. Each Fund also utilizes leverage in the form of VRDP Shares and TOBs. The risk/return
profile of the Combined Fund is expected to remain comparable to those of each Fund before the Reorganization because of the similarities in the investment policies of each Fund.
Consistency of Portfolio Management and Portfolio Composition. Each Board noted that each Fund has the same investment adviser and that each
Funds shareholders will benefit from the experience and expertise of the Combined Funds anticipated portfolio management team. Each of MYJ and the Acquiring Fund is managed by a team of investment professionals led by Phillip Soccio, CFA
and Theodore R. Jaeckel, Jr., CFA. Following the
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Reorganization, it is expected that the Combined Fund will be managed by a team of investment professionals led by Phillip Soccio, CFA, Theodore R. Jaeckel, Jr., CFA and Christian Romaglino. Each
Board also considered the portfolio composition of its Fund and the impact of the Reorganization on the Funds portfolio. Each Board noted that it is not anticipated that there will be any significant disposition of the holdings in its Fund as
a result of the Reorganization because of the similarities among the portfolio guidelines of the Funds. For additional information, please see Comparison of the Funds Investments and Risk Factors and Special
Considerations.
Potential for Improved Secondary Market Trading for Common Shares. While it is not possible to predict trading levels
at the time the Reorganization close, each Board considered that the Combined Fund may provide greater secondary market liquidity for its common shares as it would be larger than either Fund, which may result in tighter bid-ask spreads, better trade execution for the Combined Funds common shareholders when purchasing or selling Combined Fund common shares. However, there can be no assurance that the Reorganization will result
in such benefits or that the common shares of the Combined Fund will trade at a narrower discount to NAV or wider premium to NAV than the common shares of any individual Fund prior to the Reorganization. Upon consummation of the Reorganization, the
secondary market liquidity, bid-ask spreads, and trade execution with respect to the Combined Funds common shares may deteriorate. Furthermore, the Combined Fund common shares may trade at a price that
is less than the current market price of Acquiring Fund common shares.
Potential for Operating and Administrative Efficiencies. Each Board noted
that the Combined Fund may achieve certain operating and administrative efficiencies from its larger net asset size, including greater investment flexibility and investment options, greater diversification of portfolio investments, the ability to
trade in larger positions, additional sources of leverage or more competitive leverage terms and more favorable transaction terms. Each Board also noted that the Combined Fund may experience potential benefits from having fewer closed-end funds offering similar products in the market, including an increased focus by investors on the remaining funds in the market (including the Combined Fund) and additional research coverage.
Each Board also noted that the Combined Fund may experience potential benefits from having fewer similar funds in the same fund complex, including a
simplified operational model, the elimination of complexities involved with having duplicative funds, easier product differentiation for shareholders (including shareholders of the Combined Fund) and reduced risk of operational, legal and financial
errors.
Anticipated Tax-Free Reorganization. Each Board noted that it is anticipated that shareholders of
its Fund will generally recognize no gain or loss for U.S. federal income tax purposes as a result of the Reorganization (except with respect to cash received in lieu of fractional common shares), as the Reorganization is intended to qualify as a
reorganization within the meaning of Section 368(a) of the Code.
As discussed above, shareholders of each Fund may receive distributions
prior to, or after, the consummation of the Reorganization, including distributions attributable to their proportionate share of each Funds undistributed net investment income declared prior to the consummation of the Reorganization or the
Combined Fund built-in gains, if any, recognized after the Reorganization, when such income and gains are eventually distributed by the Combined Fund. To the extent that such a distribution is not an
exempt interest dividend (as defined in the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
Capital Loss Carryforward Considerations. Each Board considered that capital loss carryforwards of the Combined Fund attributable to MYJ will be
subject to tax loss limitation rules by reason of MYJ undergoing an ownership change in the Reorganization. Each Board also noted that the Combined Funds capital loss carryforward loss on a per share basis is expected to be higher
than MYJs capital loss carryforward loss per share, but lower than the Acquiring Funds capital loss carryforward loss per share. Each Board considered that the ability of its Fund to fully utilize its existing capital loss carryforwards
depends on many variables and assumptions, including projected performance, and is, therefore, highly uncertain.
Potential Effects of the
Reorganization on Undistributed Net Investment Income. If the Reorganization is approved by shareholders, then the greater of (1) substantially all of the undistributed net investment income, if any, or (2) the monthly distribution of
each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date (the Pre-Reorganization Declared UNII Distributions). The declaration date, ex-dividend date (the Ex-Dividend Date) and record date of the Pre-Reorganization Declared UNII Distributions will occur
prior to the Closing
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Date. However, all or a significant portion of the Pre-Reorganization Declared UNII Distributions may be paid in one or more distributions to common
shareholders of the Funds entitled to such Pre-Reorganization Declared UNII Distributions after the Closing Date. Former MYJ shareholders entitled to such
Pre-Reorganization Declared UNII Distributions paid after the Closing Date will receive such distributions in cash for a partial month post-Reorganization.
Persons who purchase common shares of any of the Funds on or after the Ex-Dividend Date for the Pre-Reorganization Declared UNII Distributions should not expect to receive any distributions from any Fund until distributions, if any, are declared by the Board of the Combined Fund and paid to shareholders
entitled to any such distributions. No such distributions are expected to be paid by the Combined Fund until at least approximately one month following the Closing Date.
Additionally, the Acquiring Fund, in order to seek to provide its common shareholders with distribution rate stability, may include in its Pre-Reorganization Declared UNII Distribution amounts in excess of its undistributed net investment income and net investment income accrued through the Closing Date. This would result in the Acquiring Fund issuing
incrementally more common shares in the Reorganization since its NAV as of the Valuation Time would be lower relative to a scenario where such excess amounts were not included in the Acquiring Funds
Pre-Reorganization Declared UNII Distribution.
The Combined Fund is anticipated to retain a lower UNII balance
after the Reorganization than the Acquiring Fund prior to the Reorganization. The lower anticipated UNII balance for the Combined Fund relative to the UNII balance of the Acquiring Fund poses risks for shareholders of the Combined Fund. UNII
balances, in part, support the level of a funds regular distributions and provide a cushion in the event a funds net earnings for a particular distribution period are insufficient to support the level of its regular distribution for that
period. If the Combined Funds net earnings are below the level of its current distribution rate, the Combined Funds UNII balance could be more likely to contribute to a determination to decrease the Combined Funds distribution
rate, or could make it more likely that the Combined Fund will make distributions consisting in part of a return of capital to maintain the level of its regular distributions. See Dividends and Distributions. Moreover, because a
funds UNII balance, in part, supports the level of a funds regular distributions, the UNII balance of the Combined Fund could impact the trading market for the Combined Funds common shares and the magnitude of the trading discount
to NAV of the Combined Funds common shares. However, the Combined Fund is anticipated to benefit from a lower expense ratio, a potentially higher net earnings profile (compared to the Acquiring Fund) and other anticipated benefits of economies
of scale as discussed herein. Each Fund, including the Combined Fund, reserves the right to change its distribution policy with respect to common share distributions and the basis for establishing the rate of its distributions for the common shares
at any time and may do so without prior notice to common shareholders. The payment of any distributions by any Fund, including the Combined Fund, is subject to, and will only be made when, as, and if, declared by the Board of such Fund. There is no
assurance the Board of any Fund, including the Combined Fund, will declare any distributions for such Fund.
To the extent any Pre-Reorganization Declared UNII Distribution is not an exempt interest dividend (as defined in the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
Expected Costs of the Reorganization. Each Board considered the terms and conditions of the Reorganization Agreement, including the estimated costs
associated with the Reorganization, and the allocation of such costs among the Funds. Each Board noted, however, that the Investment Advisor anticipated that the projected costs of the Reorganization may be recovered over time. Common shareholders
of each Fund will indirectly bear a portion of the costs of the Reorganization. For MYJ, the expenses of the Reorganization are estimated to be approximately $366,537, of which the Investment Advisor will bear approximately $129,586. For the
Acquiring Fund, the expenses of the Reorganization are estimated to be approximately $357,561, of which the Investment Advisor will bear approximately $161,495. The actual costs associated with the Reorganization may be more or less than the
estimated costs discussed herein. Each Board also noted that the VRDP Holders of the Funds are not expected to bear any of the costs of the Reorganization, while the common shareholders of the Funds will indirectly bear all or a portion of the costs
of the Reorganization.
Terms of the Reorganization and Impact on Shareholders. Each Board noted that the aggregate NAV (not the market value) of
the Acquiring Fund common shares that the Target Funds common shareholders will receive in the
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Reorganization is expected to equal the aggregate NAV (not the market value) of the Target Fund common shares that the Target Funds common shareholders owned immediately prior to the
Closing Date. The aggregate NAV of each Fund immediately prior to the applicable Reorganization will reflect accrued expenses associated with such Reorganization. The NAV of MYJs common shares will not be diluted as a result of the
Reorganization. Fractional Acquiring Fund common shares will generally not be issued to MYJ common shareholders in connection with the Reorganization, and MYJ common shareholders should expect to receive cash in lieu of such fractional common
shares.
Each Board further noted that holders of MYJ VRDP Shares will receive the same number of Acquiring Fund VRDP Shares as the MYJ VRDP Shares held
by such VRDP Holders immediately prior to the Closing Date.
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially
similar to the terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a
mandatory redemption date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for
such Funds VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to
the calculation of dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for
MYJ, unless extended. The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum
of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the
Funds for additional information about the preferred shares of each Fund. The terms of the special rate period applicable to the newly issued Acquiring Fund VRDP Shares are expected to be identical to the terms of the Special Rate Period
applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization.
Effect on Shareholder Rights. Each
Board noted that MYJ and the Acquiring Fund are each formed as a Maryland corporation. Each Board also noted that the common shareholders of each Fund have substantially similar voting rights and rights with respect to the payment of dividends and
distribution of assets upon liquidation of their respective Fund and have no preemptive, conversion or exchange rights.
Each Board also noted that
the terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will have terms that are identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity with the Acquiring
Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The terms of the special rate period applicable to the newly issued
Acquiring Fund VRDP Shares are expected to be identical to the terms of the Special Rate Period applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on
April 15, 2022, unless extended. The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding.
Alternatives to the Reorganization. In reaching its decision to approve the Reorganization, the Board considered alternatives to the Reorganization,
including continuing to operate each Fund as a separate Fund.
Potential Benefits to the Investment Advisor and its Affiliates. Each Board
recognized that the Reorganization may result in some benefits and economies of scale for the Investment Advisor and its affiliates. These may include, for example, administrative and operational efficiencies or a reduction in certain operational
expenses as a result of the elimination of MYJ as a separate fund in the BlackRock Fixed-Income Complex.
Each Board noted that, if the Reorganization is
consummated, the annual contractual investment management fee rate of the Acquiring Fund will be 0.50% of the average daily net assets of the Combined Fund. Each Board noted that the annual contractual investment management fee rate of the Combined
Fund is the same as the annual contractual investment management fee rate for each Fund.
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Conclusion. Each Board, including the Independent Board Members, unanimously approved the Reorganization
Agreement and the Issuance, as applicable, concluding that the Reorganization is in the best interests of its Fund and that the interests of existing common shareholders and preferred shareholders of its Fund will not be diluted with respect to NAV
and liquidation preference, respectively, as a result of the Reorganization. This determination was made on the basis of each Board Members business judgment after consideration of all of the factors taken as a whole with respect to its Fund
and the Funds common and preferred shareholders, although individual Board Members may have placed different weight on various factors and assigned different degrees of materiality to various factors.
If the Reorganization is not consummated, then the Investment Advisor may, in connection with ongoing management of each of the Funds and its product line,
recommend alternative proposals to the Board of the Fund.
Terms of the Reorganization Agreement
The following is a summary of the significant terms of the Reorganization Agreement. This summary is qualified in its entirety by reference to the Form of
Agreement and Plan of Reorganization attached as Appendix A to this Joint Proxy Statement/Prospectus.
Valuation of Assets and Liabilities
The respective assets of each of the Funds will be valued on the business day prior to the Closing Date of the Reorganization (the Valuation
Time). The valuation procedures are the same for each Fund: the NAV per Common Share of each Fund will be determined after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) at the Valuation Time. For the purpose of
determining the NAV of a Common Share of each Fund, the value of the securities held by such Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) of such Fund is
divided by the total number of common shares of such Fund outstanding at such time. Daily expenses, including the fees payable to the Investment Advisor, will accrue at the Valuation Time.
Dividends will accumulate on the MYJ VRDP Shares up to and including the day immediately preceding the Closing Date. MYJ VRDP Holders will receive on a one-for-one basis one newly issued VRDP Share of the Acquiring Fund, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated
and unpaid dividends that have accrued on the MYJ VRDP Share up to and including the day immediately preceding the Closing Date if such dividends have not been paid prior to Closing Date), in exchange for each MYJ VRDP Share held by the MYJ VRDP
Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares will be Series W-7 VRDP Shares of the Acquiring Fund. No fractional Acquiring Fund VRDP Shares will be issued.
The first dividend period for the Acquiring Fund VRDP Shares to be issued in the Reorganization will commence on the Closing Date and end on the day
immediately preceding the first dividend payment date for such VRDP Shares, which will be the first business day of the month following the month in which the Closing Date occurs.
Amendments and Conditions
The Reorganization Agreement
may be amended at any time prior to the Closing Date with respect to any of the terms therein upon mutual agreement. However, after adoption of the Reorganization Agreement and approval of the Reorganization, no amendment or modification may be made
which by law requires further approval by shareholders without such further approval. The obligations of each Fund pursuant to the Reorganization Agreement are subject to various conditions, including a registration statement on Form N-14 being declared effective by the SEC, approval of the Reorganization Agreement by the shareholders of the Target Fund and the VRDP Holders of the Acquiring Fund, certain third-party consents, the approval of the
Issuance by the shareholders of the Acquiring Fund, receipt of an opinion of counsel as to tax matters, receipt of an opinion of counsel as to corporate and securities matters and the continuing accuracy of various representations and warranties of
the Funds being confirmed by the respective parties.
If the Reorganization is not consummated, then each Fund would continue to exist and operate on a
standalone basis.
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Postponement; Termination
Under the Reorganization Agreement, the Board of any Fund that is a party to the Reorganization Agreement may cause the related Reorganization to be postponed
or abandoned under certain circumstances should such Board determine that it is in the best interests of the shareholders of its respective Fund to do so. The Reorganization Agreement may be terminated, and the related Reorganization abandoned at
any time (whether before or after adoption thereof by the shareholders of either of the Funds involved in the Reorganization) prior to the Closing Date, or the Closing Date may be postponed: (i) by mutual consent of the Boards of such Funds and
(ii) by the Board of either such Fund if any condition to that Funds obligations set forth in the Reorganization Agreement has not been fulfilled or waived by such Board.
Book-Entry Interests
The Acquiring Fund will issue to
MYJ VRDP Holders book-entry interests for the Acquiring Fund VRDP Shares registered in the name of such MYJ VRDP Holders on a one or-one basis for each holders holdings of MYJ VRDP Shares. The
Funds VRDP Shares were or will be issued in book-entry form as global securities, and such global securities were deposited with, or on behalf of, The Depository Trust Company (DTC) and registered in the name of Cede &
Co., the nominee of DTC. Beneficial interests in the global securities are held only through DTC and any of its participants.
The Acquiring Fund will
issue to MYJ common shareholders book-entry interests and cash in lieu of fractional shares, if applicable, for the Acquiring Fund common shares registered in the name of such shareholders on the basis of each shareholders proportionate
interest in the aggregate net asset value of MYJ common shares, respectively.
Expenses of the Reorganization
Each Fund will bear expenses incurred in connection with the Reorganization. The expenses incurred in connection with the Reorganization include but are not
limited to, costs related to the preparation and distribution of materials distributed to each Funds Board, expenses incurred in connection with the preparation of the Reorganization Agreement, the registration statement on Form N-14 and the separate Joint Proxy Statement to preferred shareholders, the printing and distribution of this Joint Proxy Statement/Prospectus delivered to common shareholders, the separate Joint Proxy
Statement delivered to preferred shareholders and any other materials required to be distributed to shareholders, SEC and state securities commission filing fees, and legal and audit fees in connection with the Reorganization, including fees
incurred in obtaining the requisite consents of rating agencies, counterparties or service providers to the VRDP Shares, legal fees incurred in connection with amending the transaction documents for the VRDP Shares, which may include the legal fees
of counterparties and service providers to the extent applicable, legal fees incurred preparing each Funds Board materials, attending each Funds Board meetings and preparing the minutes, rating agency fees associate with the ratings of
the preferred shares in connection with the Reorganization, auditing fees associated with each Funds financial statements, stock exchange fees, transfer agency fees, rating agency fees, portfolio transfer taxes (if any), and any similar
expenses incurred in connection with the Reorganization.
Common shareholders of each Fund will indirectly bear a portion of the costs of the
Reorganization. For MYJ, the expenses of the Reorganization are estimated to be approximately $366,537, of which the Investment Advisor will bear approximately $129,586. For the Acquiring Fund, the expenses of the Reorganization are estimated to be
approximately $357,561, of which the Investment Advisor will bear approximately $161,495. The actual costs associated with the Reorganization may be more or less than the estimated costs discussed herein. Each Board also noted that the VRDP Holders
of the Funds are not expected to bear any of the costs of the Reorganization, while the common shareholders of the Funds will indirectly bear all or a portion of the costs of the Reorganization.
Neither the Funds nor the Investment Advisor will pay any direct expenses of shareholders arising out of or in connection with the Reorganization (e.g.,
expenses incurred by the shareholder as a result of attending the Special Meeting, voting on the Reorganization or other action taken by the shareholder in connection with the Reorganization). The actual costs associated with the Reorganization may
be more or less than the estimated costs discussed herein.
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Appraisal Rights
Under Maryland law, except in limited circumstances, stockholders are not entitled to demand the fair value of their shares in connection with a reorganization
if any shares of the class or series of the stock are listed on a national securities exchange, such as the common shares of MYJ and the Acquiring Fund, on the Record Date.
Description of Common Shares to Be Issued by the Acquiring Fund
The terms of the Acquiring Fund common shares to be issued pursuant to the Reorganization will be substantially identical to the terms of the Acquiring Fund
common shares that are currently outstanding. The Acquiring Fund common shares, when issued, will be fully paid and non-assessable and have no preemptive, conversion or exchange rights or rights to cumulative
voting.
Please see Information about the Common Shares of the Funds for additional information about the Funds common shares.
Description of VRDP Shares to Be Issued by the Acquiring Fund
Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP Holders will receive on a one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share (plus any accumulated and
unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in exchange for each Target
Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares will be Series W-7 VRDP Shares of the Acquiring Fund. No fractional
Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity
with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will
be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on
April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding. The terms of the Acquiring Funds
VRDP Shares may change from time to time, subject to Board approval.
The newly issued Acquiring Fund VRDP Shares will have terms that are similar to the
terms of the outstanding Target Fund VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption
date of July 1, 2041. A Fund may designate any succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for such Funds
VRDP Shares. During a special rate period, a Fund may choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of
dividends and the redemption of the VRDP Shares. The VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless
extended. The terms currently applicable to the VRDP Shares of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of
the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the
Funds for additional information about the preferred shares of each Fund.
None of the expenses of the Reorganization are expected to be borne
by the VRDP Holders of the Funds.
Following the Reorganization, the VRDP Holders of each Fund will be VRDP Holders of the larger Combined Fund that will
have a larger asset base and more VRDP Shares outstanding than any Fund individually before the Reorganization. With respect to matters requiring all preferred shareholders to vote separately or common and
52
preferred shareholders to vote together as a single class, following the Reorganization, VRDP Holders of the Combined Fund may hold a smaller percentage of the outstanding VRDP Shares of the
Combined Fund as compared to their percentage holdings of outstanding VRDP Shares of their respective Fund prior to the Reorganization.
Please see
Information about the Preferred Shares of the Funds for additional information.
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THE FUNDS
MYJ and the Acquiring Fund are each formed as a Maryland corporation pursuant to its charter (the Charter) and governed by the laws of the State
of Maryland. Each of MYJ and the Acquiring Fund is a non-diversified, closed-end management investment company registered under the 1940 Act. Each Funds principal
office is located at 100 Bellevue Parkway, Wilmington, Delaware 19809, and each Funds telephone number is (800) 882-0052.
MYJ was formed as a Maryland corporation governed by the laws of the State of Maryland on February 24, 1992, and commenced operations on May 1,
1992.
The Acquiring Fund was formed as a Maryland corporation governed by the laws of the State of Maryland on January 27, 1998, and commenced
operations on March 11, 1998.
The Acquiring Fund common shares are listed on the NYSE as MUJ. MYJs common shares are listed on the
NYSE as MYJ.
Each of MYJ and the Acquiring Fund has a July 31 fiscal year end.
Each of MYJ and the Acquiring Fund has VRDP Shares outstanding. Each Funds VRDP Shares are not listed on a national stock exchange and have not been
registered under the Securities Act, or any state securities laws, and unless so registered, may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable state securities laws. Please see Information about the Preferred Shares of the Funds for additional information.
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THE ACQUIRING FUNDS INVESTMENTS
Investment Objective and Policies
The Acquiring Funds investment objective is to provide shareholders with current income exempt from federal income tax and New Jersey personal income
taxes. The investment objective of the Acquiring Fund is a fundamental policy that may not be changed without a vote of a majority of the Acquiring Funds outstanding voting securities.
The Acquiring Fund seeks to achieve its investment objective by investing primarily in a portfolio of MUJ New Jersey Municipal Bonds. The Acquiring Fund
invests substantially all (at least 80%) of its assets in MUJ New Jersey Municipal Bonds, except at times when the Investment Advisor considers that MUJ New Jersey Municipal Bonds of sufficient quantity and quality are unavailable at suitable
prices. To the extent that the Investment Advisor considers that suitable MUJ New Jersey Municipal Bonds are not available for investment, the Acquiring Fund may purchase MUJ Municipal Bonds. The Acquiring Fund may invest directly in such
securities or synthetically through the use of derivatives. The Acquiring Fund will maintain at least 80% of its assets in MUJ New Jersey Municipal Bonds, except during interim periods pending investment of the net proceeds of public offerings
of its securities and during temporary defensive periods. Under normal circumstances, at least 80% of the Acquiring Funds assets will be invested in municipal obligations with remaining maturities of one year or more. There can be no
assurance that the Acquiring Funds investment objective will be realized.
Ordinarily, the Acquiring Fund does not intend to realize significant
investment income subject to federal income tax and New Jersey personal income taxes. The Acquiring Fund may invest all or a portion of its assets in certain tax-exempt securities classified as
private activity bonds (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Acquiring Fund to a federal alternative minimum tax.
The Acquiring Fund may also invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the
Acquiring Fund nevertheless believes such securities pay interest or distributions that are exempt from federal income taxation (MUJ
Non-Municipal Tax-Exempt Securities). MUJ
Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in MUJ New Jersey Municipal Bonds and MUJ Municipal
Bonds, to the extent such investments are permitted by the 1940 Act. Other MUJ Non-Municipal Tax-Exempt Securities could include trust certificates or
other instruments evidencing interests in one or more long-term MUJ New Jersey Municipal Bonds or Municipal Bonds. Certain MUJ
Non-Municipal Tax-Exempt Securities may be characterized as derivative instruments. For purposes of the Acquiring Funds investment objective and
policies, MUJ Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income taxes and New Jersey personal income taxes will be
considered MUJ New Jersey Municipal Bonds and MUJ Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income
taxes will be considered MUJ Municipal Bonds.
The Acquiring Fund invests in investment grade MUJ New Jersey Municipal Bonds and MUJ Municipal
Bonds that are rated at the date of purchase in the four highest rating categories of Moodys (currently Aaa, Aa, A and Baa), S&P (currently AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB) or, if unrated, are considered to be of
comparable quality by the Investment Advisor. In the case of long-term debt, the investment grade rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for Moodys. In the case of short-term notes, the investment grade
rating categories are SP-1+ through SP-2 for S&P, MIG 1 through MIG 3 for Moodys and F-1+ through F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, P-1 through P-3 for
Moodys and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and P-3 for Moodys; and BBB and F-3 for
Fitch), while considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating
categories set forth above. In assessing the quality of MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with respect to the foregoing requirements, the Investment Advisor takes into account the portfolio insurance as well as the nature of any
letters of credit or similar credit enhancement to which particular MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds are entitled and the creditworthiness of the insurance company or financial institution that provided such insurance or credit
enhancements. Insurance is expected to protect the Acquiring Fund against losses caused by a bond issuers failure to make interest or principal payments. However, insurance does not protect the Acquiring Fund or its shareholders against losses
caused by declines in a bonds market value. Also, the Acquiring Fund cannot be certain that any insurance company does not make these payments. If a bonds insurer fails to fulfill its obligations or loses its credit rating, the value of
the bond could drop.
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The Acquiring Fund may invest up to 20% of its managed assets in securities that are rated below investment
grade, which are securities rated Ba or below by Moodys, BB or below by S&P or Fitch or are considered by the Investment Advisor to be of comparable quality, at the time of purchase, subject to the Acquiring Funds other investment
policies. Below investment grade quality is regarded as predominantly speculative with respect to the issuers capacity to pay interest and repay principal. Such securities commonly are referred to as high yield or junk
bonds.
The Acquiring Fund may invest in variable rate demand obligations (VRDOs) and VRDOs in the form of participation interests
(Participating VRDOs) in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank. The VRDOs in which the Acquiring Fund may invest are tax-exempt obligations, in the opinion of counsel to the issuer, that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive
payment of the unpaid principal balance plus accrued interest on a short notice period not to exceed seven days. There is, however, the possibility that because of default or insolvency the demand feature of VRDOs may not be honored. The interest
rates are adjustable at intervals (ranging from daily to up to one year) to some prevailing market rate for similar investments, such adjustment formula being calculated to maintain the market value of the VRDOs, at approximately the par value of
the VRDOs on the adjustment date. The adjustments typically are based upon SIFMA or some other appropriate interest rate adjustment index. VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance
plus accrued interest on a notice period exceeding seven days may be deemed to be illiquid securities. Participating VRDOs provide the Acquiring Fund with a specified undivided interest (up to 100%) in the underlying obligation and the right to
demand payment of the unpaid principal balance plus accrued interest on the Participating VRDOs from the financial institution on a specified number of days notice, not to exceed seven days.
The average maturity of the Acquiring Funds portfolio securities varies based upon the Investment Advisors assessment of economic and market
conditions. The net asset value of the shares of common stock of a closed-end investment company such as the Acquiring Fund, which invests primarily in fixed-income securities, changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of
longer-term securities generally fluctuate more in response to interest rate changes than do short-term or medium-term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure,
such as that used by the Acquiring Fund.
The Acquiring Fund invests primarily in long-term MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with a
maturity of more than ten years. However, the Acquiring Fund may also invest in intermediate-term MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds with a maturity of between three years and ten years. The Acquiring Fund may also invest in
short-term tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Investments in such short-term securities or cash will not exceed 20% of the Acquiring
Funds total assets, except during interim periods pending investment of the net proceeds from public offerings of the Acquiring Funds securities or in anticipation of the repurchase or redemption of the Acquiring Funds securities
and temporary periods when, in the opinion of the Investment Advisor, prevailing market or economic conditions warrant. The Acquiring Fund does not ordinarily intend to realize significant interest income that is subject to federal income tax and
New Jersey personal income taxes.
The Acquiring Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates
through the use of options and certain financial futures contracts and options thereon.
Description of Municipal Bonds
Set forth below is a detailed description of the MUJ Municipal Bonds in which the Acquiring Fund invests. Information with respect to ratings assigned to tax-exempt obligations that the Acquiring Fund may purchase is set forth in Appendix BRatings of Investments in the Statement of Additional Information. Obligations are
included within the term MUJ Municipal Bonds if the interest paid thereon is excluded from gross income for federal income tax purposes in the opinion of bond counsel to the issuer.
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MUJ Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public institutions and facilities. In addition, certain types of tax-exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (PABs) are
issued by or on behalf of public authorities to finance various privately owned or operated facilities, including among other things, airports, public ports, mass commuting facilities, multi-family housing projects, as well as facilities for water
supply, gas, electricity, sewage or solid waste disposal and other specialized facilities. Other types of PABs, the proceeds of which are used for the construction, equipment or improvement of privately operated industrial or commercial facilities,
may constitute MUJ Municipal Bonds. The interest on MUJ Municipal Bonds may bear a fixed rate or be payable at a variable or floating rate. The two principal classifications of MUJ Municipal Bonds are general obligation bonds and
revenue bonds, which latter category includes PABs and, for bonds issued on or before August 15, 1986, industrial development bonds. MUJ Municipal Bonds typically are issued to finance public projects, such as roads or public
buildings, to pay general operating expenses or to refinance outstanding debt. MUJ Municipal Bonds may also be issued for private activities, such as housing, medical and educational facility construction, or for privately owned industrial
development and pollution control projects. General obligation bonds are backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source. Revenue bonds may be repaid only from the revenues of a
specific facility or source. MUJ Municipal Bonds may be issued on a long-term basis to provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or
special tax, or any other revenue source, including project revenues, which may include tolls, fees and other user charges, lease payments and mortgage payments. MUJ Municipal Bonds may also be issued to finance projects on a short-term interim
basis, anticipating repayment with the proceeds of the later issuance of long-term debt.
The MUJ Municipal Bonds in which the Acquiring Fund invests pay
interest or income that, in the opinion of bond counsel to the issuer, is exempt from regular Federal income tax. The Investment Advisor does not conduct its own analysis of the tax status of the interest paid by MUJ Municipal Bonds held by the
Acquiring Fund, but will rely on the opinion of counsel to the issuer of each such instrument. The Acquiring Fund may also invest in MUJ Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular
Federal income tax. In addition to the types of MUJ Municipal Bonds described in this Joint Proxy Statement/Prospectus, the Acquiring Fund may invest in other securities that pay interest or income that is, or make other distributions that are,
exempt from regular Federal income tax and/or state and local personal taxes, regardless of the technical structure of the issuer of the instrument. The Acquiring Fund treats all of such tax-exempt securities
as MUJ Municipal Bonds.
The yields on MUJ Municipal Bonds are dependent on a variety of factors, including prevailing interest rates and the
condition of the general money market and the MUJ Municipal Bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The market value of MUJ Municipal Bonds will vary with changes in interest rate
levels and as a result of changing evaluations of the ability of bond issuers to meet interest and principal payments.
The Acquiring Fund has not
established any limit on the percentage of its portfolio that may be invested in PABs. The Acquiring Fund may not be a suitable investment for investors who are already subject to the federal alternative minimum tax or who would become subject to
the federal alternative minimum tax as a result of an investment in the Acquiring Funds common shares.
General Obligation Bonds. General
obligation bonds are typically secured by the issuers pledge of its faith, credit and taxing power for the repayment of principal and the payment of interest. The taxing power of any governmental entity may be limited, however, by provisions
of its state constitution or laws, and an entitys creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the states industrial base or
inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on federal or
state aid, access to capital markets or other factors beyond the states or entitys control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due
is affected by the issuers maintenance of its tax base.
Revenue Bonds. Revenue or special obligation bonds are typically payable only from
the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific
57
revenue sources such as payments from the user of the facility being financed. Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the
revenue or special obligation bond is a function of the economic viability of such facility or such revenue source. Revenue bonds issued by state or local agencies to finance the development of low-income,
multi-family housing involve special risks in addition to those associated with municipal securities generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. Such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest that changes based in part on the financial performance of the property, may be
prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases in interest rates payable on senior obligations may make it more
difficult for issuers to meet payment obligations on subordinated bonds.
Municipal Notes. Municipal notes are shorter term municipal debt
obligations. They may provide interim financing in anticipation of tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, repayment on the note may be delayed or the note may not be fully repaid, and the
Acquiring Fund may lose money.
Municipal Commercial Paper. Municipal commercial paper is generally unsecured and issued to meet short-term
financing needs. The lack of security presents some risk of loss to the Acquiring Fund since, in the event of an issuers bankruptcy, unsecured creditors are repaid only after the secured creditors out of the assets, if any, that remain.
PABs. The Acquiring Fund may purchase MUJ Municipal Bonds classified as PABs. Interest received on certain PABs is treated as an item of tax
preference for purposes of the federal alternative minimum tax and may impact the overall tax liability of certain investors in the Acquiring Fund. PABs, formerly referred to as industrial development bonds, are issued by, or on behalf of,
states, municipalities or public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and
certain local facilities for water supply, gas or electricity. Other types of PABs, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute MUJ
Municipal Bonds, although the federal tax laws may place substantial limitations on the size of such issues. Such bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity which may or may not be
guaranteed by a parent company or otherwise secured. PABs generally are not secured by a pledge of the taxing power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of
a private entity and be aware of the risks that such an investment may entail. The continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the
size of the entity, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entitys dependence on revenues for the operation of the particular facility being financed.
Moral Obligation Bonds. MUJ Municipal Bonds may also include moral obligation bonds, which are normally issued by special purpose
public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.
Municipal Lease Obligations. Also included within the general category of MUJ Municipal Bonds are certificates of participation (COPs)
issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. COPs represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter
collectively called lease obligations) relating to such equipment, land or facilities. Municipal leases, like other municipal debt obligations, are subject to the risk of non-payment. Although
lease obligations do not constitute general obligations of the issuer for which the issuers unlimited taxing power is pledged, a lease obligation is frequently backed by the issuers covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations contain non-appropriation clauses which provide that the issuer has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a yearly basis. Although non-appropriation lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult and the value of the property may be insufficient to issue lease obligations. Certain investments in lease obligations may be illiquid.
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The ability of issuers of municipal leases to make timely lease payments may be adversely impacted in general
economic downturns and as relative governmental cost burdens are allocated and reallocated among federal, state and local governmental units. Such non-payment would result in a reduction of income to the
Acquiring Fund, and could result in a reduction in the value of the municipal lease experiencing non-payment and a potential decrease in the NAV of the Acquiring Fund. Issuers of municipal lease obligations
might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Acquiring Fund could experience delays and limitations with respect to the collection of principal and interest on such municipal leases and the
Acquiring Fund may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in lease payments, the Acquiring Fund might take possession of and manage the assets
securing the issuers obligations on such securities, which may increase the Acquiring Funds operating expenses and adversely affect the NAV of the Acquiring Fund. When the lease contains a
non-appropriation clause, however, the failure to pay would not be a default and the Acquiring Fund would not have the right to take possession of the assets. Any income derived from the Acquiring Funds
ownership or operation of such assets may not be tax-exempt or may fail to generate qualifying income for purposes of the income tests applicable to regulated investment companies. In addition, the Acquiring
Funds intention to qualify as a regulated investment company under the Internal Revenue Code of 1986, may limit the extent to which the Acquiring Fund may exercise its rights by taking possession of such assets, because as a regulated
investment company the Acquiring Fund is subject to certain limitations on its investments and on the nature of its income.
Zero-Coupon Bonds. MUJ
Municipal Bonds may include zero-coupon bonds. Zero-coupon bonds are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates the
total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting the market rate of the security at the time of issuance. Upon maturity, the holder of a
zero-coupon bond is entitled to receive the par value of the security.
While interest payments are not made on
such securities, holders of such securities are deemed to have received income (phantom income) annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest
payments is that a fixed yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at a fixed rate eliminates the risk of being
unable to invest distributions at a rate as high as the implicit yield on the zero-coupon bond, but at the same time eliminates the holders ability to reinvest at higher rates in the future. For this
reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities that pay interest currently. Longer term
zero-coupon bonds are more exposed to interest rate risk than shorter term zero-coupon bonds. These investments benefit the issuer by mitigating its need for cash to
meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash.
The Acquiring Fund accrues
income with respect to these securities for U.S. federal income tax and accounting purposes prior to the receipt of cash payments. Zero-coupon bonds may be subject to greater fluctuation in value and less liquidity in the event of adverse market
conditions than comparably rated securities that pay cash interest at regular intervals.
Further, to maintain its qualification for pass-through
treatment under the federal tax laws, the Acquiring Fund is required to distribute income to its shareholders and, consequently, may have to dispose of other, more liquid portfolio securities under disadvantageous circumstances or may have to
leverage itself by borrowing in order to generate the cash to satisfy these distributions. The required distributions may result in an increase in the Acquiring Funds exposure to zero-coupon bonds.
In addition to the above-described risks, there are certain other risks related to investing in zero-coupon bonds.
During a period of severe market conditions, the market for such securities may become even less liquid. In addition, as these securities do not pay cash interest, the Acquiring Funds investment exposure to these securities and their risks,
including credit risk, will increase during the time these securities are held in the Acquiring Funds portfolio.
Pre-Refunded Municipal Securities. The principal of, and interest on,
pre-refunded municipal securities are no longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. Government
securities. The assets in the escrow fund are derived from the proceeds of
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refunding bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to
obtain more favorable terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash
flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities.
However, except for a change in the revenue source from which principal and interest payments are made, the
pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by the issuer.
Special Taxing Districts. Special taxing districts are organized to plan and finance infrastructure developments to induce residential, commercial and
industrial growth and redevelopment. The bond financing methods such as tax increment finance, tax assessment, special services district and Mello-Roos bonds (a type of municipal security established by the Mello-Roos Community Facilities Act of
1982), are generally payable solely from taxes or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. They often are exposed to real
estate development-related risks and can have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other
revenues that are established to secure such financings are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could
default if development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the districts.
Indexed and Inverse Floating Rate Securities. The Acquiring Fund may invest in MUJ Municipal Bonds (and MUJ
Non-Municipal Tax-Exempt Securities) that yield a return based on a particular index of value or interest rates. For example, the Acquiring Fund may invest in MUJ
Municipal Bonds that pay interest based on an index of MUJ Municipal Bond interest rates. The principal amount payable upon maturity of certain MUJ Municipal Bonds also may be based on the value of the index. To the extent the Acquiring Fund invests
in these types of MUJ Municipal Bonds, the Acquiring Funds return on such MUJ Municipal Bonds will be subject to risk with respect to the value of the particular index. Interest and principal payable on the MUJ Municipal Bonds may also be
based on relative changes among particular indices. Also, the Acquiring Fund may invest in so-called inverse floating rate bonds or residual interest bonds on which the interest rates
vary inversely with a short-term floating rate (which may be reset periodically by a Dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). The Acquiring Fund may
purchase synthetically created inverse floating rate bonds evidenced by custodial or trust receipts. Generally, income on inverse floating rate bonds will decrease when short-term interest rates increase, and will increase when short-term interest
rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed rate long-term tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities will generally be more volatile than the
market values of fixed rate tax-exempt securities. To seek to limit the volatility of these securities, the Acquiring Fund may purchase inverse floating rate bonds with shorter-term maturities or limitations
on the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. See The Acquiring Funds InvestmentsLeverageTender Option Bond Transactions.
When-Issued Securities, Delayed Delivery Securities and Forward Commitments. The Acquiring Fund may purchase or sell securities that it is entitled to
receive on a when-issued basis. The Acquiring Fund may also purchase or sell securities on a delayed delivery basis. The Acquiring Fund may also purchase or sell securities through a forward commitment. These transactions involve the purchase or
sale of securities by the Acquiring Fund at an established price with payment and delivery taking place in the future. The purchase will be recorded on the date the Acquiring Fund enters into the commitment and the value of the securities will
thereafter be reflected in the Acquiring Funds NAV. The Acquiring Fund has not established any limit on the percentage of its assets that may be committed in connection with these transactions. At the time the Acquiring Fund enters into a
transaction on a when-issued basis, it will segregate or designate on its books and records cash or liquid assets with a value not less than the value of the when-issued securities.
There can be no assurance that a security purchased on a when-issued basis will be issued or that a security purchased or sold through a forward commitment
will be delivered. A default by a counterparty may result in the Acquiring Fund
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missing the opportunity of obtaining a price considered to be advantageous. The value of securities in these transactions on the delivery date may be more or less than the Acquiring Funds
purchase price. The Acquiring Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period.
If deemed advisable as a matter of investment strategy, the Acquiring Fund may dispose of or renegotiate a commitment after it has been entered into, and may
sell securities it has committed to purchase before those securities are delivered to the Acquiring Fund on the settlement date. In these cases the Acquiring Fund may realize a taxable capital gain or loss.
When the Acquiring Fund engages in when-issued, delayed delivery or forward commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Acquiring Funds incurring a loss or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a commitment to purchase securities, and any subsequent fluctuations in their market value, is taken into
account when determining the market value of the Acquiring Fund starting on the day the Acquiring Fund agrees to purchase the securities. The Acquiring Fund does not earn interest on the securities it has committed to purchase until they are paid
for and delivered on the settlement date.
Call Rights. The Acquiring Fund may purchase a MUJ Municipal Bond issuers right to call all or a
portion of such MUJ Municipal Bond for mandatory tender for purchase (a Call Right). A holder of a Call Right may exercise such right to require a mandatory tender for the purchase of related MUJ Municipal Bonds, subject to certain
conditions. A Call Right that is not exercised prior to maturity of the related MUJ Municipal Bond will expire without value. The economic effect of holding both the Call Right and the related MUJ Municipal Bond is identical to holding a MUJ
Municipal Bond as a non-callable security. Certain investments in such obligations may be illiquid.
Yields. Yields on MUJ Municipal Bonds are dependent on a variety of factors, including the general condition of the money market and of the MUJ
Municipal Bond market, the size of a particular offering, the financial condition of the issuer, the maturity of the obligation and the rating of the issue. The ability of the Acquiring Fund to achieve its investment objective is also dependent on
the continuing ability of the issuers of the securities in which the Acquiring Fund invests to meet their obligations for the payment of interest and principal when due. There are variations in the risks involved in holding MUJ Municipal Bonds, both
within a particular classification and between classifications, depending on numerous factors. Furthermore, the rights of owners of MUJ Municipal Bonds and the obligations of the issuer of such MUJ Municipal Bonds may be subject to applicable
bankruptcy, insolvency and similar laws and court decisions affecting the rights of creditors generally and to general equitable principles, which may limit the enforcement of certain remedies.
High Yield or Junk Bonds. The Acquiring Fund may invest up to 20% of its
managed assets in securities that are rated below investment grade, or are considered by BlackRock to be of comparable quality, at the time of purchase, subject to the Acquiring Funds other investment policies. Information with respect to
ratings assigned to tax-exempt obligations that the Acquiring Fund may purchase is set forth in Appendix BRatings of Investments in the Statement of Additional
Information. MUJ Municipal Bonds of below investment grade quality (Ba/BB or below) are commonly known as junk bonds. Securities rated below investment grade are judged to have speculative characteristics with respect to
their interest and principal payments. Such securities may face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and
principal payments.
Strategic Transactions
The Acquiring Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to,
credit default swaps) and may purchase and sell exchange-listed and OTC put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These Strategic
Transactions may be used for duration management and other risk management purposes, subject to the Acquiring Funds investment restrictions. While the Acquiring Funds use of Strategic Transactions is intended to reduce the volatility of
the net asset value of the Acquiring Funds Common Shares, the net asset value of the Acquiring Funds Common Shares will fluctuate. No assurance can be given that the Acquiring Funds Strategic Transactions will be effective.
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There is no particular strategy that requires use of one technique rather than another as the decision to use any
particular strategy or instrument is a function of market conditions and the composition of the portfolio. The ability of the Acquiring Fund to use Strategic Transactions successfully will depend on the Investment Advisors ability to predict
pertinent market movements as well as sufficient correlation among the instruments, which cannot be assured. Strategic Transactions subject the Acquiring Fund to the risk that, if the Investment Advisor incorrectly forecasts market values, interest
rates or other applicable factors, the Acquiring Funds performance could suffer. Certain of these Strategic Transactions, such as investments in inverse floating rate securities and credit default swaps, may provide investment leverage to the
Acquiring Funds portfolio. The Acquiring Fund is not required to use derivatives or other portfolio strategies to seek to hedge its portfolio and may choose not to do so.
The use of Strategic Transactions may result in losses greater than if they had not been used, may require the Acquiring Fund to sell or purchase portfolio
securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Acquiring Fund can realize on an investment or may cause the Acquiring Fund to hold a security that it might otherwise sell. In
addition, because of the leveraged nature of the Common Shares, Strategic Transactions will result in a larger impact on the net asset value of the Common Shares than would be the case if the Common Shares were not leveraged. Furthermore, the
Acquiring Fund may only engage in Strategic Transactions from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur.
Inasmuch as any obligations of the Acquiring Fund that arise from the use of Strategic Transactions will be covered by segregated or earmarked liquid assets
or offsetting transactions, the Acquiring Fund and the Investment Advisor believe such obligations do not constitute senior securities and, accordingly, will not treat such transactions as being subject to its borrowing restrictions. Additionally,
segregated or earmarked liquid assets, amounts paid by the Acquiring Fund as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Acquiring Fund for investment purposes.
For so long as the VRDP Shares are rated by a rating agency, the Acquiring Funds use of options and certain financial futures and options thereon will be subject to such rating agencys guidelines and limitations on such transactions. In
order to maintain ratings on the VRDP Shares from one or more rating agencies, the Acquiring Fund may be required to limit its use of Strategic Transactions in accordance with the specified guidelines of the applicable rating agencies.
Certain federal income tax requirements may restrict or affect the ability of the Acquiring Fund to engage in Strategic Transactions. In addition, the use of
certain Strategic Transactions may give rise to taxable income and have certain other consequences.
Put and Call Options on Securities and
Indices. The Acquiring Fund may purchase and sell put and call options on securities and indices. A put option gives the purchaser of the option the right to sell and the writer the obligation to buy the underlying security at the exercise price
during the option period. The Acquiring Fund may also purchase and sell options on bond indices (index options). Index options are similar to options on securities except that, rather than taking or making delivery of securities
underlying the option at a specified price upon exercise, an index option gives the holder the right to receive cash upon exercise of the option if the level of the bond index upon which the option is based is greater, in the case of a call, or
less, in the case of a put, than the exercise price of the option. The purchase of a put option on a debt security could protect the Acquiring Funds holdings in a security or a number of securities against a substantial decline in the market
value. A call option gives the purchaser of the option the right to buy and the seller the obligation to sell the underlying security or index at the exercise price during the option period or for a specified period prior to a fixed date. The
purchase of a call option on a security could protect the Acquiring Fund against an increase in the price of a security that it intended to purchase in the future.
Writing Covered Call Options. The Acquiring Fund is authorized to write (i.e., sell) covered call options with respect to municipal bonds it owns,
thereby giving the holder of the option the right to buy the underlying security covered by the option from the Acquiring Fund at the stated exercise price until the option expires. The Acquiring Fund writes only covered call options, which means
that so long as the Acquiring Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option.
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The Acquiring Fund receives a premium from writing a call option, which increases the Acquiring Funds
return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, the Acquiring Fund limits its opportunity to profit from an increase in the market value of the underlying security above
the exercise price of the option for as long as the Acquiring Funds obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. The Acquiring Fund may engage in
closing transactions in order to terminate outstanding options that it has written.
Additional Information About Options. The Acquiring
Funds ability to close out its position as a purchaser or seller of an exchange-listed put or call option is dependent upon the existence of a liquid secondary market on option exchanges. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv) interruption of the normal operations on an exchange; (v) inadequacy of the facilities of an exchange or the Office of the Comptroller of the Currency (OCC)
to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange that had been listed by the OCC as a result of trades on that exchange would generally continue to be exercisable in accordance with their terms. OTC options are
purchased from or sold to dealers, financial institutions or other counterparties which have entered into direct agreements with the Acquiring Fund. With OTC options, such variables as expiration date, exercise price and premium will be agreed upon
between the Acquiring Fund and the counterparty, without the intermediation of a third party such as the OCC. If the counterparty fails to make or take delivery of the securities underlying an option it has written, or otherwise settle the
transaction in accordance with the terms of that option as written, the Acquiring Fund would lose the premium paid for the option as well as any anticipated benefit of the transaction. OTC options and assets used to cover OTC options written by the
Acquiring Fund are considered by the staff of the SEC to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds that might otherwise
be realized.
The Acquiring Fund may engage in options and futures transactions on exchanges and options in the
over-the-counter markets. The Acquiring Fund will only enter into OTC options with counterparties the Investment Advisor believes to be creditworthy at the time
they enter into such transactions.
The hours of trading for options on debt securities may not conform to the hours during which the underlying
securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.
Financial Futures Transactions and Options. The Acquiring Fund is authorized to purchase and sell certain exchange traded financial futures contracts
(financial futures contracts) in order to hedge its investments against declines in value, and to hedge against increases in the cost of securities it intends to purchase or to seek to enhance the Acquiring Funds return. However,
any transactions involving financial futures or options (including puts and calls associated therewith) will be in accordance with the Acquiring Funds investment policies and limitations. A financial futures contract obligates the seller of a
contract to deliver and the purchaser of a contract to take delivery of the type of financial instrument covered by the contract, or in the case of index-based futures contracts to make and accept a cash settlement, at a specific future time for a
specified price. To hedge its portfolio, the Acquiring Fund may take an investment position in a futures contract which will move in the opposite direction from the portfolio position being hedged. A sale of financial futures contracts may provide a
hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may
provide a hedge against an increase in the cost of securities intended to be purchased because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts.
Distributions, if any, of net long-term capital gains from certain transactions in futures or options are taxable at long-term capital gains rates for U.S.
federal income tax purposes.
Futures Contracts. A futures contract is an agreement between two parties to buy and sell a security or, in the case
of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of
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transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled through liquidation, i.e., by entering into an
offsetting transaction. Futures contracts have been designed by boards of trade which have been designated contracts markets by the CFTC.
The
purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies,
but is generally about 5% of the contract amount, must be deposited with the broker. This amount is known as initial margin and represents a good faith deposit assuring the performance of both the purchaser and seller under
the futures contract. Subsequent payments to and from the broker, called variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures
contract more or less valuable, a process known as marking to the market. At any time prior to the settlement date of the futures contract, the position may be closed out by taking an opposite position that will operate to terminate the
position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker and the purchaser realizes a loss or gain. In addition, a nominal commission is paid on
each completed sale transaction.
The Acquiring Fund may also purchase and sell financial futures contracts on U.S. Government securities as a hedge
against adverse changes in interest rates as described below. The Acquiring Fund may purchase and write call and put options on futures contracts on U.S. Government securities in connection with its hedging strategies.
The Acquiring Fund also may engage in other futures contracts transactions such as futures contracts on municipal bond indices that may become available if
the Investment Advisor should determine that there is normally a sufficient correlation between the prices of such futures contracts and municipal bonds in which the Acquiring Fund invests to make such hedging appropriate.
Futures Strategies. The Acquiring Fund may sell a financial futures contract (i.e., assume a short position) in anticipation of a decline in the value
of its investments resulting from an increase in interest rates or otherwise. The risk of decline could be reduced without employing futures as a hedge by selling investments and either reinvesting the proceeds in securities with shorter maturities
or by holding assets in cash. This strategy, however, entails increased transaction costs in the form of dealer spreads and typically would reduce the average yield of the Acquiring Funds portfolio securities as a result of the shortening of
maturities. The sale of futures contracts provides an alternative means of hedging against declines in the value of its investments. As such values decline, the value of the Acquiring Funds positions in the futures contracts will tend to
increase, thus offsetting all or a portion of the depreciation in the market value of the Acquiring Funds investments that are being hedged. While the Acquiring Fund will incur commission expenses in selling and closing out futures positions,
commissions on futures transactions are typically lower than transaction costs incurred in the purchase and sale of the Acquiring Funds investments being hedged. In addition, the ability of the Acquiring Fund to trade in the standardized
contracts available in the futures markets may offer a more effective defensive position than a program to reduce the average maturity of the portfolio securities due to the unique and varied credit and technical characteristics of the instruments
available to the Acquiring Fund. Employing futures as a hedge also may permit the Acquiring Fund to assume a defensive posture without reducing the yield on its investments beyond any amounts required to engage in futures trading.
When the Acquiring Fund intends to purchase a security, the Acquiring Fund may purchase futures contracts as a hedge against any increase in the cost of such
security resulting from a decrease in interest rates or otherwise, that may occur before such purchase can be effected. Subject to the degree of correlation between such securities and the futures contracts, subsequent increases in the cost of such
securities should be reflected in the value of the futures held by the Acquiring Fund. As such purchases are made, an equivalent amount of futures contracts will be closed out. Due to changing market conditions and interest rate forecasts, however,
a futures position may be terminated without a corresponding purchase of portfolio securities.
Call Options on Futures Contracts. The Acquiring
Fund may also purchase and sell exchange traded call and put options on financial futures contracts. The purchase of a call option on a futures contract is analogous to the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the futures contract upon which it is based or the price of the underlying securities, it may or may not be less risky than ownership of the futures contract or underlying securities. Like the purchase of a
futures contract, the Acquiring Fund may purchase a call option on a futures contract to hedge against a market advance when the Acquiring Fund is not fully invested.
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The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the
securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is below the exercise price, the Acquiring Fund will retain the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Acquiring Funds portfolio holdings.
Put Options on Futures Contracts. The purchase of a put option on
a futures contract is analogous to the purchase of a protective put option on portfolio securities. The Acquiring Fund may purchase a put option on a futures contract to hedge the Acquiring Funds portfolio against the risk of rising interest
rates.
The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at expiration is higher than the exercise price, the Acquiring Fund will retain the full amount of the option premium which provides a partial hedge against any increase in the price of
securities which the Acquiring Fund intends to purchase.
The writer of an option on a futures contract is required to deposit initial and variation
margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a futures contract involves risks similar to those
relating to futures contracts.
The CFTC subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by the
investment adviser either (i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (CFTC Derivatives), or (ii) markets itself as providing
investment exposure to such instruments. To the extent the Acquiring Fund uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments.
Accordingly, the Investment Advisor has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. The Investment Advisor is not,
therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Acquiring Fund.
Interest
Rate Swap Transactions. In order to seek to hedge the value of the Acquiring Fund against interest rate fluctuations, to hedge against increases in the Acquiring Funds costs associated with the dividend payments on any preferred shares,
including the VRDP Shares, or to seek to increase the Acquiring Funds return, the Acquiring Fund may enter into interest rate swap transactions such as Municipal Market Data AAA Cash Curve swaps (MMD Swaps) or Securities Industry
and Financial Markets Association Municipal Swap Index swaps (SIFMA Swaps). To the extent that the Acquiring Fund enters into these transactions, the Acquiring Fund expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio as a duration management technique or to protect against any increase in the price of securities the Acquiring Fund anticipates purchasing at a later date. The Acquiring Fund may enter into these
transactions primarily as a hedge or for duration or risk management rather than as a speculative investment. However, the Acquiring Fund also may invest in MMD Swaps and SIFMA Swaps to seek to enhance return or gain or to increase the Acquiring
Funds yield, for example, during periods of steep interest rate yield curves (i.e., wide differences between short-term and long-term interest rates).
The Acquiring Fund may purchase and sell SIFMA Swaps in the SIFMA swap market. In a SIFMA Swap, the Acquiring Fund exchanges with another party their
respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments linked to the SIFMA Municipal Swap Index). Because the underlying index is a tax-exempt
index, SIFMA Swaps may reduce cross-market risks incurred by the Acquiring Fund and increase the Acquiring Funds ability to hedge effectively. SIFMA Swaps are typically quoted for the entire yield curve, beginning with a seven day floating
rate index out to 30 years. The duration of a SIFMA Swap is approximately equal to the duration of a fixed-rate municipal bond with the same attributes as the swap (e.g., coupon, maturity, call feature).
The Acquiring Fund may also purchase and sell MMD Swaps, also known as MMD rate locks. An MMD Swap permits the Acquiring Fund to lock in a specified municipal
interest rate for a portion of its portfolio to preserve a return on a particular investment or a portion of its portfolio as a duration management technique or to protect against any increase in the price of securities to be purchased at a later
date. By using an MMD Swap, the Acquiring Fund can create a synthetic long or short position, allowing the Acquiring Fund to select the most attractive part of the yield curve. An MMD Swap is a contract between the Acquiring Fund and an MMD Swap
provider pursuant to which the
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parties agree to make payments to each other on a notional amount, contingent upon whether the Municipal Market Data AAA General Obligation Scale is above or below a specified level on the
expiration date of the contract. For example, if the Acquiring Fund buys an MMD Swap and the Municipal Market Data AAA General Obligation Scale is below the specified level on the expiration date, the counterparty to the contract will make a payment
to the Acquiring Fund equal to the specified level minus the actual level, multiplied by the notional amount of the contract. If the Municipal Market Data AAA General Obligation Scale is above the specified level on the expiration date, the
Acquiring Fund will make a payment to the counterparty equal to the actual level minus the specified level, multiplied by the notional amount of the contract.
In connection with investments in SIFMA and MMD Swaps, there is a risk that municipal yields will move in the opposite direction than anticipated by the
Acquiring Fund, which would cause the Acquiring Fund to make payments to its counterparty in the transaction that could adversely affect the Acquiring Funds performance.
The Acquiring Fund has no obligation to enter into SIFMA Swaps or MMD Swaps and may elect not to do so. The net amount of the excess, if any, of the Acquiring
Funds obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis, and the Acquiring Fund will segregate or designate on its books and records liquid assets having an aggregate net asset value at
least equal to the accrued excess.
If there is a default by the other party to an uncleared interest rate swap transaction, generally the Acquiring Fund
will have contractual remedies pursuant to the agreements related to the transaction. With respect to interest rate swap transactions cleared through a central clearing counterparty, a clearing organization will be substituted for the counterparty
and will guarantee the parties performance under the swap agreement. However, there can be no assurances that the clearing organization will satisfy its obligation to the Acquiring Fund or that the Acquiring Fund would be able to recover the
full amount of assets deposited on its behalf with the clearing organization in the event of the default by the clearing organization or the Acquiring Funds clearing broker. Certain U.S. federal income tax requirements may limit the Acquiring
Funds ability to engage in interest rate swaps. Distributions attributable to transactions in interest rate swaps generally will be taxable as ordinary income to shareholders.
Counterparty Credit Standards. To the extent that the Acquiring Fund engages in principal transactions, including, but not limited to, OTC options,
forward currency transactions, swap transactions, repurchase and reverse repurchase agreements and the purchase and sale of bonds and other fixed income securities, it must rely on the creditworthiness of its counterparties under such transactions.
In certain instances, the credit risk of a counterparty is increased by the lack of a central clearing house for certain transactions, including certain swap contracts. In the event of the insolvency of a counterparty, the Acquiring Fund may not be
able to recover its assets, in full or at all, during the insolvency process. Counterparties to investments may have no obligation to make markets in such investments and may have the ability to apply essentially discretionary margin and credit
requirements. Similarly, the Acquiring Fund will be subject to the risk of bankruptcy of, or the inability or refusal to perform with respect to such investments by, the counterparties with which it deals. The Investment Advisor will seek to
minimize the Acquiring Funds exposure to counterparty risk by entering into such transactions with counterparties the Investment Advisor believes to be creditworthy at the time it enters into the transaction. Certain option transactions and
Strategic Transactions may require the Acquiring Fund to provide collateral to secure its performance obligations under a contract, which would also entail counterparty credit risk.
Other Investment Policies
The Acquiring Fund has adopted
certain other policies as set forth below.
Index and Inverse Securities
The Acquiring Fund may invest in MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds yielding a return based on a particular index of value or interest
rates. Also, the Acquiring Fund may invest in so-called inverse floating obligations or residual interest bonds on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). The Acquiring Fund may purchase
synthetically-created inverse floating obligations evidenced by custodial or trust receipts.
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Call Rights
The Acquiring Fund may purchase a MUJ New Jersey Municipal Bond or MUJ Municipal Bond issuers rights to call all or a portion of such MUJ New Jersey
Municipal Bond or MUJ Municipal Bond for mandatory tender for purchase (a call right).
Repurchase Agreements
The Acquiring Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal
Reserve System or primary dealer or an affiliate thereof, in U.S. Government securities or an affiliate thereof. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same security at a specified
price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during the Acquiring Funds holding period. The risk to the Acquiring Fund is limited to the ability of the issuer to pay the agreed-upon
repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a
risk of loss of both principal and interest. In the event of default, the collateral may be sold but the Acquiring Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Acquiring Fund may be delayed or limited.
In general, for federal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities sold. Therefore,
amounts earned under such agreements will not be considered tax exempt interest. The treatment of purchase and sales contracts is less certain.
Leverage
The Acquiring Fund currently leverages its assets through the use of VRDP Shares and TOB Residuals. The Acquiring Fund currently does not
intend to borrow money or issue debt securities. Although it has no present intention to do so, the Acquiring Fund reserves the right to borrow money from banks or other financial institutions, or issue debt securities, in the future if it believes
that market conditions would be conducive to the successful implementation of a leveraging strategy through borrowing money or issuing debt securities or preferred shares. Any such leveraging will not be fully achieved until the proceeds resulting
from the use of leverage have been invested in accordance with the Acquiring Funds investment objective and policies. The Acquiring Fund is authorized to borrow money in amounts of up to 5% of the value of its total assets at the time of such
borrowings; provided, however, that the Acquiring Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common shares pursuant to tender
offers or otherwise to redeem or repurchase preferred shares.
The use of leverage can create risks. When leverage is employed, the NAV and market price
of the common shares and the yield to holders of common shares will be more volatile than if leverage were not used. Changes in the value of the Acquiring Funds portfolio, including securities bought with the proceeds of leverage, will be
borne entirely by the holders of common shares. If there is a net decrease or increase in the value of the Acquiring Funds investment portfolio, leverage will decrease or increase, as the case may be, the NAV per common share to a greater
extent than if the Acquiring Fund did not utilize leverage. A reduction in the Acquiring Funds NAV may cause a reduction in the market price of its shares. During periods in which the Acquiring Fund is using leverage, the fee paid to the
Investment Advisor for advisory services will be higher than if the Acquiring Fund did not use leverage, because the fees paid will be calculated on the basis of the Acquiring Funds assets including the proceeds from leverage. Any leveraging
strategy the Acquiring Fund employs may not be successful. See RisksLeverage Risk. See RisksTender Option Bond Risk for details about the risks associated with the Acquiring Funds use of TOB Residuals.
Certain types of leverage the Acquiring Fund may use may result in the Acquiring Fund being subject to covenants relating to asset coverage and portfolio
composition requirements. The Acquiring Fund may be subject to certain restrictions on investments imposed by one or more lenders or by guidelines of one or more rating agencies, which may issue ratings for any short-term debt securities or
preferred shares issued by the Acquiring Fund. The terms of any borrowings or rating agency guidelines may impose asset coverage or portfolio composition requirements that are
67
more stringent than those imposed by the 1940 Act. The Investment Advisor does not believe that these covenants or guidelines will impede it from managing the Acquiring Funds portfolio in
accordance with its investment objective and policies if the Acquiring Fund were to utilize leverage.
Under the 1940 Act, the Acquiring Fund is not
permitted to issue senior securities if, immediately after the issuance of such senior securities, the Acquiring Fund would have an asset coverage ratio (as defined in the 1940 Act) of less than 300% with respect to senior securities representing
indebtedness (i.e., for every dollar of indebtedness outstanding, the Acquiring Fund is required to have at least three dollars of assets) or less than 200% with respect to senior securities representing preferred shares (i.e., for every dollar of
preferred shares outstanding, the Acquiring Fund is required to have at least two dollars of assets). The 1940 Act also provides that the Acquiring Fund may not declare distributions or purchase its stock (including through tender offers) if,
immediately after doing so, it will have an asset coverage ratio of less than 300% or 200%, as applicable. Under the 1940 Act, certain short-term borrowings (such as for cash management purposes) are not subject to these limitations if
(i) repaid within 60 days, (ii) not extended or renewed and (iii) not in excess of 5% of the total assets of the Acquiring Fund.
Effects of Leverage
Assuming that leverage will
represent approximately 38.3% of the Combined Funds total managed assets and that the Combined Fund will bear expenses relating to that leverage at an average annual rate of 0.87%, the income generated
by the Combined Funds portfolio (net of estimated expenses) must exceed 0.33% in order to cover the expenses specifically related to the Combined Funds estimated use of leverage. Of course, these numbers are merely
estimates used for illustration. Actual leverage expenses will vary frequently and may be significantly higher or lower than the rate estimated above.
The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share total return,
assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Combined Funds portfolio) of (10)%, (5)%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Combined Fund. The table further reflects the use of leverage representing 38.3% of the Combined Funds
total managed assets and the Combined Funds currently projected annual leverage expenses of 0.87%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Portfolio Total Return (net of expenses)
|
|
|
(10
|
)%
|
|
|
(5
|
)%
|
|
|
0
|
%
|
|
|
5
|
%
|
|
|
10
|
%
|
Common Share Total Return
|
|
|
(16.8
|
)%
|
|
|
(8.7
|
)%
|
|
|
(0.5
|
)%
|
|
|
7.6
|
%
|
|
|
15.7
|
%
|
Common Share total return is composed of two elements: the Common Share dividends paid by the Combined Fund (the amount
of which is largely determined by the net investment income of the Combined Fund) and gains or losses on the value of the securities the Combined Fund owns. As required by SEC rules, the table assumes that the Combined Fund is more likely to suffer
capital losses than to enjoy capital appreciation. For example, a total return of 0% assumes that the tax-exempt interest the Combined Fund receives on its municipal bonds investments is entirely offset by
losses in the value of those securities.
Preferred Shares
The Acquiring Fund has leveraged its portfolio by issuing VRDP Shares. Under the 1940 Act, the Acquiring Fund is not permitted to issue preferred shares if,
immediately after such issuance, the liquidation value of the Acquiring Funds outstanding preferred shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings (i.e., the value of the
Acquiring Funds assets must be at least 200% of the liquidation value of its outstanding preferred shares). In addition, the Acquiring Fund would not be permitted to declare any cash dividend or other distribution on its common shares unless,
at the time of such declaration, the value of the Acquiring Funds assets less liabilities other than borrowings is at least 200% of such liquidation value. Please see Information about the Preferred Shares of the Funds for a
description of the Acquiring Funds VRDP Shares.
For tax purposes, the Acquiring Fund is currently required to allocate tax-exempt interest income, net capital gain and other taxable income, if any, between its common shares and preferred shares outstanding in proportion to total
68
dividends paid to each class for the year in which or with respect to which tax-exempt income, the net capital gain or other taxable income is paid. If net
capital gain or other taxable income is allocated to preferred shares, instead of solely tax-exempt income, the Acquiring Fund will likely have to pay higher total dividends to preferred shareholders or make
special payments to preferred shareholders to compensate them for the increased tax liability. This would reduce the total amount of dividends paid to the common shareholders, but would increase the portion of the dividend that is tax-exempt. If the increase in dividend payments or the special payments to preferred shareholders are not entirely offset by a reduction in the tax liability of, and an increase in the tax-exempt dividends received by, the common shareholders, the advantage of the Acquiring Funds leveraged structure to common shareholders will be reduced.
Tender Option Bonds
The Acquiring Fund currently
leverages its assets through the use of TOB Residuals, which are derivative interests in municipal bonds. The TOB Residuals in which the Acquiring Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB
Residuals, is exempt from regular U.S. federal income tax. No independent investigation will be made to confirm the tax-exempt status of the interest or income paid by TOB Residuals held by the Acquiring Fund.
Although volatile, TOB Residuals typically offer the potential for yields exceeding the yields available on fixed rate municipal bonds with comparable credit quality.
TOB Residuals represent beneficial interests in a TOB Trust formed for the purpose of holding municipal bonds contributed by one or more funds. A TOB Trust
typically issues two classes of beneficial interests: TOB Floaters, which are sold to third-party investors, and TOB Residuals, which are generally issued to the fund(s) that transferred municipal bonds to the TOB Trust. The Fund may invest in both
TOB Floaters and TOB Residuals. TOB Floaters may have first priority on the cash flow from the municipal bonds held by the TOB Trust and are enhanced with a liquidity support arrangement from a third-party TOBs Liquidity Provider (defined below)
which allows holders to tender their position at par (plus accrued interest). The Acquiring Fund, as a holder of TOB Residuals, is paid the residual cash flow from the TOB Trust. The Acquiring Fund contributes municipal bonds to the TOB Trust and is
paid the cash received by the TOB Trust from the sale of the TOB Floaters, less certain transaction costs, and typically will invest the cash to purchase additional municipal bonds or other investments permitted by its investment policies. If the
Acquiring Fund ever purchases all or a portion of the TOB Floaters sold by the TOB Trust, it may surrender those TOB Floaters together with a proportionate amount of TOB Residuals to the TOB Trust in exchange for a proportionate amount of the
municipal bonds owned by the TOB Trust.
Other registered investment companies advised by the Investor Advisor or its affiliates (BlackRock-advised
Funds) may contribute municipal bonds to a TOB Trust into which the Acquiring Fund has contributed municipal bonds. If multiple BlackRock-advised Funds participate in the same TOB Trust, the economic rights and obligations under the TOB
Residual will generally be shared among the funds ratably in proportion to their participation in the TOB Trust.
The municipal bonds transferred to a TOB
Trust typically are high grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOB Trust transaction includes 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. The TOB Trust would be responsible for the payment of the credit enhancement fee and the Acquiring Fund, as a TOB Residual holder, would be responsible for reimbursement of any
payments of principal and interest made by the credit enhancement provider.
The TOB Residuals held by the Acquiring Fund generally provide the Acquiring
Fund with the right to cause the holders of a proportional share of the TOB Floaters to tender their notes to the TOB Trust at par plus accrued interest. Thereafter, the Acquiring Fund may withdraw a corresponding share of the municipal bonds from
the TOB Trust. As a result, a tender option bond transaction, in effect, creates exposure for the Acquiring Fund to the entire return of the municipal bonds in the TOB Trust, with a net cash investment by the Acquiring Fund that is less than the
value of the municipal bonds in the TOB Trust. This multiplies the positive or negative impact of the municipal bonds return within the Acquiring Fund (thereby creating leverage). The leverage within a TOB Trust depends on the value of the
municipal bonds deposited in the TOB Trust relative to the value of the TOB Floaters it issues.
69
The Acquiring Fund may invest in highly leveraged TOB Residuals. A TOB Residual generally is considered highly
leveraged if the principal amount of the TOB Floaters issued by the related TOB Trust exceeds 75% of the principal amount of the municipal bonds owned by the TOB Trust.
The leverage attributable to the Acquiring Funds use of TOB Residuals may be called away on relatively short notice and therefore may be
less permanent than more traditional forms of leverage. The TOB Trust may be collapsed without the consent of the Acquiring Fund upon the occurrence of termination events, as defined in the TOB Trust agreements. 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 of the TOB Floaters and the TOBs Liquidity Provider. Upon certain termination events, the holders
of the TOB Floaters would be paid before the TOB Residual holders (i.e., the Acquiring Fund) whereas in other termination events, the holders of TOB Floaters and the TOB Residual holders would be paid pro rata.
TOB Trusts are typically supported by a liquidity facility provided by a TOBs Liquidity Provider that allows the holders of the TOB Floaters to tender their
TOB Floaters in exchange for payment of par plus accrued interest on any business day (subject to the non-occurrence of a termination event). The tendered TOB Floaters are remarketed by a remarketing agent. In
the event of a failed remarketing, the TOB Trust may draw upon a loan from the TOBs Liquidity Provider to purchase the tendered TOB Floaters. Any loans made by the TOBs Liquidity Provider will be secured by the purchased TOB Floaters held by the TOB
Trust and will be subject to an increased interest rate based on number of days the loan is outstanding.
The Acquiring Fund may invest in a TOB Trust on
either a non-recourse or recourse basis. When the Acquiring Fund invests in TOB Trusts on a non-recourse basis, and the TOBs Liquidity Provider is required to make a
payment under the liquidity facility, the TOBs Liquidity Provider will typically liquidate all or a portion of the municipal bonds held in the TOB Trust and then fund the balance, if any, of the Liquidation Shortfall. If the Acquiring Fund invests
in a TOB Trust on a recourse basis, it will typically enter into a reimbursement agreement with the TOBs Liquidity Provider pursuant to which the Acquiring Fund is required to reimburse the TOBs Liquidity Provider the amount of any Liquidation
Shortfall. As a result, if the Acquiring Fund invests in a recourse TOB Trust, the Acquiring Fund will bear the risk of loss with respect to any Liquidation Shortfall. If multiple BlackRock-advised Funds participate in any such TOB Trust, these
losses will be shared ratably, in proportion to their participation in the TOB Trust.
Under accounting rules, MUJ Municipal Bonds of the Acquiring Fund
that are deposited into a TOB Trust are investments of the Acquiring Fund and are presented on the Acquiring Funds Schedule of Investments and outstanding TOB Floaters issued by a TOB Trust are presented as liabilities in the Acquiring
Funds Statement of Assets and Liabilities. Interest income from the underlying MUJ Municipal Bonds is recorded by the Acquiring Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing,
administration, trustee and other services to a TOB Trust are reported as expenses of the Acquiring Fund. In addition, under accounting rules, loans made to a TOB Trust sponsored by the Acquiring Fund may be presented as loans of the Acquiring Fund
in the Acquiring Funds financial statements even if there is no recourse to the Acquiring Funds assets.
For TOB Floaters, generally, the
interest rate earned will be based upon the market rates for municipal bonds with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option. Since the tender option feature has a shorter term
than the final maturity or first call date of the underlying municipal bonds deposited in the TOB Trust, the holder of the TOB Floaters relies upon the terms of the agreement with the financial institution furnishing the liquidity facility as well
as the credit strength of that institution. The perceived reliability and creditworthiness, of many major financial institutions, some of which sponsor and/or provide liquidity support to TOB Trusts increases the risk associated with TOB Floaters.
This in turn may reduce the desirability of TOB Floaters as investments, which could impair the viability or availability of TOB Trusts.
The use of TOB
Residuals will require the Acquiring Fund to earmark or segregate liquid assets in an amount equal to any TOB Floaters, plus any accrued but unpaid interest due on the TOB Floaters, issued by TOB Trusts sponsored by, or on behalf of, the Acquiring
Fund that are not owned by the Acquiring Fund. The use of TOB Residuals may also require the Acquiring Fund to earmark or segregate liquid assets in an amount equal to loans provided by the TOBs Liquidity Provider to the TOB Trust to purchase
tendered TOB Floaters. The Acquiring Fund reserves the right to modify its asset segregation policies in the future to the extent that such changes are in accordance with applicable
70
regulations or interpretations. Future regulatory requirements or SEC guidance may necessitate more onerous contractual or regulatory requirements, which may increase the costs or reduce the
degree of potential economic benefits of TOB Trust transactions or limit the Acquiring Funds ability to enter into or manage TOB Trust transactions.
See Risk Factors and Special ConsiderationsGeneral Risks of Investing in the Acquiring FundTender Option Bond Risk for a description
of the risks involved with a TOB issuer.
Credit Facility
The Acquiring Fund is permitted to leverage its portfolio by entering into one or more credit facilities. If the Acquiring Fund enters into a credit facility,
the Acquiring Fund may be required to prepay outstanding amounts or incur a penalty rate of interest upon the occurrence of certain events of default. The Acquiring Fund would also likely have to indemnify the lenders under the credit facility
against liabilities they may incur in connection therewith. In addition, the Acquiring Fund expects that any credit facility would contain covenants that, among other things, likely would limit the Acquiring Funds ability to pay distributions
in certain circumstances, incur additional debt, change certain of its investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. The
Acquiring Fund may be required to pledge its assets and to maintain a portion of its assets in cash or high-grade securities as a reserve against interest or principal payments and expenses. The Acquiring Fund expects that any credit facility would
have customary covenant, negative covenant and default provisions. There can be no assurance that the Acquiring Fund will enter into an agreement for a credit facility, or one on terms and conditions representative of the foregoing, or that
additional material terms will not apply. In addition, if entered into, a credit facility may in the future be replaced or refinanced by one or more credit facilities having substantially different terms or by the issuance of preferred shares.
Derivatives
The Acquiring Fund may enter into derivative
transactions that have economic leverage embedded in them. Derivative transactions that the Acquiring Fund may enter into and the risks associated with them are described elsewhere in this Joint Proxy Statement/Prospectus and are also referred to as
Strategic Transactions. The Acquiring Fund cannot assure you that investments in derivative transactions that have economic leverage embedded in them will result in a higher return on its common shares.
To the extent the terms of such transactions obligate the Acquiring Fund to make payments, the Acquiring Fund may earmark or segregate cash or liquid assets
in an amount at least equal to the current value of the amount then payable by the Acquiring Fund under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the
current value of the amount then payable by the Acquiring Fund under the terms of such transactions is represented by the notional amounts of such investments, the Acquiring Fund would segregate or earmark cash or liquid assets having a market value
at least equal to such notional amounts, and if the current value of the amount then payable by the Acquiring Fund under the terms of such transactions is represented by the market value of the Acquiring Funds current obligations, the
Acquiring Fund would segregate or earmark cash or liquid assets having a market value at least equal to such current obligations. To the extent the terms of such transactions obligate the Acquiring Fund to deliver particular securities to extinguish
the Acquiring Funds obligations under such transactions the Acquiring Fund may cover its obligations under such transactions by either (i) owning the securities or collateral underlying such transactions or (ii) having an
absolute and immediate right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is required, having earmarked or segregated an appropriate amount of cash or liquid assets). Such
earmarking, segregation or cover is intended to provide the Acquiring Fund with available assets to satisfy its obligations under such transactions. As a result of such earmarking, segregation or cover, the Acquiring Funds obligations under
such transactions will not be considered senior securities representing indebtedness for purposes of the 1940 Act, or considered borrowings subject to the Acquiring Funds limitations on borrowings discussed above, but may create leverage for
the Acquiring Fund. To the extent that the Acquiring Funds obligations under such transactions are not so earmarked, segregated or covered, such obligations may be considered senior securities representing indebtedness under the
1940 Act and therefore subject to the 300% asset coverage requirement.
71
These earmarking, segregation or cover requirements can result in the Acquiring Fund maintaining securities
positions it would otherwise liquidate, segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management. Effective August 19, 2022, these requirements will be replaced by the
requirements under the newly adopted Rule 18f-4 as described in this prospectus. See RisksStrategic Transactions and Derivatives.
Temporary Borrowings
The Acquiring Fund may also borrow
money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Acquiring Fund securities.
Investment Restrictions
Each Fund has adopted certain investment restrictions that are fundamental, meaning such investment restrictions cannot be changed without approval
by holders of a majority of the Funds outstanding voting securities as defined in the 1940 Act. As defined in the 1940 Act, this phrase means the vote of (1) 67% or more of the voting securities present at a meeting, if the holders
of more than 50% of the outstanding voting securities are present or represented by proxy, or (2) more than 50% of the outstanding voting securities, whichever is less. Each Fund has also adopted certain
non-fundamental investment restrictions. The investment restrictions of the Funds are similar, although there are some differences, and are set forth in Appendix B to this Joint
Proxy Statement/Prospectus.
Each Funds VRDP Shares are assigned long-term ratings by Moodys and Fitch. In order to maintain the required
ratings, each Fund is required to comply with certain investment quality, diversification and other guidelines established by Moodys and Fitch. Such guidelines may be more restrictive than the restrictions set forth above. Each Fund does not
anticipate that such guidelines would have a material adverse effect on its ability to achieve its investment objective. Moodys and Fitch receive fees in connection with their ratings issuances. Each Fund is also subject to certain covenants
and requirements under the terms of the VRDP Shares and related documents, including the terms of the liquidity facility supporting the VRDP Shares. Such requirements may be more restrictive than the restrictions set forth above. Each Fund does not
anticipate that such requirements would have a material adverse effect on its ability to achieve its investment objective. Please see Information about the Preferred Shares of the Funds for additional information.
72
THE TARGET FUNDS INVESTMENT OBJECTIVES AND POLICIES
MYJs Investment Objectives and Policies
Investment Objective and Policies
MYJs investment
objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes and New Jersey personal income tax as is consistent with its investment policies and prudent investment management.
MYJ seeks to achieve its investment objective by investing at least 80% of an aggregate of MYJs net assets (including proceeds from the issuance of any
preferred stock) and the proceeds of any borrowings for investment purposes, in a portfolio of MJY New Jersey Municipal Bonds. MYJ also may invest in municipal obligations issued by or on behalf of states, territories and possessions of the United
States and their political subdivisions, agencies or instrumentalities, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes but is not exempt from gross
income for New Jersey personal income tax purposes (MYJ Municipal Bonds). Unless otherwise noted, the term MYJ Municipal Bonds also includes MYJ New Jersey Municipal Bonds. MYJ may invest directly in such securities or
synthetically through the use of derivatives. MYJ typically invests at least 80% of its total assets in MYJ New Jersey Municipal Bonds. MYJs investment objective and its policy of investing at least 80% of an aggregate of MYJs net assets
(including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in MYJ New Jersey Municipal Bonds are fundamental policies that may not be changed without the approval of a majority of the
outstanding voting securities of MYJ (as defined in the 1940 Act). There can be no assurance that MYJs investment objective will be realized.
MYJ
may invest in certain PABs (in general, bonds that benefit non-governmental entities) that may subject certain investors in MYJ to an alternative minimum tax. The percentage of MYJs total
assets invested in PABs will vary from time to time.
Under normal market conditions, MYJ expects to invest primarily in a portfolio of long-term MYJ
Municipal Bonds that are commonly referred to as investment grade securities, which are obligations rated within the four highest quality ratings as determined by either Moodys (currently Aaa, Aa, A and Baa), S&P (currently
AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB), or are considered by the Investment Advisor to be of comparable quality, at the time of investment. In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for
S&P, MIG-1 through MIG-3 for Moodys
and F-1+ through F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade
rating categories are A-1+ through A-3 for
S&P, Prime-1 through Prime-3 for Moodys
and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moodys; and BBB and F-3 for Fitch), while considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations
indicating relative standing within the rating categories set forth above. In assessing the quality of MYJ Municipal Bonds with respect to the foregoing requirements, the Investment Advisor takes into account the nature of any letters of credit or
similar credit enhancement to which particular MYJ Municipal Bonds are entitled and the creditworthiness of the financial institution which provided such credit enhancement. Insurance is expected to protect MYJ against losses caused by a bond
issuers failure to make interest or principal payments. However, insurance does not protect MYJ or its stockholders against losses caused by declines in a bonds market value. If a bonds insurer fails to fulfill its obligations or
loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Investment Advisor, to other obligations in which MYJ may invest.
MYJ may invest up to 20% of its total assets in securities rated below investment grade, which are securities rated Ba or below by Moodys, BB or below
by S&P or Fitch or are considered by the Investment Advisor to be of comparable quality, at time of purchase. Below investment grade quality is regarded as predominantly speculative with respect to the issuers capacity to pay interest and
repay principal. Such securities commonly are referred to as high yield or junk bonds.
73
All percentage and ratings limitations on securities in which MYJ may invest apply at the time of making an
investment and shall not be considered violated as a result of subsequent market movements or if an investment rating is subsequently downgraded to a rating that would have precluded MYJs initial investment in such security. In the event that
MYJ disposes of a portfolio security subsequent to its being downgraded, MYJ may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The average maturity of MYJs portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Investment
Advisor. MYJs portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The net asset value of the shares of
common stock of a closed-end investment company, such as MYJ, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates
decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to
interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as MYJ.
For temporary periods or to provide liquidity, MYJ has the authority to invest as much as 20% of its total assets
in tax-exempt and taxable money market obligations with a maturity of one year or less (such short-term obligations being referred to herein as Temporary Investments). In addition, MYJ
reserves the right as a defensive measure to invest temporarily a greater portion of its assets in Temporary Investments, when, in the opinion of the Investment Advisor, prevailing market or financial conditions warrant. Taxable money market
obligations will yield taxable income. MYJ also may invest in VRDOs and VRDOs in the form of Participating VRDOs in variable rate tax-exempt obligations held by a financial institution. See
Other Investment Policies. MYJs hedging strategies are not fundamental policies and may be modified by the Board of Directors of MYJ without the approval of MYJs stockholders. MYJ is also authorized to invest in indexed
and inverse floating rate obligations for hedging purposes and to seek to enhance return.
MYJ may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if MYJ receives an opinion of counsel to the issuer that such securities pay interest that is excludable from gross income for federal income tax purposes and, if applicable, exempt from
New Jersey personal income tax (MYJ Non-Municipal Tax-Exempt Securities). MYJ Non-Municipal Tax-Exempt Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term MYJ Municipal Bonds. MYJ Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in MYJ Municipal Bonds, to the extent such
investments are permitted by MYJs investment restrictions and applicable law. MYJ Non-Municipal Tax-Exempt Securities are subject to the same risks
associated with an investment in MYJ Municipal Bonds as well as many of the risks associated with investments in derivatives. If the Internal Revenue Service were to issue any adverse ruling or take an adverse position with respect to the taxation
on these types of securities, there is a risk that the interest paid on such securities would be deemed taxable at the federal level.
MYJ ordinarily does
not intend to realize significant investment income not exempt from regular U.S. federal income tax and New Jersey personal income tax. From time to time, MYJ may realize taxable capital gains.
Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a U.S. federal income tax exemption. As a result, current
legislation and legislation that may be enacted in the future may affect the availability of MYJ Municipal Bonds for investment by MYJ.
MYJ may purchase
and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and OTC put and call options on securities and swap
contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivatives may be used for duration management and other risk management purposes, subject to MYJs investment
restrictions.
74
Description of Municipal Bonds
See The Acquiring Funds InvestmentsDescription of Municipal Bonds for additional information regarding the types of MYJ Municipal Bonds
in which MYJ invests.
Leverage
MYJ may utilize
leverage to seek to enhance the yield and net asset value of its Common Shares. However, this objective cannot be achieved in all interest rate environments. MYJ currently leverages its assets through the use of VRDP Shares and tender option bonds.
Under the 1940 Act, MYJ is permitted to issue debt up to 33
1⁄3% of its managed assets (50% of its net assets) or preferred equity securities up to 50% of its managed
assets (100% of its net assets). MYJ may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act. In addition, MYJ may also be subject to certain asset coverage, leverage or portfolio composition
requirements imposed by the VRDP Shares governing instruments, counterparties or by agencies rating the VRDP Shares, which may be more stringent than those imposed by the 1940 Act.
In general, the concept of leveraging is based on the premise that the financing cost of leverage, which will be based on short-term interest rates, will
normally be lower than the income earned by MYJ on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of MYJ (including the assets obtained from leverage) are invested in
higher-yielding portfolio investments, MYJs common stockholders can benefit from incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to common stockholders in the form of dividends, and
the value of these portfolio holdings is reflected in the per share net asset value.
However, in order to benefit common stockholders, the return on
assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed MYJs return on assets purchased with leverage proceeds, income to common stockholders will be
lower than if MYJ had not used leverage. Furthermore, the value of MYJs portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments.
In contrast, the value of MYJs obligations under its leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence MYJs net asset value positively or negatively.
Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that MYJs leveraging strategy
will be successful.
Leverage also will generally cause greater changes in MYJs net asset value, market price and dividend rate than comparable
portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the net asset value and market price of MYJs Common Shares than if MYJ were not leveraged. In addition, MYJ may be required to sell portfolio
securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause MEN to incur losses. The use of leverage
may limit MYJs ability to invest in certain types of securities or use certain types of hedging strategies. MYJ will incur expenses in connection with the use of leverage, all of which are borne by common stockholders and may reduce income to
the Common Shares. During periods in which MYJ is using leverage, the fees paid to the Investment Advisor for advisory services will be higher than if MYJ did not use leverage, because the fees paid will be calculated on the basis of MYJs
total managed assets, which includes the proceeds from leverage. MYJs leveraging strategy may not be successful.
There can be no assurance MYJ will
be able to continue to use leverage through the use of preferred shares, tender option bonds or otherwise during periods of instability or illiquidity in the debt markets, during periods of high short-term interest rates or due to other adverse
market conditions, because MYJ may not be able to enter into tender option bond transactions or use other forms of leverage during such periods. There can be no assurance that MYJs leverage strategy will be successful. The use of leverage can
create risks.
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Preferred Shares. MYJ has leveraged its portfolio by issuing VRDP Shares. Under the 1940 Act, MYJ is not
permitted to issue preferred shares if, immediately after such issuance, the liquidation value of MYJs outstanding preferred shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings
(i.e., the value of MYJs assets must be at least 200% of the liquidation value of its outstanding preferred shares). In addition, MYJ would not be permitted to declare any cash dividend or other distribution on its Common Shares unless, at the
time of such declaration, the value of MYJs assets less liabilities other than borrowings is at least 200% of such liquidation value.
For tax
purposes, MYJ is currently required to allocate tax-exempt interest income, net capital gain and other taxable income, if any, between its Common Shares and preferred shares outstanding in proportion to total
dividends paid to each class for the year in which or with respect to which tax-exempt income, the net capital gain or other taxable income is paid. If net capital gain or other taxable income is allocated to
preferred shares, instead of solely tax-exempt income, MYJ will likely have to pay higher total dividends to preferred stockholders or make special payments to preferred stockholders to compensate them for the
increased tax liability. This would reduce the total amount of dividends paid to the holders of Common Shares, but would increase the portion of the dividend that is tax-exempt. If the increase in dividend
payments or the special payments to preferred stockholders are not entirely offset by a reduction in the tax liability of, and an increase in the tax-exempt dividends received by, the holders of Common Shares,
the advantage of MYJs leveraged structure to holders of Common Shares will be reduced.
Tender Option Bonds. MYJ currently leverages its
assets through the use of TOB Residuals, which are derivative interests in municipal bonds. The TOB Residuals in which MYJ will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular
U.S. federal income tax. No independent investigation will be made to confirm the tax-exempt status of the interest or income paid by TOB Residuals held by MYJ. Although volatile, TOB Residuals typically offer
the potential for yields exceeding the yields available on fixed rate municipal bonds with comparable credit quality.
TOB Residuals represent beneficial
interests in a TOB Trust formed for the purpose of holding municipal bonds contributed by one or more funds. A TOB Trust typically issues two classes of beneficial interests: TOB Floaters, which are sold to third-party investors, and TOB Residuals,
which are generally issued to the funds(s) that transferred municipal bonds to the TOB Trust. MYJ may invest in both TOB Floaters and TOB Residuals. TOB Floaters may have first priority on the cash flow from the municipal bonds held by the TOB Trust
and are enhanced with a liquidity support arrangement from the TOBs Liquidity Provider which allows holders to tender their position at par (plus accrued interest). MYJ, as a holder of TOB Residuals, is paid the residual cash flow from the TOB
Trust. MYJ contributes municipal bonds to the TOB Trust and is paid the cash received by the TOB Trust from the sale of the TOB Floaters, less certain transaction costs, and typically will invest the cash to purchase additional municipal bonds or
other investments permitted by its investment policies. If MYJ ever purchases all or a portion of the TOB Floaters sold by the TOB Trust, it may surrender those TOB Floaters together with a proportionate amount of TOB Residuals to the TOB Trust in
exchange for a proportionate amount of the municipal bonds owned by the TOB Trust.
Other registered investment companies advised by the Investment
Advisor or its affiliates (the BlackRock-advised Funds) may contribute municipal bonds to a TOB Trust into which MYJ has contributed municipal bonds. If multiple BlackRock-advised Funds participate in the same TOB Trust, the economic
rights and obligations under the TOB Residual will generally be shared among the funds ratably in proportion to their participation in the TOB Trust.
The
municipal bonds transferred to a TOB Trust typically are high grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOB Trust transaction includes 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. The TOB Trust would be responsible for the payment of the credit enhancement fee and MYJ, as a TOB Residual holder, would be responsible
for reimbursement of any payments of principal and interest made by the credit enhancement provider.
The TOB Residuals held by MYJ generally provide MYJ
with the right to cause the holders of a proportional share of the TOB Floaters to tender their notes to the TOB Trust at par plus accrued interest. Thereafter, MYJ may withdraw a corresponding share of the municipal bonds from the TOB Trust. As a
result, a tender option bond transaction, in effect, creates exposure for MYJ to the entire return of the municipal bonds in the TOB Trust, with a
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net cash investment by MYJ that is less than the value of the municipal bonds in the TOB Trust. This multiplies the positive or negative impact of the municipal bonds return within MYJ
(thereby creating leverage). The leverage within a TOB Trust depends on the value of the municipal bonds deposited in the TOB Trust relative to the value of the TOB Floaters it issues.
MYJ may invest in highly leveraged TOB Residuals. A TOB Residual generally is considered highly leveraged if the principal amount of the TOB Floaters issued
by the related TOB Trust exceeds 75% of the principal amount of the municipal bonds owned by the TOB Trust.
The leverage attributable to MYJs use
of TOB Residuals may be called away on relatively short notice and therefore may be less permanent than more traditional forms of leverage. The TOB Trust may be collapsed without the consent of MYJ upon the occurrence of termination
events, as defined in the TOB Trust agreements. 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 of the TOB
Floaters and the TOBs Liquidity Provider. Upon certain termination events, the holders of the TOB Floaters would be paid before the TOB Residual holders (i.e., MYJ) whereas in other termination events, the holders of TOB Floaters and the TOB
Residual holders would be paid pro rata.
TOB Trusts are typically supported by a liquidity facility provided by a TOBs Liquidity Provider that allows the
holders of the TOB Floaters to tender their TOB Floaters in exchange for payment of par plus accrued interest on any business day (subject to the non-occurrence of a termination event). The tendered TOB
Floaters are remarketed by a remarketing agent. In the event of a failed remarketing, the TOB Trust may draw upon a loan from the TOBs Liquidity Provider to purchase the tendered TOB Floaters. Any loans made by the TOBs Liquidity Provider will be
secured by the purchased TOB Floaters held by the TOB Trust and will be subject to an increased interest rate based on number of days the loan is outstanding.
MYJ may invest in a TOB Trust on either a non-recourse or recourse basis. When MYJ invests in TOB Trusts on a non-recourse basis, and the TOBs Liquidity Provider is required to make a payment under the liquidity facility, the TOBs Liquidity Provider will typically liquidate all or a portion of the municipal bonds held in
the TOB Trust and then fund the balance, if any, of the Liquidation Shortfall. If MYJ invests in a TOB Trust on a recourse basis, it will typically enter into a reimbursement agreement with the TOBs Liquidity Provider pursuant to which MYJ is
required to reimburse the TOBs Liquidity Provider the amount of any Liquidation Shortfall. As a result, if MYJ invests in a recourse TOB Trust, MYJ will bear the risk of loss with respect to any Liquidation Shortfall. If multiple BlackRock-advised
Funds participate in any such TOB Trust, these losses will be shared ratably, in proportion to their participation in the TOB Trust.
Under accounting
rules, MYJ Municipal Bonds of MYJ that are deposited into a TOB Trust are investments of MYJ and are presented on MYJs Schedule of Investments and outstanding TOB Floaters issued by a TOB Trust are presented as liabilities in MYJs
Statement of Assets and Liabilities. Interest income from the underlying MYJ Municipal Bonds is recorded by MYJ on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration, trustee and
other services to a TOB Trust are reported as expenses of MYJ. In addition, under accounting rules, loans made to a TOB Trust sponsored by MYJ may be presented as loans of MYJ in MYJs financial statements even if there is no recourse to
MYJs assets.
For TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal bonds with maturities or
remarketing provisions that are comparable in duration to the periodic interval of the tender option. Since the tender option feature has a shorter term than the final maturity or first call date of the underlying municipal bonds deposited in the
TOB Trust, the holder of the TOB Floaters relies upon the terms of the agreement with the financial institution furnishing the liquidity facility as well as the credit strength of that institution. The perceived reliability and creditworthiness, of
many major financial institutions, some of which sponsor and/or provide liquidity support to TOB Trusts increases the risk associated with TOB Floaters. This in turn may reduce the desirability of TOB Floaters as investments, which could impair the
viability or availability of TOB Trusts.
The use of TOB Residuals will require MYJ to earmark or segregate liquid assets in an amount equal to any TOB
Floaters, plus any accrued but unpaid interest due on the TOB Floaters, issued by TOB Trusts sponsored by, or on behalf of, MYJ that are not owned by MYJ. The use of TOB Residuals may also require MYJ to earmark or segregate
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liquid assets in an amount equal to loans provided by the TOBs Liquidity Provider to the TOB Trust to purchase tendered TOB Floaters. MYJ reserves the right to modify its asset segregation
policies in the future to the extent that such changes are in accordance with applicable regulations or interpretations. Future regulatory requirements or SEC guidance may necessitate more onerous contractual or regulatory requirements, which may
increase the costs or reduce the degree of potential economic benefits of TOB Trust transactions or limit MYJs ability to enter into or manage TOB Trust transactions.
Reverse Repurchase Agreements. MYJ may enter into reverse repurchase agreements with respect to its portfolio investments subject to the investment
restrictions set forth herein. Reverse repurchase agreements involve the sale of securities held by MYJ with an agreement by MYJ to repurchase the securities at an agreed upon price, date and interest payment. At the time MYJ enters into a reverse
repurchase agreement, it may establish and maintain a segregated account with the custodian containing cash and/or liquid assets having a value not less than the repurchase price (including accrued interest). If MYJ establishes and maintains such a
segregated account, or earmarks such assets as described, a reverse repurchase agreement will not be considered a senior security under the 1940 Act and therefore will not be considered a borrowing by MYJ; however, under certain circumstances in
which MYJ does not establish and maintain such a segregated account, or earmark such assets on its books and records, such reverse repurchase agreement will be considered a borrowing for the purpose of MYJs limitation on borrowings discussed
above. The use by MYJ of reverse repurchase agreements involves many of the same risks of leverage since the proceeds derived from such reverse repurchase agreements may be invested in additional securities. Reverse repurchase agreements involve the
risk that the market value of the securities acquired in connection with the reverse repurchase agreement may decline below the price of the securities MYJ has sold but is obligated to repurchase. Also, reverse repurchase agreements involve the risk
that the market value of the securities retained in lieu of sale by MYJ in connection with the reverse repurchase agreement may decline in price.
If the
buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce MYJs obligation to repurchase the
securities and MYJs use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Also, MYJ would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less
than the value of the securities subject to such agreement.
MYJ also may effect simultaneous purchase and sale transactions that are known as
sale-buybacks. A sale-buyback is similar to a reverse repurchase agreement, except that in a sale-buyback, the counterparty that purchases the security is entitled to receive any principal or interest payments made on the underlying
security pending settlement of MYJs repurchase of the underlying security.
Dollar Roll Transactions. MYJ may enter into dollar
roll transactions. In a dollar roll transaction, MYJ sells a mortgage related or other security to a dealer and simultaneously agrees to repurchase a similar security (but not the same security) in the future at a pre-determined price. A dollar roll transaction can be viewed, like a reverse repurchase agreement, as a collateralized borrowing in which MYJ pledges a mortgage related security to a dealer to obtain cash. However,
unlike reverse repurchase agreements, the dealer with which MYJ enters into a dollar roll transaction is not obligated to return the same securities as those originally sold by MYJ, but rather only securities which are substantially
identical, which generally means that the securities repurchased will bear the same interest rate and a similar maturity as those sold, but the pools of mortgages collateralizing those securities may have different prepayment histories than
those sold.
During the period between the sale and repurchase, MYJ will not be entitled to receive interest and principal payments on the securities
sold. Proceeds of the sale will be invested in additional instruments for MYJ and the income from these investments will generate income for MYJ. If such income does not exceed the income, capital appreciation and gain that would have been realized
on the securities sold as part of the dollar roll, the use of this technique will diminish the investment performance of MYJ compared with what the performance would have been without the use of dollar rolls.
At the time MYJ enters into a dollar roll transaction, it may establish and maintain a segregated account with the custodian containing cash and/or liquid
assets having a value not less than the repurchase price (including accrued interest). If MYJ establishes and maintains such a segregated account, or earmarks such assets as described, a dollar roll transaction will not be considered a senior
security under the 1940 Act and therefore will not be considered a
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borrowing by MYJ; however, under certain circumstances in which MYJ does not establish and maintain such a segregated account, or earmark such assets on its books and records, such dollar roll
transaction will be considered a borrowing for the purpose of MYJs limitation on borrowings.
Dollar roll transactions involve the risk that the
market value of the securities MYJ is required to purchase may decline below the agreed upon repurchase price of those securities. MYJs right to purchase or repurchase securities may be restricted. Successful use of mortgage dollar rolls may
depend upon the investment managers ability to correctly predict interest rates and prepayments. There is no assurances that dollar rolls can be successfully employed.
Derivatives. MYJ may enter into derivative transactions that have economic leverage embedded in them. Derivative transactions that MYJ may enter into
are also referred to as Strategic Transactions. MYJ cannot assure you that investments in derivative transactions that have economic leverage embedded in them will result in a higher return on its Common Shares.
To the extent the terms of such transactions obligate MYJ to make payments, MYJ may earmark or segregate cash or liquid assets in an amount at least equal to
the current value of the amount then payable by MYJ under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the current value of the amount then payable by
MYJ under the terms of such transactions is represented by the notional amounts of such investments, MYJ would segregate or earmark cash or liquid assets having a market value at least equal to such notional amounts, and if the current value of the
amount then payable by MYJ under the terms of such transactions is represented by the market value of MYJs current obligations, MYJ would segregate or earmark cash or liquid assets having a market value at least equal to such current
obligations. To the extent the terms of such transactions obligate MYJ to deliver particular securities to extinguish MYJs obligations under such transactions MYJ may cover its obligations under such transactions by either
(i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is
required, having earmarked or segregated an appropriate amount of cash or liquid assets). Such earmarking, segregation or cover is intended to provide MYJ with available assets to satisfy its obligations under such transactions. As a result of such
earmarking, segregation or cover, MYJs obligations under such transactions will not be considered senior securities representing indebtedness for purposes of the 1940 Act, or considered borrowings subject to MYJs limitations on
borrowings discussed above, but may create leverage for MYJ. To the extent that MYJs obligations under such transactions are not so earmarked, segregated or covered, such obligations may be considered senior securities representing
indebtedness under the 1940 Act and therefore subject to the 300% asset coverage requirement.
These earmarking, segregation or cover requirements
can result in MYJ maintaining securities positions it would otherwise liquidate, segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
Temporary Borrowings. MYJ may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and
the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Acts limitations on leverage if
(i) repaid within 60 days, and (ii) not in excess of 5% of MYJs total assets.
Strategic Transactions
MYJ may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default
swaps) and may purchase and sell exchange-listed and OTC put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These Strategic Transactions may
be used for duration management and other risk management purposes, subject to MYJs investment restrictions. While MYJs use of Strategic Transactions is intended to reduce the volatility of the net asset value of MYJs Common
Shares, the net asset value of MYJs Common Shares will fluctuate. No assurance can be given that MYJs Strategic Transactions will be effective.
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There is no particular strategy that requires use of one technique rather than another as the decision to use any
particular strategy or instrument is a function of market conditions and the composition of the portfolio. The ability of MYJ to use Strategic Transactions successfully will depend on the Investment Advisors ability to predict pertinent market
movements as well as sufficient correlation among the instruments, which cannot be assured. Strategic Transactions subject MYJ to the risk that, if the Investment Advisor incorrectly forecasts market values, interest rates or other applicable
factors, MYJs performance could suffer. Certain of these Strategic Transactions, such as investments in inverse floating rate securities and credit default swaps, may provide investment leverage to MYJs portfolio. MYJ is not required to
use derivatives or other portfolio strategies to seek to hedge its portfolio and may choose not to do so.
The use of Strategic Transactions may result in
losses greater than if they had not been used, may require MYJ to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation MYJ can realize on an investment or may
cause MYJ to hold a security that it might otherwise sell. In addition, because of the leveraged nature of the Common Shares, Strategic Transactions will result in a larger impact on the net asset value of the Common Shares than would be the case if
the Common Shares were not leveraged. Furthermore, MYJ may only engage in Strategic Transactions from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur.
Inasmuch as any obligations of MYJ that arise from the use of Strategic Transactions will be covered by segregated or earmarked liquid assets or offsetting
transactions, MYJ and the Investment Advisor believe such obligations do not constitute senior securities and, accordingly, will not treat such transactions as being subject to its borrowing restrictions. Additionally, segregated or earmarked liquid
assets, amounts paid by MYJ as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to MYJ for investment purposes.
For so long as the VRDP Shares are rated by a rating agency, MYJs use of options and certain financial futures and options thereon will be subject to
such rating agencys guidelines and limitations on such transactions. In order to maintain ratings on the VRDP Shares from one or more rating agencies, MYJ may be required to limit its use of Strategic Transactions in accordance with the
specified guidelines of the applicable rating agencies.
Certain federal income tax requirements may restrict or affect the ability of MYJ to engage in
Strategic Transactions. In addition, the use of certain Strategic Transactions may give rise to taxable income and have certain other consequences.
Put and Call Options on Securities and Indices. MYJ may purchase and sell put and call options on securities and indices. A put option gives the
purchaser of the option the right to sell and the writer the obligation to buy the underlying security at the exercise price during the option period. MYJ may also purchase and sell options on bond indices (index options). Index options
are similar to options on securities except that, rather than taking or making delivery of securities underlying the option at a specified price upon exercise, an index option gives the holder the right to receive cash upon exercise of the option if
the level of the bond index upon which the option is based is greater, in the case of a call, or less, in the case of a put, than the exercise price of the option. The purchase of a put option on a debt security could protect MYJs holdings in
a security or a number of securities against a substantial decline in the market value. A call option gives the purchaser of the option the right to buy and the seller the obligation to sell the underlying security or index at the exercise price
during the option period or for a specified period prior to a fixed date. The purchase of a call option on a security could protect MYJ against an increase in the price of a security that it intended to purchase in the future.
Writing Covered Call Options. MYJ is authorized to write (i.e., sell) covered call options with respect to MYJ Municipal Bonds it owns, thereby giving
the holder of the option the right to buy the underlying security covered by the option from MYJ at the stated exercise price until the option expires. MYJ writes only covered call options, which means that so long as MYJ is obligated as the writer
of a call option, it will own the underlying securities subject to the option.
MYJ receives a premium from writing a call option, which increases
MYJs return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, MYJ limits its opportunity to profit from an increase in the market value of the underlying security above the
exercise price of the option for as long as
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MYJs obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. MYJ may engage in closing transactions in
order to terminate outstanding options that it has written.
Additional Information About Options. MYJs ability to close out its position as
a purchaser or seller of an exchange-listed put or call option is dependent upon the existence of a liquid secondary market on option exchanges. Among the possible reasons for the absence of a liquid secondary market on an exchange are:
(i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been listed by
the OCC as a result of trades on that exchange would generally continue to be exercisable in accordance with their terms. OTC options are purchased from or sold to dealers, financial institutions or other counterparties which have entered into
direct agreements with MYJ. With OTC options, such variables as expiration date, exercise price and premium will be agreed upon between MYJ and the counterparty, without the intermediation of a third party such as the OCC. If the counterparty fails
to make or take delivery of the securities underlying an option it has written, or otherwise settle the transaction in accordance with the terms of that option as written, MYJ would lose the premium paid for the option as well as any anticipated
benefit of the transaction. OTC options and assets used to cover OTC options written by MYJ are considered by the staff of the SEC to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets,
result in a delay of sale, or reduce the amount of proceeds that might otherwise be realized.
MYJ may engage in options and futures transactions on
exchanges and options in the over-the-counter markets. MYJ will only enter into OTC options with counterparties the Investment Advisor believes to be creditworthy
at the time they enter into such transactions.
The hours of trading for options on debt securities may not conform to the hours during which the
underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option
markets.
Financial Futures Transactions and Options. MYJ is authorized to purchase and sell certain exchange traded financial futures contracts
(financial futures contracts) in order to hedge its investments against declines in value, and to hedge against increases in the cost of securities it intends to purchase or to seek to enhance MYJs return. However, any transactions
involving financial futures or options (including puts and calls associated therewith) will be in accordance with MYJs investment policies and limitations. A financial futures contract obligates the seller of a contract to deliver and the
purchaser of a contract to take delivery of the type of financial instrument covered by the contract, or in the case of index-based futures contracts to make and accept a cash settlement, at a specific future time for a specified price. To hedge its
portfolio, MYJ may take an investment position in a futures contract which will move in the opposite direction from the portfolio position being hedged. A sale of financial futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may provide a hedge against an increase in
the cost of securities intended to be purchased because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts.
Distributions, if any, of net long-term capital gains from certain transactions in futures or options are taxable at long-term capital gains rates for U.S.
federal income tax purposes.
Futures Contracts. A futures contract is an agreement between two parties to buy and sell a security or, in the case
of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash
settlement, but are settled through liquidation, i.e., by entering into an offsetting transaction. Futures contracts have been designed by boards of trade which have been designated contracts markets by the CFTC.
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The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or
premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies, but is generally about 5% of the contract amount, must be deposited with the broker. This amount is known
as initial margin and represents a good faith deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called variation margin, are
required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable, a process known as marking to the market. At any time prior to the
settlement date of the futures contract, the position may be closed out by taking an opposite position that will operate to terminate the position in the futures contract. A final determination of variation margin is then made, additional cash is
required to be paid to or released by the broker and the purchaser realizes a loss or gain. In addition, a nominal commission is paid on each completed sale transaction.
MYJ may also purchase and sell financial futures contracts on U.S. Government securities as a hedge against adverse changes in interest rates as described
below. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association Certificates and three-month U.S. Treasury
bills. MYJ may purchase and write call and put options on futures contracts on U.S. Government securities in connection with its hedging strategies.
MYJ
also may engage in other futures contracts transactions such as futures contracts on municipal bond indices that may become available if the Investment Advisor should determine that there is normally a sufficient correlation between the prices of
such futures contracts and the MYJ Municipal Bonds in which MYJ invests to make such hedging appropriate.
Futures Strategies. MYJ may sell a
financial futures contract (i.e., assume a short position) in anticipation of a decline in the value of its investments resulting from an increase in interest rates or otherwise. The risk of decline could be reduced without employing futures as a
hedge by selling investments and either reinvesting the proceeds in securities with shorter maturities or by holding assets in cash. This strategy, however, entails increased transaction costs in the form of dealer spreads and typically would reduce
the average yield of MYJs portfolio securities as a result of the shortening of maturities. The sale of futures contracts provides an alternative means of hedging against declines in the value of its investments. As such values decline, the
value of MYJs positions in the futures contracts will tend to increase, thus offsetting all or a portion of the depreciation in the market value of MYJs investments that are being hedged. While MYJ will incur commission expenses in
selling and closing out futures positions, commissions on futures transactions are typically lower than transaction costs incurred in the purchase and sale of MYJs investments being hedged. In addition, the ability of MYJ to trade in the
standardized contracts available in the futures markets may offer a more effective defensive position than a program to reduce the average maturity of the portfolio securities due to the unique and varied credit and technical characteristics of the
instruments available to MYJ. Employing futures as a hedge also may permit MYJ to assume a defensive posture without reducing the yield on its investments beyond any amounts required to engage in futures trading.
When MYJ intends to purchase a security, MYJ may purchase futures contracts as a hedge against any increase in the cost of such security resulting from a
decrease in interest rates or otherwise, that may occur before such purchase can be effected. Subject to the degree of correlation between such securities and the futures contracts, subsequent increases in the cost of such securities should be
reflected in the value of the futures held by MYJ. As such purchases are made, an equivalent amount of futures contracts will be closed out. Due to changing market conditions and interest rate forecasts, however, a futures position may be terminated
without a corresponding purchase of portfolio securities.
Call Options on Futures Contracts. MYJ may also purchase and sell exchange traded call
and put options on financial futures contracts. The purchase of a call option on a futures contract is analogous to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the futures
contract upon which it is based or the price of the underlying securities, it may or may not be less risky than ownership of the futures contract or underlying securities. Like the purchase of a futures contract, MYJ may purchase a call option on a
futures contract to hedge against a market advance when MYJ is not fully invested.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities, which are deliverable upon exercise of the futures contract. If the futures price at expiration is below the exercise price, MYJ will retain the full amount of the option premium, which
provides a partial hedge against any decline that may have occurred in MYJs portfolio holdings.
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Put Options on Futures Contracts. The purchase of a put option on a futures contract is analogous to the
purchase of a protective put option on portfolio securities. MYJ may purchase a put option on a futures contract to hedge MYJs portfolio against the risk of rising interest rates.
The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities, which are deliverable upon exercise
of the futures contract. If the futures price at expiration is higher than the exercise price, MYJ will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities which MYJ intends to
purchase.
The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a futures contract involves risks similar to those relating to futures contracts.
The CFTC subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by the investment adviser either
(i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC Derivatives, or (ii) markets itself as providing investment exposure to such instruments. To the extent MYJ uses CFTC Derivatives, it
intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, the Investment Advisor has claimed an exclusion from the definition of the term
commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. The Investment Advisor is not, therefore, subject to registration or regulation as a commodity pool operator under
the CEA in respect of MYJ.
Interest Rate Swap Transactions. In order to seek to hedge the value of MYJ against interest rate fluctuations, to
hedge against increases in MYJs costs associated with the dividend payments on any preferred shares, including the VRDP Shares, or to seek to increase MYJs return, MYJ may enter into interest rate swap transactions such as MMD Swaps or
SIFMA Swaps. To the extent that MYJ enters into these transactions, MYJ expects to do so primarily to preserve a return or spread on a particular investment or portion of its portfolio as a duration management technique or to protect against any
increase in the price of securities MYJ anticipates purchasing at a later date. MYJ may enter into these transactions primarily as a hedge or for duration or risk management rather than as a speculative investment. However, MYJ also may invest in
MMD Swaps and SIFMA Swaps to seek to enhance return or gain or to increase MYJs yield, for example, during periods of steep interest rate yield curves (i.e., wide differences between short-term and long-term interest rates).
MYJ may purchase and sell SIFMA Swaps in the SIFMA swap market. In a SIFMA Swap, MYJ exchanges with another party their respective commitments to pay or
receive interest (e.g., an exchange of fixed rate payments for floating rate payments linked to the SIFMA Municipal Swap Index). Because the underlying index is a tax-exempt index, SIFMA Swaps may
reduce cross-market risks incurred by MYJ and increase MYJs ability to hedge effectively. SIFMA Swaps are typically quoted for the entire yield curve, beginning with a seven day floating rate index out to 30 years. The duration of a SIFMA Swap
is approximately equal to the duration of a fixed-rate MYJ Municipal Bond with the same attributes as the swap (e.g., coupon, maturity, call feature).
MYJ may also purchase and sell MMD Swaps, also known as MMD rate locks. An MMD Swap permits MYJ to lock in a specified municipal interest rate for a portion
of its portfolio to preserve a return on a particular investment or a portion of its portfolio as a duration management technique or to protect against any increase in the price of securities to be purchased at a later date. By using an MMD Swap,
MYJ can create a synthetic long or short position, allowing MYJ to select the most attractive part of the yield curve. An MMD Swap is a contract between MYJ and an MMD Swap provider pursuant to which the parties agree to make payments to each other
on a notional amount, contingent upon whether the Municipal Market Data AAA General Obligation Scale is above or below a specified level on the expiration date of the contract. For example, if MYJ buys an MMD Swap and the Municipal Market Data AAA
General Obligation Scale is below the specified level on the expiration date, the counterparty to the contract will make a payment to MYJ equal to the specified level minus the actual level, multiplied by the notional amount of the contract. If the
Municipal Market Data AAA General Obligation Scale is above the specified level on the expiration date, MYJ will make a payment to the counterparty equal to the actual level minus the specified level, multiplied by the notional amount of the
contract.
83
In connection with investments in SIFMA and MMD Swaps, there is a risk that municipal yields will move in the
opposite direction than anticipated by MYJ, which would cause MYJ to make payments to its counterparty in the transaction that could adversely affect MYJs performance.
MYJ has no obligation to enter into SIFMA Swaps or MMD Swaps and may elect not to do so. The net amount of the excess, if any, of MYJs obligations over
its entitlements with respect to each interest rate swap will be accrued on a daily basis, and MYJ will segregate or designate on its books and records liquid assets having an aggregate net asset value at least equal to the accrued excess.
If there is a default by the other party to an uncleared interest rate swap transaction, generally MYJ will have contractual remedies pursuant to the
agreements related to the transaction. With respect to interest rate swap transactions cleared through a central clearing counterparty, a clearing organization will be substituted for the counterparty and will guarantee the parties performance
under the swap agreement. However, there can be no assurances that the clearing organization will satisfy its obligation to MYJ or that MYJ would be able to recover the full amount of assets deposited on its behalf with the clearing organization in
the event of the default by the clearing organization or MYJs clearing broker. Certain U.S. federal income tax requirements may limit MYJs ability to engage in interest rate swaps. Distributions attributable to transactions in interest
rate swaps generally will be taxable as ordinary income to stockholders.
Counterparty Credit Standards. To the extent that MYJ engages in
principal transactions, including, but not limited to, OTC options, forward currency transactions, swap transactions, repurchase and reverse repurchase agreements and the purchase and sale of bonds and other fixed income securities, it must rely on
the creditworthiness of its counterparties under such transactions. In certain instances, the credit risk of a counterparty is increased by the lack of a central clearing house for certain transactions, including certain swap contracts. In the event
of the insolvency of a counterparty, MYJ may not be able to recover its assets, in full or at all, during the insolvency process. Counterparties to investments may have no obligation to make markets in such investments and may have the ability to
apply essentially discretionary margin and credit requirements. Similarly, MYJ will be subject to the risk of bankruptcy of, or the inability or refusal to perform with respect to such investments by, the counterparties with which it deals. The
Investment Advisor will seek to minimize MYJs exposure to counterparty risk by entering into such transactions with counterparties the Investment Advisor believes to be creditworthy at the time it enters into the transaction. Certain option
transactions and Strategic Transactions may require MYJ to provide collateral to secure its performance obligations under a contract, which would also entail counterparty credit risk.
Other Investment Policies
MYJ has adopted certain other
policies as set forth below.
Temporary Investments. MYJ may invest in short-term tax-exempt and taxable
securities subject to the limitations set forth above. The tax-exempt money market securities may include municipal notes, municipal commercial paper, municipal bonds with a remaining maturity of less than one
year, variable rate demand notes and participations therein. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes and grant anticipation notes. Anticipation notes are sold as interim financing in
anticipation of tax collection, bond sales, government grants or revenue receipts. Municipal commercial paper refers to short-term unsecured promissory notes generally issued to finance short-term credit needs. The taxable money market securities in
which MYJ may invest as Temporary Investments consist of U.S. Government securities, U.S. Government agency securities, domestic bank or savings institution certificates of deposit and bankers acceptances, short-term corporate debt securities
such as commercial paper and repurchase agreements. These Temporary Investments must have a stated maturity not in excess of one year from the date of purchase. MYJ may not invest in any security issued by a commercial bank or a savings institution
unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation (FDIC), except that up to 10% of total assets
may be invested in certificates of deposit of smaller institutions if such certificates are fully insured by the FDIC.
84
Credit Default Swap Agreements. MYJ may enter into credit default swap agreements for hedging purposes or
to seek to increase its return. The credit default swap agreement may have as reference obligations one or more securities that are not currently held by MYJ. The protection buyer in a credit default contract may be obligated to pay the
protection seller an upfront or a periodic stream of payments over the term of the contract, provided that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the
par value (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount (the
difference between the market value of the reference obligation and its par value), if the swap is cash settled. MYJ may be either the buyer or seller in the transaction. If MYJ is a buyer and no credit event occurs, MYJ may recover nothing if the
swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose
value may have significantly decreased. As a seller, MYJ generally receives an upfront payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event.
If a credit event occurs, generally the seller must pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As the
seller, MYJ would effectively add leverage to its portfolio because, in addition to its total net assets, MYJ would be subject to investment exposure on the notional amount of the swap.
Credit default swap agreements involve greater risks than if MYJ had invested in the reference obligation directly since, in addition to general market risks,
credit default swaps are subject to illiquidity risk, counterparty risk and credit risks. MYJ will enter into credit default swap agreements only with counterparties the Investment Advisor believes to be creditworthy at the time they enter into such
transactions. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the
seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. MYJs obligations under a credit default swap agreement will
be accrued daily (offset against any amounts owing to MYJ).
MYJ will at all times segregate or designate on its books and records in connection with each
such transaction liquid assets or cash with a value at least equal to MYJs exposure (any accrued but unpaid net amounts owed by MYJ to any counterparty) on a
marked-to-market basis (as calculated pursuant to requirements of the SEC). If MYJ is a seller of protection in a credit default swap transaction, it will segregate or
designate on its books and records in connection with such transaction liquid assets or cash with a value at least equal to the full notional amount of the contract. Such segregation or designation will ensure that MYJ has assets available to
satisfy its obligations with respect to the transaction and will avoid any potential leveraging of MYJs portfolio. Such segregation or designation will not limit MYJs exposure to loss.
VRDOs and Participating VRDOs. VRDOs are tax-exempt obligations that contain a floating or variable interest
rate adjustment formula and right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest upon a short notice period not to exceed seven days. There is, however, the possibility that
because of default or insolvency the demand feature of VRDOs and Participating VRDOs may not be honored. The interest rates are adjustable at intervals (ranging from daily to up to one year) to some prevailing market rate for similar investments,
such adjustment formula being calculated to maintain the market value of the VRDOs, at approximately the par value of the VRDOs on the adjustment date. The adjustments typically are based upon the SIFMA Municipal Swap Index or some other appropriate
interest rate adjustment index. MYJ may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards.
Participating VRDOs provide MYJ with a specified undivided interest (up to 100%) of the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the financial institution upon a specified number of days notice, not to exceed seven days. In addition, the Participating VRDO is backed by an irrevocable letter of
credit or guaranty of the financial institution. MYJ would have an undivided interest in the underlying obligation and thus participate on the same basis as the financial institution in such obligation except that the financial institution typically
retains fees out of the interest paid on the obligation for servicing the obligation, providing the letter of credit and issuing the repurchase commitment. MYJ
85
has been advised by its counsel that MYJ should be entitled to treat the income received on Participating VRDOs as interest from tax-exempt obligations as
long as MYJ does not invest more than 20% of its total assets in such investments and certain other conditions are met. It is contemplated that MYJ will not invest more than 20% of its assets in Participating VRDOs.
VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. The Directors may adopt guidelines and delegate to the Investment Advisor the daily function of determining and monitoring liquidity of such VRDOs.
The Temporary Investments, VRDOs and Participating VRDOs in which MYJ may invest will be in the following rating categories at the time of purchase: MIG-1/VMIG-1 through MIG- 3/VMIG-3 for notes and VRDOs and
Prime-1 through Prime-3 for commercial paper (as determined by Moodys), SP-1 through
SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined by S&P), or
F-1 through F-3 for notes, VRDOs and commercial paper (as determined by Fitch). Temporary Investments, if not rated, must be of comparable quality in the opinion of the
Investment Advisor. In addition, MYJ reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Investment Advisor, market conditions warrant.
Repurchase Agreements. MYJ may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member
bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities or an affiliate thereof. A repurchase agreement is a contractual agreement whereby the seller of securities agrees to repurchase the same
security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during MYJs holding period. The risk to MYJ is limited to the ability of the issuer to pay the agreed-upon
repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a
risk of loss of both principal and interest. In the event of default, the collateral may be sold but MYJ might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by MYJ may be delayed or limited.
In general, for federal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities sold. Therefore,
amounts earned under such agreements will not be considered tax-exempt interest. The treatment of purchase and sales contracts is less certain.
Restricted and Illiquid Securities. MYJ may invest in illiquid securities. Illiquid securities are subject to legal or contractual restrictions on
disposition or lack an established secondary trading market. The sale of restricted and illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar
securities that are not subject to restrictions on resale.
86
MANAGEMENT OF THE FUNDS
The Board of Directors and Officers
The Funds have the same Board Members and officers. The Board of each Fund is responsible for the overall supervision of the operations of the Fund and
performs the various duties imposed on the trustees of investment companies by the 1940 Act and under applicable state law. A list of the Board Members and officers of the Funds, a brief biography of each Board Member and officer and additional
information relating to the Board and officers are included in Management of the Funds in the Statement of Additional Information.
The Investment Advisor
BlackRock Advisors, LLC serves as the investment adviser for each Fund and is expected to continue to serve as investment
adviser for the Combined Fund. The Investment Advisor 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.
Each Fund entered into an Investment Management Agreement with the Investment Advisor to provide investment advisory services. Each Fund currently pays
the Investment Advisor a monthly fee at an annual contractual investment management fee rate of 0.50% of the average daily value of its net assets. For purposes of calculating these fees, net assets means the total assets of each 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).
Each Fund and the Investment Advisor have entered into the Fee Waiver Agreement, pursuant to which the Investment Advisor has contractually agreed to waive
the management fee with respect to any portion of each Funds assets attributable to investments in any equity and fixed-income mutual funds and ETFs managed by the Investment Advisor or its affiliates that have a contractual fee, through
June 30, 2023. In addition, effective December 1, 2019, pursuant to the Fee Waiver Agreement, the Investment Advisor has contractually agreed to waive its management fees by the amount of investment advisory fees each Fund pays to the
Investment Advisor indirectly through its investment in money market funds advised by the Investment Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be continued from year to year thereafter, provided that such
continuance is specifically approved by the Investment Advisor and each Fund (including by a majority of each Funds Independent Board Members). Neither the Investment Advisor nor the Funds are obligated to extend the Fee Waiver Agreement. The
Fee Waiver Agreement may be terminated at any time, without the payment of any penalty, only by each Fund (upon the vote of a majority of the Independent Board Members or a majority of the outstanding voting securities of each Fund), upon 90
days written notice by each Fund to the Investment Advisor.
If the Reorganization is consummated, the annual contractual investment management fee
rate of the Acquiring Fund will be the annual contractual investment management fee rate of the Combined Fund, which will be 0.50% of the average daily net assets of the Combined Fund. The annual contractual investment management fee rate of the
Combined Fund is the same as the annual contractual investment management fee rate for each Fund.
Based on a pro forma Broadridge peer
expense universe for the Combined Fund, the estimated total annual fund expense ratio (excluding investment-related expenses and taxes) is expected to be in the first quartile and contractual investment management fee rate and
actual investment management fee rate over total assets are each expected to be in the first quartile.
There can be no assurance that
future expenses of the Combined Fund will not increase or that any expense savings for any Fund will be realized as a result of any Reorganization.
A
discussion regarding the basis for the approval of the Investment Management Agreement by the Board of each Fund is provided in such Funds Form N-CSR for such Funds most recent fiscal year end
available at www.sec.gov or by visiting www.blackrock.com.
87
The Investment Advisor is located at 100 Bellevue Parkway, Wilmington, Delaware 19809 and is a wholly owned
subsidiary of BlackRock. BlackRock is one of the worlds largest publicly-traded investment management firms. As of September 30, 2021, BlackRocks assets under management were approximately $9.464 trillion. BlackRock has over 25 years of
experience managing closed-end products and, as of September 30, 2021, advised a registered closed-end family of 55 exchange-listed active funds with approximately $62.7
billion in assets.
BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients.
BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk
management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of September 30, 2021, the firm had approximately 17,959 employees in more
than 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa.
Portfolio Management
Each of
MYJ and the Acquiring Fund is managed by a team of investment professionals comprised Phillip Soccio, CFA, Director at BlackRock, and Theodore R. Jaeckel, Jr., CFA, Managing Director at BlackRock. Each is a member of BlackRocks municipal tax-exempt management group. Each is jointly responsible for the day-to-day management of each Funds portfolio, which includes
setting each Funds overall investment strategy, overseeing the management of each Fund and/or selection of its investments. Messrs. Soccio and Jaeckel have been members of each Funds portfolio management team since 2017.
The biography of each portfolio manager of the Funds are set forth below:
|
|
|
Portfolio Manager
|
|
Biography
|
Phillip Soccio, CFA
|
|
Director of BlackRock since 2009; Vice President of BlackRock from 2005 to 2008.
|
|
|
Theodore R. Jaeckel, Jr., CFA
|
|
Managing Director of BlackRock since 2006; Managing Director of Merrill Lynch Investment Managers, L.P. (MLIM) from 2005 to 2006; Director of MLIM from 1997 to 2005.
|
Following the Reorganization, it is expected that the Combined Fund will be managed by a team of investment professionals
led by Phillip Soccio, CFA, Theodore R. Jaeckel, Jr., CFA and Christian Romaglino.
The biography of Mr. Romaglino is set forth below:
|
|
|
Portfolio Manager
|
|
Biography
|
Christian Romaglino
|
|
Director of BlackRock since 2017; Portfolio Manager for the Municipal Mutual Fund Desk within BlackRocks Global Fixed Income Group since 2017; Portfolio Manager at Brown Brothers Harriman from 2007 to 2017.
|
The Statement of Additional Information provides additional information about the portfolio managers compensation,
other accounts managed by the portfolio managers, and the portfolio managers ownership of securities in each Fund.
Portfolio Transactions with Affiliates
The Investment Advisor may place portfolio transactions, to the extent permitted by law, with brokerage firms affiliated with the Funds and the Investment
Advisor, if it reasonably believes that the quality of execution and the commission are comparable to that available from other qualified brokerage firms.
None of the Funds paid brokerage commissions to affiliated broker-dealers during their three most recent fiscal years.
Other Service Providers
The
professional service providers for the Funds are or will be as follows:
|
|
|
Service
|
|
Service Providers to the
Funds
|
Accounting Agent
|
|
State Street Bank and Trust Company
|
Custodian
|
|
State Street Bank and Trust Company
|
88
|
|
|
Service
|
|
Service Providers to the
Funds
|
Transfer Agent, Dividend Disbursing Agent and Registrar
|
|
Computershare Trust Company, N.A.
|
Liquidity Provider to Acquiring Fund VRDP Shares
|
|
Bank of America, N.A.
|
Remarketing Agent to Acquiring Fund VRDP Shares
|
|
BofA Securities, Inc.
|
Liquidity Provider MYJ VRDP Shares
|
|
Wells Fargo Bank, N.A.
|
Remarketing Agent to MYJ VRDP Shares
|
|
Wells Fargo Securities, LLC
|
Tender and Paying Agent to VRDP Shares
|
|
The Bank of New York Mellon
|
Independent Registered Public Accounting Firm
|
|
Deloitte & Touche LLP
|
Fund Counsel
|
|
Willkie Farr & Gallagher LLP
|
Counsel to the Independent Board Members
|
|
Stradley Ronon Stevens & Young, LLP
|
It is not anticipated that the Reorganization will result in any change in the organizations providing services to the
Acquiring Fund as set forth above. As a result of the Reorganization, the service providers to the Acquiring Fund are anticipated to be the service providers to the Combined Fund.
Accounting Agent
State Street
Bank and Trust Company provides certain administration and accounting services to the Funds pursuant to an Administration and Fund Accounting Services Agreement (the Administration Agreement). Pursuant to the Administration Agreement,
State Street Bank and Trust Company provides the Funds with, among other things, customary fund accounting services, including computing each Funds NAV and maintaining books, records and other documents relating to each Funds financial
and portfolio transactions, and customary fund administration services, including assisting the Funds with regulatory filings, tax compliance and other oversight activities. For these and other services it provides to the Funds, State Street Bank
and Trust Company is paid a monthly fee from the Funds at an annual rate ranging from 0.0075% to 0.015% of each Funds managed assets, along with an annual fixed fee ranging from $0 to $10,000 for the services it provides to the Funds.
Custody of Assets
The
custodian of the assets of each Fund is State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The custodian is responsible for, among other things, receipt of and disbursement of funds from each Funds accounts,
establishment of segregated accounts as necessary, and transfer, exchange and delivery of Fund portfolio securities.
Transfer Agent, Dividend Disbursing Agent and Registrar
Computershare Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021, serves as each Funds transfer agent with respect to such Funds
common shares.
VRDP Shares Liquidity Providers
Wells Fargo Bank, N.A. (Wells Fargo), Charlotte, North Carolina 28202, serves as the liquidity provider for the MYJ VRDP Shares. Bank of America,
N.A (BofA). New York, New York 10036, serves as the liquidity provider for the Acquiring Fund VRDP Shares.
VRDP
Shares Remarketing Agents
Wells Fargo Securities, LLC, Charlotte, North Carolina 28202, serves as the remarketing agent for the MYJ VRDP Shares. BofA
Securities Inc. New York, New York 10036, serves as the remarketing agent for the Acquiring Fund VRDP Shares.
89
VRDP Shares Tender and Paying Agent
The Bank of New York Mellon, One Wall Street, New York, New York 10286, acts as the tender agent, transfer agent and registrar, dividend disbursing agent and
paying agent and redemption price disbursing agent with respect to each Funds VRDP Shares and will serve in such capacity in connection with the VRDP Shares of the Combined Fund.
90
INFORMATION ABOUT THE COMMON SHARES OF THE FUNDS
General
Common shareholders of
each Fund are entitled to share pro rata in dividends declared by such Funds Board as payable to holders of the Funds common shares and in the net assets of the Fund available for distribution to holders of the common shares. Common
shareholders do not have preemptive or conversion rights and each Funds common shares are not redeemable. Voting rights are identical for the common shareholders of each Fund. Common shareholders of each Fund are entitled to one vote for each
Share held by them and do not have any preemptive or preferential right to purchase or subscribe to any Shares of such Fund. Each Funds common shares do not have cumulative voting rights, which means that the holders of more than 50% of a
Funds common shares voting for the election of Board Members can elect all of the Board Members standing for election by such holders, and, in such event, the holders of the Funds remaining common shares will not be able to elect any
Board Members. The outstanding MYJ and Acquiring Fund common shares are fully paid and non-assessable, except that the Board of each Fund has the power to cause common shareholders to pay certain expenses of
the applicable Fund by setting off charges due from common shareholders from declared but unpaid dividends or distributions owed the common shareholders and/or by reducing the number of common shares owned by each respective common shareholder.
Whenever preferred shares, including VRDP Shares, are outstanding, a Fund may not declare a dividend or distribution to common shareholders (other than a distribution paid in shares of, or in options, warrants or rights to subscribe for or purchase,
common shares or other shares, if any, ranking junior to the preferred shares, as to the payment of dividends and the distribution of assets upon dissolution, liquidation, or winding up of the Fund) or call for redemption, redeem, purchase or
otherwise acquire for consideration any common shares (except by conversion into or exchange for shares of the Fund ranking junior to the preferred shares) unless all accumulated dividends on preferred shares have been paid and the Fund has redeemed
the full number of any shares of preferred required to be redeemed, and unless asset coverage (as defined in the 1940 Act) with respect to preferred shares at the time of declaration of such dividend or distribution or at the time of such purchase
would be at least 200% after giving effect to the dividend or distribution or purchase price.
Purchase and Sale of Common
Shares
Purchase and sale procedures for the common shares of each of the Funds are identical. Each Fund has its common shares listed on the NYSE.
Investors typically purchase and sell common shares of the Funds through a registered broker-dealer on the NYSE, thereby incurring a brokerage commission set by the broker-dealer. Alternatively, investors may purchase or sell common shares of each
of the Funds through privately negotiated transactions with existing common shareholders. Set forth below is information about each Funds common shares as of July 31, 2021.
|
|
|
|
|
|
|
|
|
Fund
|
|
Title of Class
|
|
Amount
Authorized
|
|
Amount
Held by
Fund
for its Own
Account
|
|
Amount
Outstanding
Exclusive of
Amount
Shown in
Previous
Column
|
MYJ
|
|
Common Shares
|
|
199,994,300
|
|
0
|
|
24,124,417
|
Acquiring Fund (MUJ)
|
|
Common Shares
|
|
199,989,509
|
|
0
|
|
30,087,169
|
Common Share Price Data
The following tables set forth the high and low market prices for common shares of each Fund on the NYSE for each full quarterly period within each Funds
two most recent fiscal years and each full quarter since the beginning of each Funds current fiscal year, along with the NAV and discount or premium to NAV for each quotation.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MYJ
|
|
Market Price
|
|
|
NAV
|
|
|
Premium/(Discount) to NAV
|
|
Period Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
10/31/2021
|
|
$
|
16.02
|
|
|
$
|
15.43
|
|
|
$
|
16.17
|
|
|
$
|
15.83
|
|
|
|
(0.9
|
)%
|
|
|
(2.5
|
)%
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/31/2021
|
|
$
|
16.21
|
|
|
$
|
15.31
|
|
|
$
|
16.35
|
|
|
$
|
16.13
|
|
|
|
(0.9
|
)%
|
|
|
(5.1
|
)%
|
4/30/2021
|
|
$
|
15.41
|
|
|
$
|
14.09
|
|
|
$
|
16.21
|
|
|
$
|
15.93
|
|
|
|
(4.9
|
)%
|
|
|
(11.6
|
)%
|
1/31/2021
|
|
$
|
14.62
|
|
|
$
|
13.52
|
|
|
$
|
16.34
|
|
|
$
|
15.61
|
|
|
|
(10.5
|
)%
|
|
|
(13.39
|
)%
|
10/31/2020
|
|
$
|
14.61
|
|
|
$
|
13.38
|
|
|
$
|
16.03
|
|
|
$
|
15.61
|
|
|
|
(8.9
|
)%
|
|
|
(14.3
|
)%
|
7/31/2020
|
|
$
|
14.28
|
|
|
$
|
12.74
|
|
|
$
|
15.90
|
|
|
$
|
14.68
|
|
|
|
(10.2
|
)%
|
|
|
(13.2
|
)%
|
4/30/2020
|
|
$
|
15.82
|
|
|
$
|
11.29
|
|
|
$
|
16.38
|
|
|
$
|
14.88
|
|
|
|
(3.4
|
)%
|
|
|
(24.1
|
)%
|
1/31/2020
|
|
$
|
15.66
|
|
|
$
|
15.08
|
|
|
$
|
15.94
|
|
|
$
|
16.07
|
|
|
|
(1.8
|
)%
|
|
|
(6.2
|
)%
|
10/31/2019
|
|
$
|
15.80
|
|
|
$
|
14.10
|
|
|
$
|
16.27
|
|
|
$
|
16.11
|
|
|
|
(2.9
|
)%
|
|
|
(12.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring
Fund (MUJ)
|
|
Market Price
|
|
|
NAV
|
|
|
Premium/(Discount) to NAV
|
|
Period Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
10/31/2021
|
|
$
|
16.06
|
|
|
$
|
15.11
|
|
|
$
|
16.08
|
|
|
$
|
15.69
|
|
|
|
(0.1
|
)%
|
|
|
(3.7
|
)%
|
7/31/2021
|
|
$
|
16.06
|
|
|
$
|
15.14
|
|
|
$
|
16.31
|
|
|
$
|
16.05
|
|
|
|
(1.5
|
)%
|
|
|
(5.7
|
)%
|
4/30/2021
|
|
$
|
15.35
|
|
|
$
|
14.21
|
|
|
$
|
16.11
|
|
|
$
|
15.87
|
|
|
|
(4.7
|
)%
|
|
|
(10.5
|
)%
|
1/31/2021
|
|
$
|
14.64
|
|
|
$
|
13.52
|
|
|
$
|
16.28
|
|
|
$
|
15.53
|
|
|
|
(10.0
|
)%
|
|
|
(12.9
|
)%
|
10/31/2020
|
|
$
|
14.59
|
|
|
$
|
13.53
|
|
|
$
|
15.97
|
|
|
$
|
15.54
|
|
|
|
(8.6
|
)%
|
|
|
(12.9
|
)%
|
7/31/2020
|
|
$
|
14.21
|
|
|
$
|
12.32
|
|
|
$
|
15.84
|
|
|
$
|
14.66
|
|
|
|
(10.3
|
)%
|
|
|
(16.0
|
)%
|
4/30/2020
|
|
$
|
14.92
|
|
|
$
|
10.87
|
|
|
$
|
16.33
|
|
|
$
|
14.84
|
|
|
|
(8.6
|
)%
|
|
|
(26.8
|
)%
|
1/31/2020
|
|
$
|
14.76
|
|
|
$
|
14.09
|
|
|
$
|
16.30
|
|
|
$
|
15.88
|
|
|
|
(9.5
|
)%
|
|
|
(11.3
|
)%
|
10/31/2019
|
|
$
|
14.63
|
|
|
$
|
13.11
|
|
|
$
|
16.02
|
|
|
$
|
15.97
|
|
|
|
(8.7
|
)%
|
|
|
(17.9
|
)%
|
For the periods shown in the tables above, the common shares of MYJ have traded at a discount and the common shares of
the Acquiring Fund have traded at a discount.
The table below sets forth the market price, NAV, and the premium/discount to NAV of each Fund as of
December 6, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Market Price
|
|
|
NAV
|
|
|
Premium/
(Discount)
to NAV
|
|
MYJ
|
|
$
|
15.84
|
|
|
$
|
16.01
|
|
|
|
(1.1
|
)%
|
Acquiring Fund (MUJ)
|
|
$
|
15.48
|
|
|
$
|
15.91
|
|
|
|
(2.7
|
)%
|
To the extent MYJs common shares are trading at a wider discount (or a narrower premium) than the Acquiring Fund at
the time of the Reorganization, MYJs common shareholders would have the potential for an economic benefit by the narrowing of the discount or widening of the premium. To the extent MYJs common shares are trading at a narrower discount
(or wider premium) than the Acquiring Fund at the time of the Reorganization, MYJs common shareholders may be negatively impacted if the Reorganization is consummated. Acquiring Fund common shareholders would only benefit from a
premium/discount perspective to the extent the post-Reorganization discount (or premium) of the Acquiring Fund common shares improves.
There can be no
assurance that, after the Reorganization, common shares of the Combined Fund will trade at, above or below NAV. Upon consummation of the Reorganization, the Combined Fund common shares may trade at a price that is less than the current market price
of Acquiring Fund common shares. In the Reorganization, common shareholders of MYJ will receive Acquiring Fund common shares based on the relative NAVs (not the market values) of the respective Funds common shares. The market value of the
common shares of the Combined Fund may be less than the market value of the common shares of a Fund prior to the Reorganization.
Performance Information
The performance table below illustrates the past performance of an investment in common shares of each Fund by setting
forth the average total returns for the Funds for the periods indicated. A Funds past performance does not indicate or guarantee how its common shares will perform in the future. Investment return and principal value of an
92
investment will fluctuate so that the common shares, when sold, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted, and
numbers may reflect small variances due to rounding. Standardized performance and performance data current to the most recent month end may be obtained by visiting the Closed-End Funds section of
www.blackrock.com. References to BlackRocks website are intended to allow investors public access to information regarding the Funds and do not, and are not intended to, incorporate BlackRocks website in this Joint Proxy
Statement/Prospectus.
Average Annual Total Returns as of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized Rates of Return
|
|
|
|
|
|
Trailing
12-month
Distribution
Yield based on
December 31,
2020 NAV
|
|
|
One Year ended
December 31,
2020 based on
NAV
|
|
|
One Year
ended
December 31,
2020 based
on Market
Price
|
|
|
Five Year
ended
December 31,
2020 based on
NAV
|
|
|
Five Year
ended
December 31,
2020 based on
Market Price
|
|
|
Ten Year
ended
December 31,
2020 based on
NAV
|
|
|
Ten Year
ended
December 31,
2020 based on
Market Price
|
|
BlackRock MuniYield New Jersey Fund, Inc.
|
|
MYJ
|
|
|
4.52
|
%
|
|
|
5.96
|
%
|
|
|
0.84
|
%
|
|
|
5.37
|
%
|
|
|
4.13
|
%
|
|
|
7.26
|
%
|
|
|
6.41
|
%
|
BlackRock MuniHoldings New Jersey Quality Fund, Inc.
|
|
MUJ
|
|
|
4.28
|
%
|
|
|
6.36
|
%
|
|
|
5.91
|
%
|
|
|
5.48
|
%
|
|
|
5.30
|
%
|
|
|
7.19
|
%
|
|
|
6.52
|
%
|
93
INFORMATION ABOUT THE PREFERRED SHARES OF THE FUNDS
MYJs and the Acquiring Funds respective charter authorizes the issuance of 200 million shares, all of which were initially classified as
common shares with a par value of $0.10 per share. The Board of MYJ and the Acquiring Fund is authorized, however, to reclassify any unissued common shares to preferred shares without the approval of its common shareholders. Set forth below is
information about each Funds outstanding preferred shares as of July 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Title of
Class
|
|
Amount
Authorized
|
|
|
Amount Authorized
Under Each Series
|
|
Amount
Held by
Fund for its
Own
Account
|
|
|
Amount
Outstanding
Exclusive
of Amount
Shown in
Previous
Column
|
|
Issue Date
|
|
|
Mandatory
Redemption
Date
|
MYJ
|
|
VRDP Shares
|
|
|
1,800
|
|
|
Series W-7 1,800
|
|
|
0
|
|
|
1,800
|
|
|
06/11/18
|
|
|
May 1, 2041
|
Acquiring Fund (MUJ)
|
|
VRDP Shares
|
|
|
2,371
|
|
|
Series W-7 2,371
|
|
|
0
|
|
|
2,371
|
|
|
06/30/11
|
|
|
July 1, 2041
|
The outstanding preferred shares of each Fund are fully paid and non-assessable
and have no preemptive or cumulative voting rights.
Below is a table that details, as of July 31,
2021, (i) each Funds current leverage attributable to preferred shares as a percentage of its total net assets, and (ii) the Combined Funds leverage attributable to preferred shares on a pro forma basis as a percentage of its
total net assets assuming the Reorganization was consummated as of July 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Title of Class
|
|
|
Shares
Outstanding
|
|
|
Liquidation
Preference
Per Share
|
|
|
Aggregate
Liquidation
Preference
|
|
|
Total
Managed
Assets
|
|
|
As
Percentage
of Net
Assets
|
|
MYJ
|
|
|
VRDP Shares
|
|
|
|
1,800
|
|
|
$
|
100,000
|
|
|
$
|
180,000,000
|
|
|
$
|
627,442,182
|
|
|
|
45.58
|
%
|
Acquiring Fund (MUJ)
|
|
|
VRDP Shares
|
|
|
|
2,371
|
|
|
$
|
100,000
|
|
|
$
|
237,100,000
|
|
|
$
|
788,800,528
|
|
|
|
48.37
|
%
|
Pro forma Combined Fund (MYJ into MUJ)
|
|
|
VRDP Shares
|
|
|
|
4,171
|
|
|
$
|
100,000
|
|
|
$
|
417,100,000
|
|
|
$
|
1,416,242,710
|
|
|
|
47.13
|
%
|
The VRDP Shares were offered to qualified institutional buyers in private transactions exempt from registration under the
Securities Act.
The annualized dividend rates for the preferred shares for each Funds most recent fiscal year end were as follows:
|
|
|
|
|
Fund
|
|
Rate
|
|
MYJ
|
|
|
0.82
|
%
|
Acquiring Fund (MUJ)
|
|
|
0.91
|
%
|
Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization, Target Fund VRDP
Holders will receive on a one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation preference of $100,000 per share
(plus any accumulated and unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to the Closing Date), in
exchange for each Target Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares may be of the same series as the Acquiring Funds Series W-7 VRDP Shares or a substantially identical series. No fractional Acquiring Fund VRDP Shares will be issued. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be
identical to the terms of the Acquiring Funds outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period
94
(including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on
April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding.
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms of the outstanding Target Fund VRDP Shares, with
certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund may designate any
succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for such Funds VRDP Shares. During a special rate period, a Fund may
choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The
VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ. The terms currently applicable to the VRDP Shares of the Acquiring
Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap
Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares.
Each Funds VRDP Shares have the
benefit of an unconditional demand feature pursuant to a purchase agreement provided by BofA, in the case of the Acquiring Fund and Wells Fargo, in the case of MYJ, acting as liquidity provider to ensure full and timely repayment of the liquidation
preference amount plus any accumulated and unpaid dividends to holders upon the occurrence of certain events (each, a Liquidity Facility). Each Fund entered into a fee agreement with the applicable liquidity provider (each, a Fee
Agreement) in connection with the Funds Liquidity Facility that requires a per annum liquidity fee payable to the liquidity provider. The Fee Agreement between each Fund and the applicable liquidity provider is scheduled to expire,
unless renewed or terminated in advance, as follows:
|
|
|
Fund
|
|
Expiration Date of Fee Agreement
|
MYJ
|
|
July 2, 2022
|
Acquiring Fund (MUJ)
|
|
April 30, 2022
|
Each Liquidity Facility requires the liquidity provider to purchase all VRDP Shares tendered for sale that were not
successfully remarketed. Each Fund is required to redeem the Funds VRDP Shares owned by the applicable liquidity provider after six months of continuous, unsuccessful remarketing. Upon the occurrence of the first unsuccessful remarketing, a
Fund is required to segregate liquid assets to fund the redemption.
In the event the VRDP Shares Purchase Agreement (the Purchase Agreement)
for a Fund is not renewed, and the Fund does not arrange for a Purchase Agreement with an alternate liquidity provider, the Funds VRDP Shares will be subject to mandatory purchase by the applicable liquidity provider prior to the termination
of the Purchase Agreement. There is no assurance that a Fund will replace such redeemed VRDP Shares with any other preferred shares or other form of leverage.
Except during a special rate period (as described below), VRDP Holders have the right to give notice on any business day to tender the VRDP Shares for
remarketing in seven days, the VRDP Shares are subject to a mandatory tender for remarketing upon the occurrence of certain events, and should a remarketing be unsuccessful, the dividend rate for such VRDP Shares will reset to a maximum rate as
defined in the governing documents of the VRDP Shares. Each Funds VRDP Shares are also subject to certain restrictions on transfer outside of the remarketing process. Except during a special rate period, a Fund may incur remarketing fees at
the annual rate set forth below:
|
|
|
Fund
|
|
Remarketing Agent Fee
|
MYJ
|
|
0.05% of 101.85% of the liquidation preference of each outstanding VRDP Share
|
Acquiring Fund (MUJ)
|
|
0.10% times $100,000 per outstanding VRDP Share
|
95
Six months prior to the mandatory redemption date, each Fund is required to begin to segregate liquid assets with
the Funds custodian to fund the redemption. In addition, each Fund is required to redeem certain of its outstanding VRDP Shares if it fails to maintain certain asset coverage, basic maintenance amount or leverage requirements.
Subject to certain conditions, each Funds VRDP Shares may be redeemed, in whole or in part, at any time at the option of the Fund. The redemption price
per VRDP Share is equal to the liquidation value per VRDP Share plus any outstanding unpaid dividends.
Except during a special rate period, dividends on
each Funds VRDP Shares are payable monthly at a variable rate set weekly by the remarketing agent. Such dividend rates are generally based upon a spread over a base rate and cannot exceed a maximum rate. In the event of a failed remarketing,
the dividend rate of the VRDP Shares will be reset to a maximum rate. The maximum rate is determined based on, among other things, the long-term preferred share rating assigned to the VRDP Shares and the length of time that the VRDP Shares fail to
be remarketed. The maximum rate of the VRDP Shares will not exceed an annual rate of 15% for each Fund, exclusive of any applicable gross-up payments or increased dividend payment relating to the inclusion in
any dividend of net capital gains or ordinary income taxable for regular U.S. federal income tax purposes.
At the date of issuance, the VRDP Shares of
each Fund were assigned a long-term rating of Aaa from Moodys and AAA from Fitch. Subsequent to the issuance of the VRDP Shares, Moodys completed a review of its methodology for rating securities issued by registered closed-end funds and adopted a new ratings methodology for such securities, which resulted in the downgrade of Moodys ratings of the VRDP Shares of each Fund. As of July 31, 2021, the VRDP Shares were
assigned a long-term rating of Aa2, in the case of MYJ and the Acquiring Fund. The VRDP Shares of each Fund continue to be assigned a long-term rating of AA from Fitch.
For each Fund, the short-term ratings on the VRDP Shares were withdrawn by Moodys, Fitch and/or S&P at the commencement of the applicable special
rate period, as described below. The short-term ratings on a Funds VRDP Shares are directly related to the short-term ratings of the liquidity provider for the Funds VRDP Shares. Changes in the credit quality of the applicable liquidity
provider could cause a change in the short-term credit ratings of the VRDP Shares. Except during a special rate period, a change in the short-term credit rating of the applicable liquidity provider or the VRDP Shares may adversely affect the
dividend rate paid on such VRDP Shares, although the dividend rate paid on the VRDP Shares is not directly related to the short-term rating. The liquidity provider to a Funds VRDP Shares may be terminated prior to the scheduled termination
date if such liquidity provider fails to maintain short-term debt ratings in one of the two highest rating categories.
Each Funds VRDP Shares are
senior in priority to the Funds common shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of such Fund. Each Funds VRDP Shares will rank on parity with other
preferred shares of the Fund as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund. The 1940 Act prohibits the declaration of any dividend on a Funds common shares
or the repurchase of the Funds common shares if the Fund fails to maintain the asset coverage of at least 200% of the liquidation preference of the outstanding VRDP Shares. In addition, pursuant to the governing instruments of each Funds
VRDP Shares, the Fund is restricted from declaring and paying dividends on classes of shares ranking junior to or on parity with the VRDP Shares or repurchasing such shares if the Fund fails to declare and pay dividends on the VRDP Shares, redeem
any VRDP Shares required to be redeemed under the VRDP Shares governing instruments or comply with the basic maintenance amount requirement of the agencies rating the VRDP Shares.
Each Funds VRDP Holders have voting rights equal to the Funds common shareholders (one vote per Share) and will vote together with such common
shareholders (one vote per Share) as a single class. However, each Funds VRDP Holders, voting as a separate class, are also entitled to elect two Board Members for the Fund. In addition, the 1940 Act requires that along with approval by
shareholders that might otherwise be required, the approval of a 1940 Act Majority of the VRDP Holders of a Fund, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the VRDP
Shares of the Fund, (b) change the Funds sub-classification as a closed-end management investment company or change its fundamental investment restrictions or
(c) change its business so as to cease to be an investment company.
96
Each Fund previously commenced a special rate period on the date set forth below, which was extended and is
currently set to expire as indicated below:
|
|
|
|
|
Fund
|
|
Commencement of Special
Rate Period
|
|
Current Special Rate Period
Expiration Date
|
MYJ
|
|
06/21/12
|
|
06/17/22
|
Acquiring Fund (MUJ)
|
|
04/17/14
|
|
04/15/22
|
The VRDP Holders and a Fund may mutually agree to extend the applicable special rate period prior to the expiration of such
special rate period. If the applicable special rate period is not extended, the VRDP Shares will revert to remarketable securities upon the termination of the special rate period and will be remarketed and available for purchase by qualified
institutional investors. A Liquidity Facility remains in effect for the duration of the applicable special rate period and the VRDP Shares are still subject to mandatory redemption by a Fund on their respective mandatory redemption date. However,
the VRDP Shares will not be remarketed or subject to optional or mandatory tender events during such time. The short-term ratings of the VRDP Shares of each Fund were withdrawn by Moodys, Fitch and/or S&P upon the commencement of the
applicable special rate period. Short-term ratings may be re-assigned upon the termination of a special rate period.
During a special rate period, a Fund is required to maintain the same asset coverage, basic maintenance amount and leverage requirements for the VRDP Shares
as was required prior to the special rate period.
During their Special Rate Period, each Fund pays no fees or nominal fees to the liquidity provider and
remarketing agent, but instead pays dividends monthly based on the sum of the Securities Industry and Financial Markets Association Municipal Swap Index (the SIFMA Municipal Swap Index or the Base Rate) and a percentage per
annum based on the long-term ratings assigned to the VRDP Shares (the Ratings Spread). The Ratings Spread will increase in the event the VRDP Shares are rated below Aaa/AAA by all of the rating agencies rating the VRDP Shares at the time
such Ratings Spread is determined, up to a maximum of 2.35% for MYJ or 3.00% for the Acquiring Fund in the event the VRDP Shares are either rated below Baa3/BBB- by at least one of the rating agencies then
rating the VRDP Shares or not rated by any rating agency in the case of each Fund, for which the maximum is 3.35% for MYJ or 4.00% for the Acquiring Fund. As of July 31, 2021, each of MYJs and the Acquiring Funds VRDP Shares were
assigned an Aa2 rating from Moodys, and each Funds VRDP Shares were assigned an AA rating from Fitch.
The annualized dividend rates of each
Funds VRDP Shares as of each Funds most recent fiscal year end were as follows:
|
|
|
|
|
Fund
|
|
Rate
|
|
MYJ
|
|
|
0.82
|
%
|
Acquiring Fund (MUJ)
|
|
|
0.91
|
%
|
Under MUJs Fee Agreement, to the extent the liquidity provider together with certain affiliates individually or in the
aggregate own at least 20% of the outstanding VRDP Shares and the Fund has not failed to pay dividends on the VRDP Shares for two years, the liquidity provider agreed to enter into and maintain a voting trust agreement and convey into the voting
trust the right to vote all of its VRDP Shares owned by it or such affiliates, with respect to: (i) the election of the two members of the Board for which VRDP Holders are entitled to vote under the 1940 Act and all other rights given to VRDP
Holders with respect to the election of the Board; (ii) the conversion of the Fund from a closed-end management investment company to an open-end fund, or to change
the Funds classification from diversified to non-diversified; (iii) the deviation from a policy in respect of concentration of investments in any particular industry or group of industries as
recited in the Funds registration statement; and (iv) borrowing money, issuing senior securities, underwriting securities issued by other persons, purchasing or selling real estate or commodities or making loans to other persons other
than in accordance with the recitals of policy with respect thereto in the Funds registration statement.
Under MYJs Fee Agreement, to the
extent the liquidity provider together with certain affiliates individually or in the aggregate own at least 20% of the outstanding VRDP Shares and the Fund has not failed to pay dividends on the
97
VRDP Shares for two years, the liquidity provider agreed to enter into and maintain a voting trust agreement and convey into the voting trust the right to vote all of its VRDP Shares owned by it
or such affiliates, with respect to: (i) the election of the two members of the Board for which VRDP Holders are entitled to vote under the 1940 Act and all other rights given to VRDP Holders with respect to the election of the Board;
(ii) the conversion of the Fund from a closed-end management investment company to an open-end fund, or to change the Funds classification from diversified to
non-diversified; (iii) the deviation from a policy in respect of concentration of investments in any particular industry or group of industries as recited in the Funds registration statement;
(iv) borrowing money, issuing senior securities, underwriting securities issued by other persons, purchasing or selling real estate or commodities or making loans to other persons other than in accordance with the recitals of policy with
respect thereto in the Funds registration statement; (v) any state law voting and consent rights granted to the purchaser as a matter of state law unless such voting or consent rights relate to situations where the rights or seniority of
the beneficial owners of the VRDP Shares could be adversely affected (as determined by the purchaser); and (vi) all other voting and consent rights of the purchaser as a beneficial owner of the VRDP Shares unless such voting or consent rights
relate to situations where the rights or seniority of the beneficial owners of the VRDP Shares could be adversely affected (as determined by the purchaser).
If a special rate period is not extended, the VRDP Shares will revert back to remarketable securities and will be remarketed and available for purchase by
qualified institutional investors. There is no assurance that the VRDP Shares will be remarketed or purchased by investors after the termination of a special rate period. If the VRDP Shares are not remarketed or purchased, then a failed remarketing
will occur. As described above, in the event of a failed remarketing, the dividend rate of the VRDP Shares will be reset to the maximum rate and the VRDP Shares that have not been remarketed are required to be purchased by the liquidity provider and
subject to redemption by the applicable Fund after six months of continuous, unsuccessful remarketing.
98
FINANCIAL HIGHLIGHTS
BlackRock MuniYield New Jersey Fund, Inc. (MYJ)
The Financial Highlights table is intended to help you understand MYJs financial performance for the periods shown. Certain information reflects the
financial results for a single common share of MYJ. The total returns in the table represent the rate an investor would have earned or lost on an investment in MYJ (assuming reinvestment of all dividends and/or distributions, if applicable). The
information shown has been audited by Deloitte & Touche LLP, MYJs independent registered public accounting firm. Financial statements for the fiscal year ended July 31, 2021 and the Report of the
Independent Registered Public Accounting Firm thereon appear in MYJs Annual Report for the fiscal year ended July 31, 2021, which is available upon request.
Please see next page for Financial Highlights Table
99
MYJ Financial Highlights
(For a share outstanding throughout each period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MYJ
|
|
|
|
Year Ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net asset value, beginning of year
|
|
$
|
15.89
|
|
|
$
|
16.08
|
|
|
$
|
15.57
|
|
|
$
|
15.89
|
|
|
$
|
16.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.77
|
|
|
|
0.74
|
|
|
|
0.72
|
|
|
|
0.77
|
|
|
|
0.81
|
|
Net realized and unrealized gain (loss)
|
|
|
0.46
|
|
|
|
(0.20
|
)
|
|
|
0.52
|
|
|
|
(0.21
|
)
|
|
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) from investment operations
|
|
|
1.23
|
|
|
|
0.54
|
|
|
|
1.24
|
|
|
|
0.56
|
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders from net investment income(b)
|
|
|
(0.75
|
)
|
|
|
(0.73
|
)
|
|
|
(0.73
|
)
|
|
|
(0.88
|
)
|
|
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
16.37
|
|
|
$
|
15.89
|
|
|
$
|
16.08
|
|
|
$
|
15.57
|
|
|
$
|
15.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
15.62
|
|
|
$
|
14.28
|
|
|
$
|
15.08
|
|
|
$
|
13.51
|
|
|
$
|
16.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Applicable to Common
Shareholders(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on net asset value
|
|
|
8.35
|
%
|
|
|
3.83
|
%
|
|
|
8.78
|
%
|
|
|
3.94
|
%
|
|
|
(0.68
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on market price
|
|
|
15.03
|
%
|
|
|
(0.50
|
)%
|
|
|
17.57
|
%
|
|
|
(13.57
|
)%
|
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1.39
|
%
|
|
|
2.09
|
%
|
|
|
2.49
|
%
|
|
|
2.38
|
%(d)
|
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses after fees waived and/or reimbursed.
|
|
|
1.39
|
%
|
|
|
2.09
|
%
|
|
|
2.47
|
%
|
|
|
2.25
|
%(d)
|
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and
amortization of offering costs(e)
|
|
|
0.89
|
%
|
|
|
0.92
|
%
|
|
|
0.91
|
%
|
|
|
0.94
|
%(d)
|
|
|
0.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income to Common Shareholders
|
|
|
4.81
|
%
|
|
|
4.67
|
%
|
|
|
4.65
|
%
|
|
|
4.93
|
%
|
|
|
5.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to Common Shareholders, end of year (000)
|
|
$
|
394,863
|
|
|
$
|
383,928
|
|
|
$
|
388,399
|
|
|
$
|
376,178
|
|
|
$
|
228,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VRDP Shares outstanding at $100,000 liquidation value, end of year (000)
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
|
$
|
102,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset coverage per VRDP Shares at $100,000 liquidation value, end of year
|
|
$
|
319,369
|
|
|
$
|
313,293
|
|
|
$
|
315,777
|
|
|
$
|
308,988
|
|
|
$
|
323,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings outstanding, end of year (000)
|
|
$
|
52,524
|
|
|
$
|
69,740
|
|
|
$
|
60,135
|
|
|
$
|
70,288
|
|
|
$
|
45,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate.
|
|
|
10
|
%
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based on average Common Shares outstanding.
|
(b)
|
Distributions for annual periods determined in accordance with U.S. federal income tax regulations.
|
(c)
|
Total returns based on market price, which can be significantly greater or less than the net asset value, may
result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.
|
(d)
|
Includes reorganization costs associated with the Funds reorganization. Without these costs, total
expenses, total expenses after fees waived and/or reimbursed and paid indirectly and total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees, and amortization of offering costs, would have been
2.26%, 2.25% and 0.94%, respectively, for the year ended July 31, 2018.
|
(e)
|
Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4
and Note 10 of the Notes to Financial Statements for details.
|
100
BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)
The Financial Highlights table is intended to help you understand the Acquiring Funds financial performance for the periods shown. Certain information
reflects the financial results for a single Common Share of the Acquiring Fund. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Acquiring Fund (assuming reinvestment of all dividends
and/or distributions, if applicable). The information shown has been audited by Deloitte & Touche LLP, the Acquiring Funds independent registered public accounting firm. Financial statements for the fiscal year ended
July 31, 2021 and the Report of the Independent Registered Public Accounting Firm thereon appear in the Acquiring Funds Annual Report for the fiscal year ended July 31, 2021, which is available upon request.
Please see next page for Financial Highlights Table
101
The Acquiring Fund (MUJ) Financial Highlights
(For a share outstanding throughout each period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUJ
|
|
|
|
Year Ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net asset value, beginning of year
|
|
$
|
15.83
|
|
|
$
|
15.95
|
|
|
$
|
15.28
|
|
|
$
|
15.57
|
|
|
$
|
16.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.73
|
|
|
|
0.69
|
|
|
|
0.66
|
|
|
|
0.71
|
|
|
|
0.77
|
|
Net realized and unrealized gain (loss)
|
|
|
0.48
|
|
|
|
(0.16
|
)
|
|
|
0.64
|
|
|
|
(0.26
|
)
|
|
|
(0.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) from investment operations
|
|
|
1.21
|
|
|
|
0.53
|
|
|
|
1.30
|
|
|
|
0.45
|
|
|
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders from net investment income(b)
|
|
|
(0.75
|
)
|
|
|
(0.65
|
)
|
|
|
(0.63
|
)
|
|
|
(0.74
|
)
|
|
|
(0.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
16.29
|
|
|
$
|
15.83
|
|
|
$
|
15.95
|
|
|
$
|
15.28
|
|
|
$
|
15.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
15.63
|
|
|
$
|
14.21
|
|
|
$
|
14.43
|
|
|
$
|
12.90
|
|
|
$
|
14.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Applicable to Common
Shareholders(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on net asset value
|
|
|
8.22
|
%
|
|
|
3.98
|
%
|
|
|
9.44
|
%
|
|
|
3.52
|
%
|
|
|
(0.57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on market price
|
|
|
15.67
|
%
|
|
|
3.17
|
%
|
|
|
17.28
|
%
|
|
|
(8.55
|
)%
|
|
|
(2.44
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1.44
|
%
|
|
|
2.14
|
%
|
|
|
2.49
|
%
|
|
|
2.23
|
%
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses after fees waived and/or reimbursed
|
|
|
1.44
|
%
|
|
|
2.14
|
%
|
|
|
2.49
|
%
|
|
|
2.23
|
%
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and
amortization of offering costs(d)(e)
|
|
|
0.89
|
%
|
|
|
0.92
|
%
|
|
|
0.92
|
%
|
|
|
0.93
|
%
|
|
|
0.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income to Common Shareholders
|
|
|
4.59
|
%
|
|
|
4.39
|
%
|
|
|
4.28
|
%
|
|
|
4.60
|
%
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000)
|
|
$
|
490,103
|
|
|
$
|
476,309
|
|
|
$
|
481,024
|
|
|
$
|
460,727
|
|
|
$
|
469,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VRDP Shares outstanding at $100,000 liquidation value, end of year (000)
|
|
$
|
237,100
|
|
|
$
|
237,100
|
|
|
$
|
237,100
|
|
|
$
|
237,100
|
|
|
$
|
237,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset coverage per VRDP Shares at $100,000 liquidation value, end of year
|
|
$
|
306,707
|
|
|
$
|
300,890
|
|
|
$
|
302,878
|
|
|
$
|
294,318
|
|
|
$
|
297,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings outstanding, end of year (000)
|
|
$
|
61,534
|
|
|
$
|
71,300
|
|
|
$
|
59,415
|
|
|
$
|
62,747
|
|
|
$
|
63,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
10
|
%
|
|
|
13
|
%
|
|
|
8
|
%
|
|
|
14
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based on average Common Shares outstanding.
|
(b)
|
Distributions for annual periods determined in accordance with U.S. federal income tax regulations.
|
(c)
|
Total returns based on market price, which can be significantly greater or less than the net asset value, may
result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.
|
(d)
|
Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4
and Note 10 of the Notes to Financial Statements for details.
|
(e)
|
The total expense ratio after fees waived and/or reimbursed and excluding interest expense, fees, amortization
of offering costs, liquidity and remarketing fees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Expense ratios
|
|
|
0.88
|
%
|
|
|
0.91
|
%
|
|
|
0.91
|
%
|
|
|
0.93
|
%
|
|
|
0.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
DIVIDENDS AND DISTRIBUTIONS
General
The Acquiring
Funds dividend and distribution policy with respect to common shares will be the Combined Funds dividend and distribution policy with respect to common shares. MYJs dividend and distribution policy with respect to common shares is
identical as that of the Acquiring Fund. The Acquiring Fund intends to make regular monthly cash distributions of all or a portion of its net investment income, after payment of dividends on the Acquiring Funds preferred shares outstanding, to
holders of the Acquiring Funds common shares, except as described below in Undistributed Net Investment Income. The Acquiring Funds net investment income consists of all interest income accrued on portfolio assets less
all expenses of the Acquiring Fund. The Acquiring Fund is required to allocate net capital gains and other taxable income, if any, received by the Acquiring Fund among its common shareholders on a pro rata basis in the year for which such capital
gains and other income is realized.
Various factors will affect the level of the Acquiring Funds net investment income, such as its asset mix,
portfolio turnover level, performance of its investments, level of retained earnings, the amount of leverage utilized by the Acquiring Fund and the effects thereof, the costs of such leverage, the movement of interest rates and general market
conditions. These factors, among others, may result in the Combined Funds level of net investment income being different from the level of net investment income for any of the individual Funds if the Reorganization was not completed. To permit
the Acquiring Fund to maintain more stable monthly distributions and to the extent consistent with the distribution requirements imposed on regulated investment companies by the Code, the Acquiring Fund may from time to time distribute less than the
entire amount earned in a particular period. The income would be available to supplement future distributions. As a result, the distributions paid by the Acquiring Fund for any particular month may be more or less than the amount actually earned by
the Acquiring Fund during that month. The amount of undistributed income paid by the Acquiring Fund for any particular month may vary from time to time. The portion of a Combined Funds monthly distribution that consists of undistributed income
may be greater than any individual Fund prior to the Reorganization for any particular month. Undistributed earnings will increase the Acquiring Funds NAV and, correspondingly, distributions from undistributed earnings and from capital, if
any, will reduce the Acquiring Funds NAV.
Acquiring Fund common shareholders will automatically have all dividends and distributions reinvested in
common shares issued by the Acquiring Fund or Acquiring Fund common shares purchased in the open market in accordance with the Acquiring Funds Automatic Dividend Reinvestment Plan, unless an election is made to receive cash. For information
concerning the manner in which dividends and distributions to holders of the Acquiring Fund common shares may be reinvested automatically in the Acquiring Fund common shares, see Automatic Dividend Reinvestment Plan.
Undistributed Net Investment Income
If the Reorganization is approved by shareholders, then the greater of (1) substantially all of the undistributed net investment income, if any, or
(2) the monthly distribution of each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date (the Pre-Reorganization Declared UNII Distributions). The
declaration date, ex-dividend date (the Ex-Dividend Date) and record date of the Pre-Reorganization Declared UNII
Distributions will occur prior to the Closing Date. However, all or a significant portion of the Pre-Reorganization Declared UNII Distributions may be paid in one or more distributions to common shareholders
of the Funds entitled to such Pre-Reorganization Declared UNII Distributions after the Closing Date. Former MYJ shareholders entitled to such Pre-Reorganization Declared
UNII Distributions paid after the Closing Date will receive such distributions in cash.
Persons who purchase common shares of any of the Funds on or
after the Ex-Dividend Date for the Pre-Reorganization Declared UNII Distributions should not expect to receive any distributions from any Fund until distributions, if
any, are declared by the Board of the Combined Fund and paid to shareholders entitled to any such distributions. No such distributions are expected to be paid by the Combined Fund until at least approximately one month following the Closing Date.
103
Additionally, the Acquiring Fund, in order to seek to provide its common shareholders with distribution rate
stability, may include in its Pre-Reorganization Declared UNII Distribution amounts in excess of its undistributed net investment income and net investment income accrued through the Closing Date. This would
result in the Acquiring Fund issuing incrementally more common shares in the Reorganization since its NAV as of the business day prior to the Closing Date of the Reorganization would be lower relative to a scenario where such excess amounts were not
included in the Acquiring Funds Pre-Reorganization Declared UNII Distribution.
The Combined Fund is
anticipated to retain a lower UNII balance after the Reorganization than the Acquiring Fund prior to the Reorganization. The lower anticipated UNII balance for the Combined Fund relative to the UNII balance of the Acquiring Fund poses risks for
shareholders of the Combined Fund. UNII balances, in part, support the level of a funds regular distributions and provide a cushion in the event a funds net earnings for a particular distribution period are insufficient to support the
level of its regular distribution for that period. If the Combined Funds net earnings are below the level of its current distribution rate, the Combined Funds UNII balance could be more likely to contribute to a determination to decrease
the Combined Funds distribution rate, or could make it more likely that the Combined Fund will make distributions consisting in part of a return of capital to maintain the level of its regular distributions. See Dividends and
Distributions. Moreover, because a funds UNII balance, in part, supports the level of a funds regular distributions, the UNII balance of the Combined Fund could impact the trading market for the Combined Funds common shares
and the magnitude of the trading discount to NAV of the Combined Funds common shares. However, the Combined Fund is anticipated to benefit from a lower expense ratio, a potentially higher net earnings profile (compared to the Acquiring Fund)
and other anticipated benefits of economies of scale as discussed herein. Each Fund, including the Combined Fund, reserves the right to change its distribution policy with respect to common share distributions and the basis for establishing the rate
of its distributions for the common shares at any time and may do so without prior notice to common shareholders. The payment of any distributions by any Fund, including the Combined Fund, is subject to, and will only be made when, as, and if,
declared by the Board of such Fund. There is no assurance the Board of any Fund, including the Combined Fund, will declare any distributions for such Fund.
To the extent any Pre-Reorganization Declared UNII Distribution is not an exempt interest dividend (as
defined in the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
Restrictions on
Distributions to Common Shares
While there are any preferred shares of the Acquiring Fund outstanding, the Acquiring Fund may not declare any cash
dividend or other distribution on its common shares, unless at the time of such declaration, (i) all accrued preferred shares dividends have been paid and (ii) the value of the Acquiring Funds total assets (determined after deducting
the amount of such dividend or other distribution), less all liabilities and indebtedness of the Acquiring Fund, is at least 200% (as required by the 1940 Act) of the liquidation preference of the outstanding preferred shares (expected to equal the
aggregate original purchase price of the outstanding preferred shares plus any accrued and unpaid dividends thereon, whether or not earned or declared on a cumulative basis). This limitation on the Acquiring Funds ability to make distributions
on its common shares could in certain circumstances impair the ability of the Acquiring Fund to maintain its qualification for taxation as a regulated investment company under the Code. The Acquiring Fund intends, however, to the extent possible, to
purchase or redeem preferred shares from time to time to maintain compliance with such asset coverage requirements and may pay special dividends to the holders of the preferred shares in certain circumstances in connection with any such impairment
of the Acquiring Funds status as a regulated investment company under the Code.
Tax Treatment of Distributions
The tax treatment and characterization of the Acquiring Funds distributions may vary significantly from time to time because of the varied
nature of the Acquiring Funds investments. The Acquiring Fund will indicate the proportion of its capital gains distributions that constitute long-term and short-term gains annually.
The final tax characterization of distributions is determined after the end of the Acquiring Funds fiscal year and is reported to shareholders on Form
1099. Distributions will be characterized as tax-exempt interest income, ordinary income, capital gains and/or return of capital. The Acquiring Funds net investment income or net realized capital gains
may not be sufficient to support the level of distributions paid. To the extent that distributions exceed the
104
Acquiring Funds current and accumulated earnings and profits in the current fiscal year, the excess may be treated as a return of capital. A return of capital distribution does not
necessarily reflect the Acquiring Funds investment performance and should not be confused with yield or income. A return of capital is a return of a portion of an investors original investment. A return of capital
is generally not taxable, but it reduces a shareholders tax basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent disposition by the shareholder of his or her shares. It is possible that a substantial
portion of the distributions paid during a calendar year may ultimately be classified as return of capital for income tax purposes when the final determination of the source and character of the distributions is made.
105
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Unless the registered owner of Acquiring Fund common shares elects to receive cash by contacting Computershare Trust Company, N.A. (the Reinvestment
Plan Agent), all dividends or other distributions (together, a dividend) declared for your Acquiring Fund common shares will be automatically reinvested by the Reinvestment Plan Agent, as agent for shareholders in administering the
Acquiring Funds dividend reinvestment plan (the Reinvestment Plan), in additional Acquiring Fund common shares.
Shareholders who elect
not to participate in the Reinvestment Plan will receive all dividends in cash paid by check mailed directly to the shareholder of record (or, if the common shares are held in street or other nominee name, then to such nominee) by the Reinvestment
Plan Agent. You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting Computershare Trust Company, N.A., as Reinvestment Plan Agent, at the address set forth below. Participation in the Reinvestment
Plan is completely voluntary and may be terminated or resumed at any time without penalty by telephonic, internet or written notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the
Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such
termination or resumption will be effective with respect to any subsequently declared dividend.
Some brokers may automatically elect to receive cash on
your behalf and may re-invest that cash in additional Acquiring Fund common shares for you. If you wish for all dividends declared on your Acquiring Fund common shares to be automatically reinvested pursuant
to the Reinvestment Plan, please contact your broker.
The Reinvestment Plan Agent will open an account for each Acquiring Fund common shareholder under
the Reinvestment Plan in the same name in which such common shareholders Acquiring Fund common shares are registered. Whenever the Acquiring Fund declares a dividend payable in cash, non-participants in
the Reinvestment Plan will receive cash and participants in the Reinvestment Plan will receive the equivalent in Acquiring Fund common shares. The Acquiring Fund common shares will be acquired by the Reinvestment Plan Agent for the
participants accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Acquiring Fund common shares from the Acquiring Fund (newly issued Acquiring Fund common
shares) or (ii) by purchase of outstanding Acquiring Fund common shares on the open market (open-market purchases). If, on the dividend payment date, the NAV is equal to or less than the market price per share plus estimated
per share fees (such condition often referred to as a market premium), the Reinvestment Plan Agent will invest the dividend amount in newly issued Acquiring Fund common shares on behalf of the participants. The number of newly issued
Acquiring Fund common shares to be credited to each participants account will be determined by dividing the dollar amount of the dividend by the NAV on the dividend payment date. However, if the NAV is less than 95% of the market price on the
dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share plus estimated per share fees
(such condition often referred to as a market discount), the Reinvestment Plan Agent will invest the dividend amount in Acquiring Fund common shares acquired on behalf of the participants in open-market purchases. In the event of a
market discount on the dividend payment date, the Reinvestment Plan Agent will have until the last business day before the next date on which the Acquiring Fund common shares trade on an
ex-dividend basis or 30 days after the dividend payment date, whichever is sooner, to invest the dividend amount in Acquiring Fund common shares acquired in open-market purchases. If, before the
Reinvestment Plan Agent has completed its open-market purchases, the market price per Acquiring Fund Common Share exceeds the NAV per Acquiring Fund Common Share, the average per Acquiring Fund Common Share purchase price paid by the Reinvestment
Plan Agent may exceed the NAV of the Acquiring Fund common shares, resulting in the acquisition of fewer Acquiring Fund common shares than if the dividend had been paid in newly issued Acquiring Fund common shares on the dividend payment date.
Because of the foregoing difficulty with respect to open-market purchases, the Reinvestment Plan provides that if the Reinvestment Plan Agent is unable to
invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent may cease making open-market purchases and may invest any uninvested portion in
newly issued Acquiring Fund common shares. Investments in newly issued Acquiring Fund common shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued Acquiring Fund common
shares will substitute for the dividend payment date.
106
The Reinvestment Plan Agent maintains all shareholders accounts in the Reinvestment Plan and furnishes
written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Acquiring Fund Common shares in the account of each participant will be held by the Reinvestment Plan Agent on behalf of such
participant, and each shareholder proxy will include those Acquiring Fund common shares purchased or received pursuant to the Reinvestment Plan.
In the
case of shareholders such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, the Reinvestment Plan Agent will administer the Reinvestment Plan on the basis of the number of Acquiring Fund common shares
certified from time to time by the record shareholders name and held for the account of beneficial owners who participate in the Reinvestment Plan.
The Reinvestment Plan Agents fees for the handling of the reinvestment of dividends will be paid by the Acquiring Fund; however, each participant will
pay a $0.02 per share fee incurred in connection with open-market purchases, which will be deducted from the value of the dividend. The automatic reinvestment of dividends pursuant to the Reinvestment Plan will not relieve participants of any U.S.
federal, state or local income tax that may be payable (or required to be withheld) on such dividends.
Participants in MYJ and the Acquiring Fund that
request a sale of shares are subject to a $0.02 per share sold brokerage commission. Per share fees include any applicable brokerage commissions the Reinvestment Plan Agent is required to pay.
The Acquiring Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants with regard to purchases
in the Reinvestment Plan; however, the Acquiring Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Notice of amendments to the Reinvestment Plan will be sent to participants.
All correspondence concerning the Reinvestment Plan should be directed to the Reinvestment Plan Agent through the internet at www.computershare.com/blackrock,
or in writing to Computershare Trust Company, N.A., P.O. Box 505000, Louisville, KY 40233, Telephone: (800) 699-1236.
All overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.
107
CERTAIN PROVISIONS OF THE CHARTERS AND BYLAWS
Each of MYJ and the Acquiring Funds Charter and Amended and Restated Bylaws include provisions that could have the effect of limiting the ability of
other entities or persons to acquire control of the Fund or to change the composition of its Board. This could have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control over the Fund. Such attempts could have the effect of increasing the expenses of the Fund and disrupting the normal operation of the Fund.
Certain Provisions in the Charter of Each Fund
The
Board of each Fund is divided into three classes, with the terms of one class expiring at each annual meeting of shareholders. At each annual meeting, one class of Board Members for each Fund is elected to a three-year term. This provision could
delay for up to two years the replacement of a majority of the Board of each Fund.
Each Funds Charter provides that a favorable vote of the
holders of at least 66 2/3% of the outstanding shares of capital stock entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation or statutory share exchange of MYJ or the Acquiring Fund
with any other corporation, (ii) a sale of all or substantially all of the assets of MYJ or the Acquiring Fund (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of MYJ or the Acquiring
Fund, unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of MYJs or the Acquiring Funds Board Members, in which case the
affirmative vote of the holders of a majority of the outstanding shares of capital stock of MYJ or the Acquiring Fund entitled to vote thereon shall be required.
If any plan of reorganization (as such term is used under the 1940 Act) adversely affects a Funds preferred shares, including such Funds VRDP
Shares, then such plan of reorganization will require the approval of a 1940 Act Majority of the holders of such preferred shares, including such Funds VRDP Holders.
Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Securities
and Exchange Act of 1934 and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors, as documented pursuant to the filing of articles supplementary, and
notwithstanding any contrary provision in the charter or bylaws, to a provision requiring that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred.
Pursuant to Subtitle 8 and by amendment to the bylaws and the filing of articles supplementary, the Board of MYJ and the Acquiring Fund elected to provide that vacancies on the Board be filled only by the remaining directors and for the remainder of
the full term of the directorship in which the vacancy occurred.
The Board of each Fund has determined that the voting requirements described above are
in the best interests of shareholders generally. Reference should be made to the Charter of each Fund on file with the SEC for the full text of these provisions.
Certain Provisions in the Bylaws of Each Fund
Each
Fund has elected to be subject to the Maryland Control Share Acquisition Act (the MCSAA). In general, the MCSAA limits the ability of holders of control shares to vote
those shares above various threshold levels that start at 10% unless the other stockholders of each Fund reinstate those voting rights at a meeting of stockholders as provided in the MCSAA. Control shares are generally defined in the
MCSAA as shares of stock that, if aggregated with all other shares of stock that are either (i) owned by a person or (ii) as to which that person is entitled to exercise or direct the exercise of voting power, except solely by virtue of a
revocable proxy, would entitle that person to exercise voting power in electing directors above various thresholds of voting power starting at 10%. The bylaws of each Fund also provide that the provisions of the MCSAA shall not apply to the voting
rights of the holders of any shares of preferred stock of such Fund (but only with respect to such preferred stock).
Each Funds bylaws
generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election to the Board or to transact any other business at an annual meeting of shareholders.
108
Notice of any such nomination or business must be delivered to or received at the principal executive offices of the Fund not less than 120 calendar days nor more than 150 calendar days prior to
the anniversary date of the prior years annual meeting (subject to certain exceptions). Any notice by a shareholder must be accompanied by certain information as provided in the bylaws. Reference should be made to each Funds bylaws on
file with the SEC for the full text of these provisions.
109
GOVERNING LAW
MYJ was formed as a Maryland corporation governed by the laws of the State of Maryland on February 24, 1992, and commenced operations on May 1,
1992.
The Acquiring Fund was formed as a Maryland corporation governed by the laws of the State of Maryland on January 27, 1998, and commenced
operations on March 11, 1998.
Shareholders should refer to the relevant laws of each state and the provisions of each Funds applicable
organizational documents for a more thorough explanation. Such documents are filed as part of each Funds registration statement with the SEC, and shareholders may obtain copies of such documents as described on page vi of this Joint Proxy
Statement/Prospectus.
110
CONVERSION TO OPEN-END FUND
Each Funds Charter provides that a favorable vote of the holders of at least 66 2/3% of the outstanding shares of capital stock entitled to be
voted on the matter shall be required to convert the Fund to an open-end investment company, unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of the Funds Board Members, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Acquiring Fund entitled to vote thereon shall be
required.
The foregoing votes would satisfy a separate requirement in the 1940 Act that any conversion of a Fund to an
open-end investment company be approved by the shareholders. If approved in the foregoing manners, we anticipate conversion of a Fund to an open-end investment company
might not occur until 90 days after the shareholders meeting at which such conversion was approved and would also require at least 10 days prior notice to all shareholders. Following any such conversion, it is possible that certain of
the Funds investment policies and strategies would have to be modified to assure sufficient portfolio liquidity. In the event of conversion, the Funds common shares would cease to be listed on the NYSE and the Funds preferred
shares would be redeemed. Shareholders of an open-end investment company may require the company to redeem their shares at any time, except in certain circumstances as authorized by or under the 1940 Act, at
their NAV, less such redemption charge, if any, as might be in effect at the time of redemption. An open-end investment company expects to pay all such redemption requests in cash, but reserves the right to
pay redemption requests in a combination of cash and securities. If such partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If a Fund were converted to an open-end investment company, it is likely that new shares would be sold at NAV plus a sales load. Each Board believes, however, that its Funds closed-end structure is
desirable in light of its Funds investment objective and policies. Therefore, shareholders should assume that it is not likely that any Board would vote to convert its Fund to an open-end fund.
111
CAPITALIZATION TABLE
The Board of each Fund may authorize separate classes of shares together with such designation of preferences, rights, voting powers, restrictions,
limitations, qualifications or terms as may be determined from time to time by the Board of such Fund. The table below sets forth the capitalization of MYJ and MUJ as of July 31, 2021 and the pro forma capitalization of the Combined
Fund assuming the Reorganization was consummated as of July 31, 2021.
Capitalization of MYJ and MUJ as of July 31, 2021 and
pro forma capitalization of the Combined Fund
assuming the Reorganization was consummated as of July 31, 2021
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Fund
(MYJ)
|
|
|
Acquiring Fund
(MUJ)
|
|
|
Adjustments
|
|
|
Pro forma
Combined
Fund (MYJ
into MUJ)
|
|
Net Assets Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares(1)
|
|
$
|
394,918,597
|
|
|
$
|
490,166,394
|
|
|
|
$(3,374,688
|
)(2)
|
|
$
|
881,710,303
|
|
VRDP Shares
|
|
$
|
180,000,000
|
|
|
$
|
237,100,000
|
|
|
|
|
|
|
$
|
417,100,000
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
24,124,417
|
|
|
|
30,087,169
|
|
|
|
(137,389
|
)(3)
|
|
|
54,348,975
|
|
VRDP Shares
|
|
|
1,800
|
|
|
|
2,371
|
|
|
|
|
|
|
|
4,171
|
|
|
|
|
|
|
NAV per Common Share
|
|
$
|
16.37
|
|
|
$
|
16.29
|
|
|
|
|
|
|
$
|
16.22
|
|
|
|
|
|
|
Liquidation Preference per VRDP Share
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
100,000
|
|
(1)
|
Based on the number of outstanding common shares as of July 31, 2021.
|
(2)
|
Reflects non-recurring aggregate estimated Reorganization expenses of
$433,018, of which $236,951 was attributable to MYJ and $196,067 was attributable to the Acquiring Fund. The actual costs associated with the Reorganization may be more or less than the estimated costs discussed herein. Reflects undistributed net
investment income (previously defined as UNII) of $2,941,670, of which $1,079,317 was attributable to MYJ and $1,862,353 was attributable to the Acquiring Fund.
|
(3)
|
Reflects adjustments due to differences in per common share NAV.
|
112
VOTING RIGHTS
Voting rights are identical for the holders of each Funds common shares. Holders of each Funds common shares are entitled to one vote for each
Common Share held by them. Holders of each Funds preferred shares are entitled to one vote for each preferred share held by them. Each Funds common shares and preferred shares do not have cumulative voting rights.
APPRAISAL RIGHTS
Under Maryland law, except in limited circumstances, stockholders are not entitled to demand the fair value of their shares in connection with a
reorganization if any shares of the class or series of the stock are listed on a national securities exchange, such as the common shares of MYJ and the Acquiring Fund, on the Record Date.
113
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The following is a general summary of the U.S. federal income tax consequences of the Reorganization to the U.S holders of MYJ common shares. The discussion
is based upon the Code, Treasury regulations, court decisions, published positions of the IRS and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with
retroactive effect). The discussion is limited to U.S. persons who hold common shares of MYJ as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This summary does not address all of the U.S. federal income
tax consequences that may be relevant to a particular shareholder or to shareholders who may be subject to special treatment under U.S. federal income tax laws. No ruling has been or will be obtained from the IRS regarding any matter relating to the
Reorganization. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects described below. This summary of U.S. federal income tax consequences is for general
information only. The Funds shareholders should consult their own tax advisers regarding the U.S. federal income tax consequences of the Reorganization, as well as the effects of state, local and
non-U.S. tax laws, including possible changes in tax law.
It is a condition to the closing of the Reorganization
that each Fund receives an opinion from Willkie, dated as of the Closing Date, regarding the characterization of the Reorganization as a reorganization within the meaning of Section 368(a) of the Code. The opinion of Willkie will be
based on U.S. federal income tax law in effect on the Closing Date. In rendering its opinion, Willkie will also rely upon certain representations of the management of each Fund and assume, among other things, that the Reorganization will be
consummated in accordance with the Reorganization Agreement and other operative documents and as described herein. An opinion of counsel is not binding on the IRS or any court.
As a reorganization, the U.S. federal income tax consequences of the Reorganization can be summarized as follows:
|
|
|
No gain or loss will be recognized by a Fund by reason of the Reorganization.
|
|
|
|
No gain or loss will be recognized by a shareholder of MYJ who exchanges, as the case may be, all of its common
shares solely for Acquiring Fund common shares or all of its MYJ VRDP Shares solely for Acquiring Fund VRDP Shares pursuant to the Reorganization (except with respect to cash received in lieu of a fractional Acquiring Fund common share, as discussed
below).
|
|
|
|
The aggregate tax basis of Acquiring Fund common shares received by a shareholder of MYJ pursuant to the
Reorganization will be the same as the aggregate tax basis of the shareholders MYJ common shares surrendered in exchange therefor (reduced by any amount of tax basis allocable to a fractional Acquiring Fund common share for which cash is
received).
|
|
|
|
The holding period of Acquiring Fund common shares received by a shareholder of MYJ pursuant to the
Reorganization will include the holding period of the shareholders common shares surrendered in exchange therefor.
|
|
|
|
A shareholder of MYJ that receives cash in lieu of a fractional Acquiring Fund common share in connection with
the Reorganization will be treated as having received cash in exchange for such fractional Acquiring Fund common share. A MYJ shareholder that receives cash in lieu of a fractional Acquiring Fund common share will recognize capital gain or loss
equal to the difference between the amount of cash deemed received for the fractional Acquiring Fund common share and MYJ shareholders tax basis in MYJ common shares allocable to the fractional Acquiring Fund common share. The capital gain or
loss will be a long-term capital gain or loss if MYJ shareholders holding period for MYJ common shares is more than one year as of the date the Reorganization is consummated.
|
|
|
|
The Acquiring Funds tax basis in MYJs assets received by the Acquiring Fund pursuant to the
Reorganization will, in each instance, equal the tax basis of such assets in the hands of MYJ immediately prior to the Closing Date, and the Acquiring Funds holding period for such assets will, in each instance, include the period during which
the assets were held by MYJ.
|
114
The Acquiring Fund intends to continue to be taxed under the rules applicable to regulated investment companies
as defined in Section 851 of the Code, which are the same rules currently applicable to each Fund and its shareholders.
Neither Fund intends to sell
any assets in connection with the Reorganization other than in the ordinary course of business. If, however, assets of MYJ were to be sold in connection with the Reorganization, or if such assets were required to be marked to market as a result of
the termination of MYJs taxable year or as a result of the transfer of certain assets in the Reorganization, the tax impact of any such sales (or deemed sales) would depend on the difference between the price at which such portfolio assets are
sold and MYJs basis in such assets. Any capital gains recognized in these sales (or deemed sales) on a net basis will be distributed to MYJ shareholders as capital gain dividends (to the extent of net realized long-term capital gains) and/or
ordinary dividends (to the extent of net realized short-term capital gains) during or with respect to the year of sale (or deemed sale) and prior to or after the date of the Reorganization, and such distributions will be taxable to MYJ shareholders.
Prior to the Closing Date, each Fund will declare a distribution to its shareholders, which together with all previous distributions, will have the
effect of distributing to the shareholders of such Fund all of the Funds (i) investment company income (computed without regard to the deduction for dividends paid), if any, through the Closing Date, (ii) net capital gains, if any,
through the Closing Date, and (iii) net tax-exempt interest income, if any, through the Closing Date. To the extent that such a distribution is not an exempt interest dividend (as defined in
the Code), the distribution may be taxable to shareholders for U.S. federal income tax purposes.
The Acquiring Fund will succeed to capital loss
carryforwards (and certain unrealized built-in losses, if any) of MYJ, which are expected to be subject to tax loss limitation rules because MYJ will undergo an ownership change for U.S. federal
income tax purposes. Because MYJ will undergo an ownership change, the Code will generally limit the amount of pre-ownership change losses of MYJ that may be used to offset post-ownership change
gains to a specific annual loss limitation amount (generally the product of (i) the fair market value of the stock of MYJ, with certain adjustments, immediately prior to the Reorganization and (ii) a rate established by the
IRS). Subject to certain limitations, any unused portion of these losses may be available in subsequent years, subject to the remaining portion of any applicable capital loss carryforward limit, as measured from the date of recognition.
Although the capital loss carryforwards of the Combined Fund attributable to MYJ or MUJ may be subject to tax loss limitation rules to the extent outlined
above, it is currently expected that such tax loss limitation rules should not have a material adverse effect on the Combined Funds utilization of MYJs or MUJs capital loss carryforward as compared with what each Funds
utilization of its own capital loss carryforward would be without the Reorganization. The ability of each Fund (and the Combined Fund) to utilize any capital loss carryforwards now or in the future depends on many variables and assumptions,
including but not limited to, projected performance of a Fund, the unrealized gain/loss position of a Fund, the types of securities held by a Fund, the current and future market environment (including the level of interest rates), portfolio turnover
and applicable law, and is, therefore, highly uncertain. As of July 31, 2021, the Funds unused capital loss carryforwards, which have no expiration date and may be carried forward indefinitely, are estimated to be approximately as
follows:
115
Capital Loss Carryforward Amount
|
|
|
MYJ
|
|
Acquiring Fund
(MUJ)
|
$(6,572,209)
|
|
$(8,621,838)
|
Due to the operation of these tax loss limitation rules, it is possible that shareholders of MYJ or the Acquiring Fund would
receive taxable distributions of short-term and long-term capital gains earlier than they would have in the absence of the Reorganization. Such taxable distributions will be treated either as ordinary income (and not as favorably taxed
qualified dividend income) if such capital gains are short term or as favorably taxed capital gain dividends if such capital gains are long term. The actual financial effect of the loss limitation rules on a shareholder of MYJ whose
losses are subject to the loss limitation rules would depend on many variables, including MYJs expected growth rate if the Reorganization were not to occur (i.e., whether, in the absence of the Reorganization, MYJ would generate sufficient
capital gains against which to utilize its capital loss carryforwards (and certain realized built-in losses), in excess of what would have been the annual loss limitation amount had the
Reorganization occurred), the timing and amount of future capital gains recognized by the Combined Fund if the Reorganization was to occur, and the timing of a historic MYJ shareholders disposition of its Shares (the tax basis of which might,
depending on the facts, reflect that shareholders share of such Funds capital losses). Shareholders of all of the Funds should consult their own tax advisors in this regard.
For five years beginning on the Closing Date of the Reorganization, the Combined Fund will not be allowed to offset certain
pre-Reorganization built-in gains attributable to a Fund that is a gain corporation with capital loss carryforwards (and certain
built-in losses) attributable to another Fund.
116
VOTING INFORMATION AND REQUIREMENTS
Record Date
The
Funds have fixed the close of business on December 7, 2021 as the record date (the Record Date) for the determination of shareholders entitled to notice of, and to vote at, the Special Meeting or
any adjournment or postponement thereof. Shareholders on the Record Date will be entitled to one vote for each Share held, with no Shares having cumulative voting rights.
A list of each Funds shareholders of record as of the Record Date will be available for inspection at the Special Meeting.
As of the Record Date, the Funds had the following number of common shares and preferred shares outstanding:
|
|
|
|
|
Title of Class
|
|
MYJ
|
|
Acquiring
Fund
(MUJ)
|
Common shares
|
|
24,124,417
|
|
30,087,169
|
VRDP Shares
|
|
1,800
|
|
2,371
|
Proxies
Shareholders may vote by participating at the Special Meeting remotely, by returning the enclosed proxy card or by casting their vote via telephone or the
Internet using the instructions provided on the enclosed proxy card (described in greater detail below). Shareholders of each Fund have the opportunity to submit their voting instructions via the Internet or by touch-tone telephone
voting. The giving of such a proxy will not affect your right to vote should you decide to attend the Special Meeting remotely. To use the Internet, please access the Internet address found on your proxy card. To record your voting instructions by
automated telephone, please call the toll-free number listed on your proxy card. The Internet and automated telephone voting instructions are designed to authenticate shareholder identities, to allow shareholders to give their voting instructions,
and to confirm that shareholders instructions have been recorded properly. Shareholders submitting their voting instructions via the Internet should understand that there may be costs associated with Internet access, such as usage charges from
Internet access providers and telephone companies that must be borne by the shareholders. Any person giving a proxy may revoke it at any time prior to its exercise by giving written notice of the revocation to the Secretary of the Fund at 40 East
52nd Street, New York, New York 10022, by delivering a duly executed proxy bearing a later date, by recording later-dated voting instructions via the Internet or automated telephone or by attending the Special Meeting and voting. The giving of a
proxy will not affect your right to vote if you attend the Special Meeting and wish to do so.
Votes cast by proxy or at the Special Meeting will be
tabulated by the inspectors of election appointed for the Special Meeting. The presence at the Special Meeting or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum to conduct business at the Special Meeting, except with respect to any matter which requires approval by a separate vote of one or more classes or series of shares, in which case the presence at the Special Meeting or by
proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast by each class or series entitled to vote as a separate class or series shall constitute a quorum to conduct business
at the Special Meeting. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the chair of the
Special Meeting shall have power to adjourn the meeting from time to time, in the manner provided in the Funds bylaws, until a quorum shall be present or represented.
The inspectors of election, who may be employees of BlackRock, will determine whether or not a quorum is present at the Special Meeting. The inspectors of
election will generally treat abstentions and broker non-votes (i.e., shares held by brokers or nominees, typically in street name, as to which proxies have been returned but
(a) instructions have not been received from the beneficial owners or persons entitled to vote and (b) the broker or nominee does not have discretionary voting power or elects not to exercise discretion on a particular matter) as present
for purposes of determining a quorum, subject to any applicable rules of the NYSE.
117
If you hold your shares directly (not through a broker-dealer, bank or other financial institution) and if you
return a properly executed proxy card that does not specify how you wish to vote on a proposal, your shares will be voted FOR each proposal on which you are entitled to vote.
Broker-dealer firms holding shares of a Fund in street name for the benefit of their customers and clients will request the instructions of such
customers and clients on how to vote their shares on Proposals 1-2 before the Special Meeting. Proposals 1-2 are not routine matters and shareholder
instructions are required for broker-dealers to vote a beneficial owners shares.
If you hold shares of a Fund through a bank or other financial
institution or intermediary (called a service agent) that has entered into a service agreement with the Fund or a distributor of the Fund, the service agent may be the record holder of your shares. At the Special Meeting, a service agent will vote
shares for which it receives instructions from its customers in accordance with those instructions. A properly executed proxy card or other authorization by a shareholder that does not specify how the shareholders shares should be voted on a
proposal may be deemed to authorize a service provider to vote such shares in favor of the proposal. Depending on its policies, applicable law or contractual or other restrictions, a service agent may be permitted to vote shares with respect to
which it has not received specific voting instructions from its customers. In those cases, the service agent may, but may not be required to, vote such shares in the same proportion as those shares for which the service agent has received voting
instructions. This practice is commonly referred to as echo voting.
All properly executed proxies received prior to the Special Meeting will
be voted in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, proxies will be voted FOR the approval of each proposal. Abstentions and broker non-votes will not be voted.
Common shareholders of MYJ are being asked to consider Proposal 1(A) below. With respect
to Proposal 1(A), abstentions and broker non-votes will be counted as shares present and will therefore have the same effect as votes AGAINST the proposal.
Common shareholders of the Acquiring Fund are being asked to consider Proposal 2 below. With respect to Proposal 2, abstentions will be counted as votes
cast and will therefore have the same effect as votes AGAINST the proposal and broker non-votes will not have any effect on the result of the vote.
Voting Requirement for Proposal 1: The Reorganization of the Funds
|
|
|
Proposal
|
|
Required Approval of
Shareholders
|
Proposal 1(A): The common shareholders and VRDP Holders of MYJ are being asked to vote as a single class on a proposal to approve the Reorganization Agreement and the transactions contemplated therein, including (i) the
acquisition by the Acquiring Fund of substantially all of MYJs assets and the assumption by the Acquiring Fund of substantially all of MYJs liabilities in exchange solely for newly issued common shares and VRDP Shares of the Acquiring
Fund, which will be distributed to the common shareholders (although cash may be distributed in lieu of fractional common shares) and VRDP Holders, respectively, of MYJ, and which shall constitute the sole consideration to be distributed or paid to
the common shareholders (although cash may be distributed in lieu of fractional common shares) and the VRDP Holders in respect of their common shares and VRDP Shares, respectively, and (ii) the termination by MYJ of its registration under the
1940 Act, and the liquidation, dissolution and termination of MYJ in accordance with its charter and Maryland law.
|
|
Majority of outstanding shares entitled to vote
|
118
Voting Requirement for Proposal 2: The Issuance of Acquiring Fund Common Shares
|
|
|
Proposal
|
|
Required Approval of
Shareholders
|
Proposal 2: The common shareholders and VRDP Holders of the Acquiring Fund are being asked to vote as a single class on a proposal to approve the issuance of additional Acquiring Fund common shares in connection with the
Reorganization.
|
|
Majority of votes entitled to vote
|
SHAREHOLDER INFORMATION
To each Funds knowledge based on Schedule 13D/13G filings made on or before December 7, 2021, as of
December 7, 2021, no person beneficially owned more than 5% of the Funds respective outstanding shares.
As of December 1, 2021
the officers and Board Members of each Fund, as a group, beneficially owned less than 1% of the outstanding common shares of each such Fund and none of the outstanding VRDP Shares of each such Fund.
SHAREHOLDER PROPOSALS
To be considered for presentation at a shareholders meeting, rules promulgated by the SEC generally require that, among other things, a
shareholders proposal must be received at the offices of the relevant Fund a reasonable time before solicitation is made. In addition, each Funds bylaws provide for advance notice provisions, which require shareholders to give timely
notice in proper written form to the Secretary of the Fund. Shareholders should review each Funds bylaws for additional information regarding the Funds advance notice provisions. The bylaws of MYJ and the Acquiring Fund were filed with
the SEC on November 2, 2021 on Form 8-K. Shareholders may obtain copies of such documents as described on page vi of this Joint Proxy Statement/Prospectus.
The timely submission of a proposal does not necessarily mean that such proposal will be included. Any shareholder who wishes to submit a proposal for
consideration at a meeting of such shareholders Fund should send such proposal to the relevant Fund at 40 East 52nd Street, New York, New York 10022.
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this Notice and Joint Proxy Statement/Prospectus with its enclosures on or about December
20, 2021. Shareholders of the Funds whose shares are held by nominees such as brokers can vote their proxies by contacting their respective nominee. In addition to the solicitation of proxies by mail, employees of the Investment Advisor and their
affiliates as well as dealers or their representatives may solicit proxies in person or by mail, telephone, fax or the internet. The Funds and the Investment Advisor have retained Georgeson LLC to assist with the distribution of proxy materials and
the solicitation and tabulation of proxies. The cost of Georgeson LLCs services in connection with the proxy is anticipated to be approximately $77,600 and $75,200 for MYJ and the Acquiring Fund, respectively.
LEGAL MATTERS
Certain legal matters concerning the U.S. federal income tax consequences of the Reorganization will be passed upon by Willkie Farr & Gallagher LLP,
which serves as counsel to the Funds. Certain legal matters concerning the issuance of common shares of the Acquiring Fund will be passed upon by Miles & Stockbridge P.C., which serves as special Maryland counsel to the Acquiring Fund.
119
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Funds performs an annual audit of each Funds financial statements. Each Funds Board has
appointed Deloitte & Touche LLP to be each Funds independent registered public accounting firm. Deloitte & Touche LLP is located at 200 Berkeley Street, Boston,
Massachusetts 02116.
OTHER MATTERS WITH RESPECT TO THE MEETING
Shareholders who want to communicate with the Board or any individual Board Member should write to the attention of the Secretary of their Fund, 40 East 52nd
Street, New York, NY 10022. Shareholders may communicate with the Boards electronically by sending an e-mail to closedendfundsbod@blackrock.com. The communication should indicate that you are a Fund
shareholder. If the communication is intended for a specific Board Member and so indicates, it will be sent only to that Board Member. If a communication does not indicate a specific Board Member, it will be sent to the Chair of the Governance
Committee and the outside counsel to the Independent Board Members for further distribution as deemed appropriate by such persons.
Additionally,
shareholders with complaints or concerns regarding accounting matters may address letters to the CCO of their respective Fund 40 East 52nd Street, New York, NY 10022. Shareholders who are uncomfortable submitting complaints to the CCO may address
letters directly to the Chair of the Audit Committee of the Board that oversees the Fund. Such letters may be submitted on an anonymous basis.
ADJOURNMENTS AND POSTPONEMENTS
Failure of a quorum to be present at the Special Meeting may necessitate adjournment. The Board of each Fund, prior to the Special Meeting being convened, may
postpone such meeting from time to time to a date not more than 120 days after the original record date. The chair of the Special Meeting may also adjourn the Special Meeting from time to time with respect to either Fund and one or more matters to
be considered by a Fund, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place by which shareholders may be deemed to be present and vote at such adjourned meeting are
announced at the meeting at which the adjournment is taken. The chair of the Special Meeting may adjourn the Special Meeting to permit further solicitation of proxies with respect to a proposal if they determine that adjournment and further
solicitation is reasonable and in the best interests of shareholders. At the adjourned meeting, the Fund may transact any business which might have been transacted at the original meeting. Any adjourned meeting may be held as adjourned one or more
times without further notice not later than 120 days after the record date.
PRIVACY PRINCIPLES OF THE FUNDS
The Funds are committed to maintaining the privacy of shareholders and to safeguarding their non-public
personal information. The following information is provided to help you understand what personal information the Funds collect, how we protect that information, and why in certain cases we may share such information with select other parties.
The Funds do not receive any non-public personal information relating to their shareholders who purchase shares
through their broker-dealers. In the case of shareholders who are record holders of a Fund, the Fund receives personal non-public information on account applications or other forms. With respect to these
shareholders, the Funds also have access to specific information regarding their transactions in each Fund.
The Funds do not disclose any non-public personal information about their shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service our shareholders accounts (for example, to a
transfer agent).
120
The Funds restrict access to non-public personal information about their
shareholders to BlackRock employees with a legitimate business need for the information. The Funds maintain physical, electronic and procedural safeguards designed to protect the non-public personal
information of our shareholders.
OTHER INFORMATION
BlackRock is independent in ownership and governance, with no single majority stockholder and a majority of independent directors.
If you cannot be present at the Special Meeting, please fill in, sign and return the enclosed proxy card or please record your voting instructions by
telephone or via the Internet promptly. No postage is necessary if the enclosed proxy card is mailed in the United States.
John M. Perlowski
President and Chief Executive Officer
BlackRock
MuniYield New Jersey Fund, Inc.
BlackRock MuniHoldings New Jersey Quality Fund, Inc.
[●], 2021
121
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
[●], 2021
In order to consummate the reorganization contemplated herein (the Reorganization) and in consideration of the promises and
the covenants and agreements hereinafter set forth, and intending to be legally bound, BlackRock MuniYield New Jersey Fund, Inc., a registered non-diversified closed-end
investment company, File No. 811-06570 (the Target Fund) and BlackRock MuniHoldings New Jersey Quality Fund, Inc., a registered
non-diversified closed-end investment company, File No. 811-08621 (the Acquiring Fund and together with
the Target Fund, the Funds), each hereby agree as follows:
1.
|
REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND.
|
The Acquiring Fund represents and warrants to, and agrees with, the Target Fund that:
(a) The Acquiring Fund is a corporation duly organized, validly existing and in good standing in conformity with the
laws of the State of Maryland and has the power to own all of its assets and to carry out this Agreement. The Acquiring Fund has all necessary federal, state and local authorizations to carry on its business as it is now being conducted and to carry
out this Agreement.
(b) The Acquiring Fund is duly registered under the Investment Company Act of 1940, as amended
(the 1940 Act) as a non-diversified, closed-end management investment company and such registration has not been revoked or rescinded and is in full
force and effect.
(c) The Acquiring Fund has full power and authority to enter into and perform its obligations
under this Agreement subject:
(i) in the case of the consummation of the Reorganization, to the
approval of this Agreement and the transactions contemplated herein, including the issuance of additional Acquiring Fund VRDP Shares (as defined in Section 1(o) herein) in the Reorganization, by the holders of the Acquiring Fund VRDP Shares
(Acquiring Fund VRDP Holders) voting as a separate class, and
(ii) in the case
of the issuance of additional Acquiring Fund Common Shares (as defined in Section 1(o) herein) in connection with the Reorganization, to the approval of such issuance of additional Acquiring Fund Common Shares by the common shareholders of the
Acquiring Fund (Acquiring Fund Common Shareholders and together with the Acquiring Fund VRDP Holders, the Acquiring Fund Shareholders) and the Acquiring Fund VRDP Holders voting as a single class, in each case
as described in Sections 9(a) and (b) hereof.
(d) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action of the Acquiring Funds Board of Directors, and this Agreement constitutes a valid and binding contract of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms,
subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors rights generally and court decisions with respect thereto.
(e) The Acquiring Fund has provided or made available (including by electronic format) to the Target Fund the most
recent audited annual financial statements of the Acquiring Fund, which have been prepared in accordance with generally accepted accounting principles in the United States of America (US GAAP) consistently applied and have been
audited by Deloitte & Touche LLP, each Funds independent registered public accounting firm, and such statements fairly present the financial condition and the results of operations of the Acquiring Fund as of the respective dates
indicated and the results of operations and changes in net assets for the periods indicated, and there are no liabilities of the Acquiring Fund whether actual or contingent and whether or not determined or determinable as of such date that are
required to be disclosed but are not disclosed in such statements.
A-1
(f) An unaudited statement of assets, capital and liabilities of the
Acquiring Fund and an unaudited schedule of investments of the Acquiring Fund, each as of the Valuation Time (as defined in Section 3(e) herein) (together, the Acquiring Fund Closing Financial Statements), will be provided or
made available (including by electronic format) to the Target Fund, at or prior to the Closing Date (as defined in Section 7(a) herein), for the purpose of determining the number of Acquiring Fund Shares (as defined in Section 1(o) herein)
to be issued to the Target Fund shareholders (the Target Fund Shareholders) pursuant to Section 3 of this Agreement; the Acquiring Fund Closing Financial Statements will fairly present the financial position of the Acquiring Fund as
of the Valuation Time in conformity US GAAP consistently applied.
(g) There are no material legal,
administrative or other proceedings pending or, to the knowledge of the Acquiring Fund, threatened against it which assert liability on the part of the Acquiring Fund or which materially affect its financial condition or its ability to consummate
the Reorganization other than as have been disclosed to the Target Fund and/or in the N-14 Registration Statement (as defined in Section 1(l) herein). The Acquiring Fund is not charged with or, to the
best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any federal, state or local law or regulation or administrative ruling relating to any aspect of its business.
(h) There are no material contracts outstanding to which the Acquiring Fund is a party that have not been disclosed in
the N-14 Registration Statement or that will not otherwise be disclosed to the Target Fund prior to the Valuation Time.
(i) The Acquiring Fund is not obligated under any provision of its charter or
By-laws, each as amended to the date hereof, and is not a party to any contract or other commitment or obligation, and is not subject to any order or decree, which would be violated by its execution of or
performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.
(j) The Acquiring Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown
on the Acquiring Funds Annual Report for the fiscal year ended July 31, 2021, those incurred since the date thereof in the ordinary course of its business as an investment company, and those incurred in connection with the Reorganization.
As of the Valuation Time, the Acquiring Fund will advise the Target Fund of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time, except to the extent
disclosed in the Acquiring Fund Closing Financial Statements or to the extent already known by the Target Fund.
(k) No consent, approval, authorization or order of any court or government authority is required for the consummation
by the Acquiring Fund of the Reorganization, except such as may be required under the Securities Act of 1933, as amended (the 1933 Act), the Securities Exchange Act of 1934, as amended (the 1934 Act) and the
1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico) or the rules of the New York Stock Exchange, each of which will have been obtained on or prior to the Closing Date.
(l) The registration statement filed by the Acquiring Fund on Form N-14, which
includes the proxy statement for the common shareholders of the Target Fund and the Acquiring Fund with respect to the transactions contemplated herein (the Joint Proxy Statement/Prospectus), and any supplement or amendment
thereto or to the documents included or incorporated by reference therein (collectively, as so amended or supplemented, the N-14 Registration Statement), on its effective date, at the time
of the shareholder meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to the Acquiring Fund, (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not
misleading; and the Joint Proxy Statement/Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the representations and warranties in this subsection only shall apply to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with information furnished by the Acquiring Fund for use in the N-14 Registration Statement.
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(m) The proxy statement for the Acquiring Fund VRDP Holders and
holders of the Target Fund VRDP Shares (as defined in section 2(o) herein) (the Target Fund VRDP Holders) with respect to the transactions contemplated herein, and any supplement or amendment thereto (the Preferred Shares
Proxy Statement) or to the documents included or incorporated by reference therein, at the time of the shareholder meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to the Acquiring Fund,
(i) complied or will comply in all material respects with the provisions of the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in
this subsection only shall apply to statements in or omissions from the Preferred Shares Proxy Statement made in reliance upon and in conformity with information furnished by the Acquiring Fund for use in the Preferred Shares Proxy Statement.
(n) The Acquiring Fund has filed, or intends to file, or has obtained extensions to file, all federal, state and local
tax returns which are required to be filed by it, and has paid or has obtained extensions to pay, all federal, state and local taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year
in which the Closing Date occurs. All tax liabilities of the Acquiring Fund have been adequately provided for on its books, and no tax deficiency or liability of the Acquiring Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Closing Date occurs.
(o) The Acquiring Fund is authorized to issue 199,989,509 shares of common stock, par value $0.10 per share (the
Acquiring Fund Common Shares), 8,120 shares of preferred stock of Auction Market Preferred Stock, par value $0.10 per share, classified into five separate series (Series A, Series B, Series C, Series D, and Series E) consisting of
1,360, 1,360, 2,400, 1,880, and 1,120 shares respectively, and each with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared thereon), and 2,371 shares of
preferred stock of Series W-7 Variable Rate Demand Preferred Shares, par value $0.10 per share and liquidation preference $100,000 per share (the Acquiring Fund VRDP Shares and together with
the Acquiring Fund Common Shares, the Acquiring Fund Shares). Each outstanding Acquiring Fund Share is fully paid and nonassessable, and has the voting rights provided by the Acquiring Funds charter, By-laws and applicable law.
(p) The books and records of the Acquiring Fund made
available to the Target Fund and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquiring Fund.
(q) The Acquiring Fund Shares to be issued to the Target Fund Shareholders pursuant to this Agreement will have been
duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, except as provided by the Acquiring Funds charter or
applicable law, and no Acquiring Fund Shareholder will have any preemptive right of subscription or purchase in respect thereof.
(r) At or prior to the Closing Date, the Acquiring Fund Common Shares to be transferred to the Target Fund for
distribution to the Target Fund Shareholders on the Closing Date will be duly qualified for offering to the public in all states of the United States in which the sale of shares of the Funds presently are qualified, and there will be a sufficient
number of such Acquiring Fund Common Shares registered under the 1933 Act and, as may be necessary, with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be consummated.
(s) At or prior to the Closing Date, the Acquiring Fund will have obtained any and all regulatory, board and
shareholder approvals necessary to issue the Acquiring Fund Shares to the Target Fund Shareholders.
(t) The
Acquiring Fund has elected to qualify and has qualified as a regulated investment company (RIC) within the meaning of Section 851 of the Internal Revenue Code of 1986, as amended (the Code) for each of its
taxable years since its inception, and the Acquiring Fund has satisfied the distribution requirements imposed by Section 852 of the Code to maintain RIC status for each of its taxable years.
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2.
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REPRESENTATIONS AND WARRANTIES OF THE TARGET FUND.
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The Target Fund represents and warrants to, and agrees with, the Acquiring Fund that:
(a) The Target Fund is a corporation duly organized, validly existing and in good standing in conformity with the laws
of the State of Maryland and has the power to own all of its assets and to carry out this Agreement. The Target Fund has all necessary federal, state and local authorizations to carry on its business as it is now being conducted and to carry out
this Agreement.
(b) The Target Fund is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company, and such registration has not been revoked or rescinded and is in full force and effect.
(c) The Target Fund has full power and authority to enter into and perform its obligations under this Agreement
subject, in the case of consummation of the Reorganization, to the approval and adoption of this Agreement by the Target Fund Shareholders as described in Section 8(a) hereof. The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action of the Target Funds Board of Directors and this Agreement constitutes a valid and binding contract of the Target Fund enforceable against the Target Fund in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors rights generally and court decisions with respect thereto.
(d) The Target Fund has provided or made available (including by electronic format) to the Acquiring Fund the most
recent audited annual financial statements of the Target Fund which have been prepared in accordance with US GAAP consistently applied and have been audited by Deloitte & Touche LLP, and such statements fairly present the financial
condition and the results of operations of the Target Fund as of the respective dates indicated and the results of operations and changes in net assets for the periods indicated, and there are no liabilities of the Target Fund whether actual or
contingent and whether or not determined or determinable as of such date that are required to be disclosed but are not disclosed in such statements.
(e) An unaudited statement of assets, capital and liabilities of the Target Fund and an unaudited schedule of
investments of the Target Fund, each as of the Valuation Time (together, the Target Fund Closing Financial Statements), will be provided or made available (including by electronic format) to the Acquiring Fund at or prior to the
Closing Date, for the purpose of determining the number of Acquiring Fund Shares to be issued to the Target Fund Shareholders pursuant to Section 3 of this Agreement; the Target Fund Closing Financial Statements will fairly present the
financial position of the Target Fund as of the Valuation Time in conformity with US GAAP consistently applied.
(f) There are no material legal, administrative or other proceedings pending or, to the knowledge of the Target Fund,
threatened against it which assert liability on the part of the Target Fund or which materially affect its financial condition or its ability to consummate the Reorganization other than as have been disclosed to the Acquiring Fund. The Target Fund
is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any federal, state or local law or regulation or administrative ruling relating to any aspect of its
business.
(g) There are no material contracts outstanding to which the Target Fund is a party that have not been
disclosed in the N-14 Registration Statement or will not otherwise be disclosed to the Acquiring Fund prior to the Valuation Time.
(h) The Target Fund is not obligated under any provision of its charter or
By-laws, each as amended to the date hereof, or a party to any contract or other commitment or obligation, and is not subject to any order or decree, which would be violated by its execution of or performance
under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.
(i) The Target Fund has no known liabilities of a material amount, contingent or otherwise, other than those shown on
the Target Funds Annual Report for the fiscal year ended July 31, 2021, those incurred since the date
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thereof in the ordinary course of its business as an investment company and those incurred in connection with the Reorganization. As of the Valuation Time, the Target Fund will advise the
Acquiring Fund of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time, except to the extent disclosed in the Target Fund Closing Financial Statements or to
the extent already known by the Acquiring Fund.
(j) At both the Valuation Time and the Closing Date, the Target
Fund will have full right, power and authority to sell, assign, transfer and deliver the Target Fund Investments. As used in this Agreement, the term Target Fund Investments shall mean (i) the investments of the Target Fund
shown on the schedule of its investments as of the Valuation Time furnished to the Acquiring Fund; and (ii) all other assets owned by the Target Fund as of the Valuation Time, other than cash held in liability reserves in amounts necessary to
pay taxes and expenses as provided in Section 6(a)(ii) and Section 6(c)(iv) of this Agreement, respectively, and distributions, if any, as provided in Section 3(c) and Section 9(l) of this Agreement. At the Closing Date, subject
only to the obligation to deliver the Target Fund Investments as contemplated by this Agreement, the Target Fund will have good and marketable title to all of the Target Fund Investments, and the Acquiring Fund will acquire all of the Target Fund
Investments free and clear of any encumbrances, liens or security interests and without any restrictions upon the transfer thereof (except those imposed by the federal or state securities laws and those imperfections of title or encumbrances as do
not materially detract from the value or use of the Target Fund Investments or materially affect title thereto).
(k) No consent, approval, authorization or order of any court or governmental authority is required for the
consummation by the Target Fund of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act and the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto
Rico) or the rules of the New York Stock Exchange, each of which will have been obtained on or prior to the Closing Date.
(l) The N-14 Registration Statement, on its effective date, at the time of the
Target Fund Shareholders meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to the Target Fund (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light
of the circumstances under which they were made, not misleading; and the Joint Proxy Statement/Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the
statements therein, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with information furnished by the Target Fund for use in the N-14 Registration Statement.
(m) The Preferred Shares Proxy Statement for the Target Fund VRDP Holders with respect to the transactions contemplated
herein, and any supplement or amendment thereto or to the documents included or incorporated by reference therein, at the time of the shareholder meeting called to vote on this Agreement and on the Closing Date, insofar as it relates to the Target
Fund, (i) complied or will comply in all material respects with the provisions of the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties
in this subsection shall apply only to statements in or omissions from the Preferred Shares Proxy Statement made in reliance upon and in conformity with information furnished by the Target Fund for use in the Preferred Shares Proxy Statement.
(n) The Target Fund has filed, or intends to file, or has obtained extensions to file, all federal, state and local tax
returns which are required to be filed by it, and has paid or has obtained extensions to pay, all federal, state and local taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year in
which the Closing Date occurs. All tax liabilities of the Target Fund have been adequately provided for on its books, and no tax deficiency or liability of the Target Fund has been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Closing Date occurs.
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(o) The Target Fund is authorized to issue 199,993,440 shares of
common stock, par value $0.10 per share (the Target Fund Common Shares), 4,760 shares of preferred stock of Auction Market Preferred Stock, classified into three separate series (Series A, Series B, and Series C) consisting of
2,400, 1,500, and 860 shares respectively, and each with a liquidation preference of $25,000 per share plus an amount equal to the accumulated but unpaid dividends (whether or not earned or declared thereon), and par value $0.10 per share, except
that shares of Series A have a par value of $0.05 per share, and 1,800 shares of preferred stock of Series W-7 Variable Rate Demand Preferred Shares or any other series of Variable Rate Demand Preferred
Shares, par value $0.10 per share and liquidation preference $100,000 per share (the Target Fund VRDP Shares and together with the Target Fund Common Shares, the Target Fund Shares). Each outstanding Target Fund
Share is duly and validly issued and is fully paid and nonassessable, except as provided by the Target Funds charter, and has the voting rights provided by the Target Funds charter, By-laws and
applicable law. The Target Fund has no outstanding preferred shares other than 1,800 VRDP Shares; no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Target Fund; and no outstanding securities convertible
into shares of the Target Fund. All of the issued and outstanding Target Fund Common Shares will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the Target Funds transfer agent as provided in
Section 7(d).
(p) All of the issued and outstanding Target Fund Shares were offered for sale and sold in
conformity with all applicable federal and state securities laws.
(q) The Target Fund will not sell or otherwise
dispose of any of the Acquiring Fund Shares to be received in the Reorganization, except in distribution to the Target Fund Shareholders as provided in Section 3 of this Agreement.
(r) The books and records of the Target Fund made available to the Acquiring Fund and/or its counsel are substantially
true and correct and contain no material misstatements or omissions with respect to the operations of the Target Fund.
(s) The Target Fund has elected to qualify and has qualified as a RIC within the meaning of Section 851 of the
Code for each of its taxable years since its inception, and the Target Fund has satisfied the distribution requirements imposed by Section 852 of the Code to maintain RIC status for each of its taxable years.
(a) Subject to receiving the requisite approvals of the Target Fund Shareholders and the Acquiring Fund Shareholders,
and to the other terms and conditions contained herein, and in accordance with the applicable law, the Target Fund agrees to convey, transfer and deliver to the Acquiring Fund and the Acquiring Fund agrees to acquire from the Target Fund, on the
Closing Date, all of the Target Fund Investments (including interest accrued as of the Valuation Time on debt instruments held by the Target Fund), and assume substantially all of the liabilities of the Target Fund, in exchange for that number of
Acquiring Fund Shares provided in Section 4 of this Agreement, provided however that if, pursuant to the provisions of paragraph (c) of this Section 3 and paragraph (l) of Section 9 hereof, (i) the Target Fund
determines to make any portion of the UNII Distributions (as defined in Section 3(c) herein) to the Target Fund Common Shareholders (as defined below) after the Closing Date, the Target Fund Investments to be conveyed, transferred and delivered
to the Acquiring Fund hereunder will exclude the amounts required for the payment of such portion of the UNII Distributions and the liabilities to be assumed by the Acquiring Fund shall not include such undistributed amount of such UNII
Distributions, or (ii) the Target Fund determines that the Acquiring Fund will pay amounts in respect of such UNII Distributions on behalf of the Target Fund to the Target Fund Common Shareholders entitled to receive such UNII Distributions
after the Closing Date, then the Target Fund Investments to be conveyed, transferred and delivered to the Acquiring Fund hereunder will include the amounts required for the payment of such portion of the UNII Distributions and the liabilities to be
assumed by the Acquiring Fund shall include such undistributed amount of such UNII Distributions. The existence of the Acquiring Fund shall continue unaffected and unimpaired by the Reorganization and it shall be governed by the laws of Maryland.
(b) If the investment adviser determines that the portfolios of the Target Fund and the Acquiring Fund, when
aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments or that the disposition of certain assets is necessary to ensure that the resulting portfolio will meet
the Acquiring Funds investment objective, policies and restrictions, as set forth in the Joint Proxy
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Statement/Prospectus, a copy of which has been delivered (including by electronic format) to the Target Fund, the Target Fund, if requested by the Acquiring Fund, will dispose of a sufficient
amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. Notwithstanding the foregoing, nothing herein will require the Target Fund to dispose of any portion of its assets if, in the reasonable
judgment of the Target Funds Board of Directors or investment adviser, such disposition would create more than an insignificant risk that the Reorganization would not be treated as a reorganization described in
Section 368(a) of the Code or would otherwise not be in the best interests of the Target Fund.
(c) Prior to
the Closing Date, the Target Fund shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to holders of Target Fund Common Shares (Target Fund Common
Shareholders) entitled to such dividends (i) all of its investment company taxable income to and including the Closing Date, if any (computed without regard to any deduction for dividends paid), (ii) all of its net capital gain, if
any, recognized to and including the Closing Date and (iii) the excess of its interest income excludable from gross income under Section 103(a) of the Code, if any, over its deductions disallowed under Sections 265 and 171(a)(2) of the
Code for the period to and including the Closing Date. The Target Fund may pay amounts in respect of such distributions (UNII Distributions) in one or more distributions to Target Fund Common Shareholders entitled to receive such
UNII Distributions after the Closing Date. In addition, the Acquiring Fund may pay amounts in respect of such UNII Distributions on behalf of the Target Fund to the Target Fund Common Shareholders entitled to receive such UNII Distributions after
the Closing Date as an agent out of cash or other short-term liquid assets maturing prior to the payment date of the UNII Distributions acquired from the Target Fund in the Reorganization, segregated for this purpose and maintained in an amount at
least equal to the remaining payment obligations in respect of the UNII Distributions.
(d) Pursuant to this
Agreement, as soon as practicable, and in no event more than 48 hours, exclusive of Sundays and holidays, after the Closing Date, the Target Fund will distribute all Acquiring Fund Common Shares and Acquiring Fund VRDP Shares received by it to its
shareholders in exchange for their Target Fund Common Shares and Target Fund VRDP Shares, respectively. Such distributions shall be accomplished by the opening of shareholder accounts on the share ledger records of the Acquiring Fund in the names of
and in the amounts due to the Target Fund Shareholders based on their respective holdings in the Target Fund as of the Valuation Time.
(e) The Valuation Time shall be at the close of business of the New York Stock Exchange on the business day immediately
preceding the Closing Date, or such earlier or later day and time as may be mutually agreed upon in writing by the Funds (the Valuation Time).
(f) The Target Fund will pay or cause to be paid to the Acquiring Fund any interest the Target Fund receives on or
after the Closing Date with respect to any of the Target Fund Investments transferred to the Acquiring Fund hereunder.
(g) Recourse for liabilities assumed from the Target Fund by the Acquiring Fund in the Reorganization will be limited
to the net assets acquired by the Acquiring Fund. The known liabilities of the Target Fund, as of the Valuation Time, shall be confirmed to the Acquiring Fund pursuant to Section 2(i) of this Agreement.
(h) The Target Fund will be terminated as soon as practicable following the Closing Date by terminating its
registration under the 1940 Act and dissolving and terminating under the laws of the State of Maryland and will withdraw its authority to do business in any state where it is registered.
(i) For U.S. federal income tax purposes, the parties to this Agreement intend that (i) the Reorganization qualify
as a reorganization within the meaning of Section 368(a) of the Code, (ii) this Agreement constitutes a plan of reorganization within the meaning of U.S. Treasury Regulations Section 1.368-2(g),
and (iii) the parties to this Agreement will each be a party to such reorganization within the meaning of Section 368(b) of the Code.
4.
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ISSUANCE AND VALUATION OF ACQUIRING FUND SHARES IN THE REORGANIZATION.
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(a) A number of Acquiring Fund Common Shares with an aggregate net asset value equal to the value of the Target Fund
Investments (including interest accrued as of the Valuation Time on debt instruments held by the
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Target Fund) acquired in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of the Target Fund assumed by the Acquiring Fund in the Reorganization, shall
be issued by the Acquiring Fund to the Target Fund in exchange for such Target Fund Investments, which shall be determined as set forth below. The value of each Funds net assets shall be calculated net of the liquidation preference (including
accumulated and unpaid dividends) of all outstanding preferred shares of such Fund.
(b) A number of Acquiring Fund
VRDP Shares equal to the number of Target Fund VRDP Shares outstanding immediately prior to the Closing Date, with the terms described in the Preferred Shares Proxy Statement, shall be issued by the Acquiring Fund to the Target Fund. No fractional
Acquiring Fund VRDP Shares will be issued. Each Acquiring Fund VRDP Share issued to the Target Fund in exchange for a Target Fund VRDP Share will have a liquidation preference of $100,000 plus any accumulated and unpaid dividends that have accrued
on such Target Fund VRDP Share up to and including the day immediately preceding the Closing Date. The Target Fund may pay any such accumulated and unpaid dividends prior to the Closing Date.
(c) The net asset value of the Acquiring Fund and the Target Fund, the values of their assets, the amounts of their
liabilities, and the liquidation preference (including accumulated and unpaid dividends) of the Target Fund VRDP Shares and the Acquiring Fund VRDP Shares shall be determined as of the Valuation Time in accordance with the regular procedures of the
Acquiring Fund or such other valuation procedures as shall be mutually agreed by the parties, and no adjustment will be made to the net asset value or liquidation preference so determined of any Fund to take into account differences in realized and
unrealized gains and losses.
Such valuation and determination shall be made by the Acquiring Fund in cooperation with the Target Fund and
shall be confirmed by the Acquiring Fund to the Target Fund. The net asset value per share of the Acquiring Fund Common Shares and the liquidation preference (including accumulated and unpaid dividends) per share of the Acquiring Fund VRDP Shares
shall be determined in accordance with such procedures.
For purposes of determining the net asset value per share of Target Fund Common
Shares and the Acquiring Fund Common Shares, the value of the securities held by the applicable Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate
liquidation value of the outstanding Target Fund VRDP Shares or Acquiring Fund VRDP Shares, as the case may be, shall be divided by the total number of Target Fund Common Shares or Acquiring Fund Common Shares, as the case may be, outstanding at
such time.
(d) The Acquiring Fund shall issue to each Target Fund Common Shareholder book-entry interests for the
Acquiring Fund Common Shares registered in the name of such Target Fund Common Shareholder on the basis of each such holders proportionate interest in the aggregate net asset value of the Target Fund Common Shares.
(e) The Acquiring Fund shall issue to each Target Fund VRDP Holder book-entry interests for the Acquiring Fund VRDP
Shares registered in the name of such Target Fund VRDP Holder on a one-for-one basis for each holders holdings of the Target Fund VRDP Shares. The Target Fund VRDP
Holders shall not receive, or be entitled to, any payment or other consideration in connection with or as a result of the Reorganization other than as provided in this Agreement. In connection with such issuance, the Acquiring Fund shall amend the
Acquiring Fund VRDP Shares Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares (the Articles Supplementary), Notice of Special Rate Period, share certificates
representing such Acquiring Fund VRDP Shares, and such other agreements, instruments or documents relating to the Acquiring Fund VRDP Shares, in each case as of the Closing Date and only to the extent necessary or applicable to such agreement,
instrument or document, to reflect the authorization and issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization.
(f) No fractional shares of Acquiring Fund Common Shares will be issued to holders of Target Fund Common Shares unless
such shares are held in a Dividend Reinvestment Plan account. In lieu thereof, the Acquiring Funds transfer agent will aggregate all fractional Acquiring Fund Common Shares to be issued in connection with the Reorganization (other than those
issued to a Dividend Reinvestment Plan account) and sell the resulting full shares on the New York Stock Exchange at the current market price for Acquiring Fund Common Shares for the account of all holders of such fractional interests, and each such
holder will receive such holders pro rata share of the proceeds of such sale upon issuance of book-entry interests representing Acquiring Fund Common Shares.
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(a) The Target Fund and the Acquiring Fund will bear expenses incurred in connection with the Reorganization, including
but not limited to, costs related to the preparation and distribution of materials distributed to each Funds Board of Directors (the Board), expenses incurred in connection with the preparation of this Agreement, the
preparation and filing of any documents required by such Funds state of organization, the preparation and filing of the N-14 Registration Statement and the Preferred Shares Proxy Statement with the U.S.
Securities and Exchange Commission (SEC), the printing and distribution of the Joint Proxy Statement/Prospectus, the Preferred Shares Proxy Statement and any other materials required to be distributed to shareholders, the SEC,
state securities commission and secretary of state filing fees and legal and audit fees in connection with the Reorganization, fees incurred in obtaining the requisite consents of rating agencies, counterparties or service providers to the preferred
shares, legal fees incurred in connection with amending the transaction documents for the preferred shares, which may include the legal fees of counterparties and service providers to the extent applicable, legal fees incurred preparing each
Funds board materials, attending each Funds board meetings and preparing the minutes, rating agency fees associated with the ratings of the preferred shares in connection with the Reorganization, audit fees associated with each
Funds financial statements, stock exchange fees, transfer agency fees, rating agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization, which will be borne directly by the
respective Fund incurring the expense or allocated among the Funds based upon any reasonable methodology approved by the Boards of the Funds, provided, that the Acquiring Funds investment adviser may bear all or a portion of the reorganization
expenses of each Fund as set forth in the N-14 Registration Statement. Neither the Funds nor the investment adviser will pay any expenses of shareholders arising out of or in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall be liable to any other
party for any damages resulting therefrom, including, without limitation, consequential damages, and each Fund shall be responsible, on a proportionate total assets basis, for all expenses incurred in connection with the Reorganization.
6.
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COVENANTS OF THE FUNDS.
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(a) COVENANTS OF EACH FUND.
(i) Each Fund covenants to operate its business as presently conducted between the date hereof and the
Closing Date, except to the extent that the Target Fund is required or permitted to dispose of assets prior to the Closing Date pursuant to Section 3(b) of this Agreement.
(ii) Each of the Funds agrees that by the Closing Date all of its U.S. federal and other tax returns and
reports required to be filed on or before such date shall have been filed and all taxes shown as due on said returns either have been paid or adequate liability reserves have been provided for the payment of such taxes.
(iii) The intention of the parties is that the transaction contemplated by this Agreement will qualify
as a reorganization within the meaning of Section 368(a) of the Code. Neither the Acquiring Fund nor the Target Fund shall take any action or cause any action to be taken (including, without limitation, the filing of any tax
return) that is inconsistent with such treatment or results in the failure of the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing Date, the Acquiring Fund and the Target
Fund will take such action, or cause such action to be taken, as is reasonably necessary to enable Willkie Farr & Gallagher LLP (Willkie), counsel to the Funds, to render the tax opinion required herein (including,
without limitation, each partys execution of representations reasonably requested by and addressed to Willkie).
(iv) In connection with this covenant, the Funds agree to cooperate with each other in filing any tax
return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. The Acquiring Fund agrees to retain for a period of
ten (10) years following the Closing Date all returns, schedules and work papers and all material records or other documents relating to tax matters of the Target Fund for each of such Funds taxable periods ending on or before the Closing
Date.
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(v) The Acquiring Fund VRDP Shares to be transferred
to the Target Fund for distribution to the Target Fund VRDP Holders on the Closing Date shall only be distributed to the Target Fund VRDP Holders in accordance with an available exemption from registration under the 1933 Act, in a manner not
involving any public offering within the meaning of Section 4(a)(2) of the 1933 Act.
(vi) Each
Fund shall use reasonable efforts to obtain all requisite consents and approvals necessary to consummate the Reorganization.
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(b) COVENANTS
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OF THE ACQUIRING FUND.
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(i) The Acquiring Fund will file the N-14 Registration Statement
and the Preferred Shares Proxy Statement with the SEC and will use its best efforts to provide that the N-14 Registration Statement becomes effective as promptly as practicable. Each Fund agrees to cooperate
fully with the other, and each will furnish to the other the information relating to itself to be set forth in the N-14 Registration Statement and the Preferred Shares Proxy Statement as required by the 1933
Act, the 1934 Act and the 1940 Act, and the rules and regulations thereunder and the state securities laws.
(ii) The Acquiring Fund has no plan or intention to sell or otherwise dispose of the Target Fund
Investments, except for dispositions made in the ordinary course of business.
(iii) Following the
consummation of the Reorganization, the Acquiring Fund will continue its business as a diversified, closed-end management investment company registered under the 1940 Act.
(iv) The Acquiring Fund shall use reasonable efforts to cause the Acquiring Fund Common Shares to be
issued in the Reorganization to be approved for listing on the New York Stock Exchange prior to the Closing Date.
(v) The Acquiring Fund agrees to mail to its shareholders of record entitled to vote at the special
meeting of shareholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, the Joint Proxy Statement/Prospectus (but only to the Acquiring Fund Common Shareholders) and
the Preferred Shares Proxy Statement (but only to the Acquiring Fund VRDP Holders), each of which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the
rules and regulations, respectively, thereunder.
(vi) The Acquiring Fund shall use reasonable
efforts to cause the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization to be rated no lower than the rating assigned to the Acquiring Fund VRDP Shares immediately prior to the Closing Date by the rating agencies then
rating the Acquiring Fund VRDP Shares.
(vii) The Acquiring Fund shall use reasonable efforts to
amend the following documents to reflect the authorization and issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization: (1) the Articles Supplementary; (2) the Notice of Special Rate Period for the Acquiring
Fund VRDP Shares; (3) share certificates representing Acquiring Fund VRDP Shares; (4) the VRDP Shares Fee Agreement for the Acquiring Fund VRDP Shares; (5) the VRDP Shares Purchase Agreement for the Acquiring Fund VRDP Shares;
(6) the VRDP Shares Remarketing Agreement for the Acquiring Fund VRDP Shares; (7) the Tender and Paying Agent Agreement for the Acquiring Fund VRDP Shares; and (8) such other agreements, instruments or documents relating to the
Acquiring Fund VRDP Shares, in each case by the Closing Date and only to the extent necessary or applicable to such agreement, instrument or document.
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(c) COVENANTS
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OF THE TARGET FUND.
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(i) The Target Fund agrees that following the consummation of the Reorganization, following the payment
of any portion of the UNII Distribution to be paid to the Target Fund Common Shareholders by the Target Fund in accordance with Sections 3(c) and 9(l) hereof following the Closing, it will dissolve in
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accordance with the laws of State of Maryland and any other applicable law, it will not make any distributions of any Acquiring Fund Common Shares other than to its shareholders and without first
paying or adequately providing for the payment of all of its respective liabilities not assumed by the Acquiring Fund, and on and after the Closing Date it shall not conduct any business except in connection with its termination.
(ii) The Target Fund undertakes that if the Reorganization is consummated, it will file an application
pursuant to Section 8(f) of the 1940 Act for an order declaring that the Target Fund has ceased to be a registered investment company.
(iii) The Target Fund agrees to mail to its shareholders of record entitled to vote at the special
meeting of shareholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, the Joint Proxy Statement/Prospectus (but only to the Target Fund Common Shareholders) and the
Preferred Shares Proxy Statement (but only to the Target Fund VRDP Holders), each of which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(iv) After the Closing Date, the Target Fund shall
prepare, or cause its agents to prepare, any U.S. federal, state or local tax returns required to be filed by such Target Fund with respect to its final taxable year ending with its complete liquidation and dissolution and for any prior periods or
taxable years and further shall cause such tax returns to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by the Target Fund (other than for payment of
taxes) in connection with the preparation and filing of said tax returns after the Closing Date shall be borne by such Target Fund to the extent such expenses have been accrued by such Target Fund in the ordinary course without regard to the
Reorganization; any excess expenses shall be paid from a liability reserve established to provide for the payment of such expenses.
(v) Upon the request of the Acquiring Fund, the Target Fund shall use reasonable efforts to perform the
following actions by the Closing Date or such later time as may be agreed to by the Acquiring Fund: (a) terminate the VRDP Shares Fee Agreement, the VRDP Shares Purchase Agreement, the VRDP Shares Remarketing Agreement and the Tender and Paying
Agent Agreement and such other agreements, instruments or documents related to the Target Fund VRDP Shares, (b) withdraw the ratings assigned to the Target Fund VRDP Shares, (c) cancel the share certificates representing Target Fund VRDP
Shares, and (d) withdraw or deregister the Target Fund VRDP Shares from The Depository Trust Company.
(a) The closing of the Reorganization (the Closing) shall occur prior to the opening of the NYSE at
the offices of Willkie, 787 Seventh Avenue, New York, New York 10019, or at such other time or location as may be mutually agreed to by the Funds, on the next full business day following the Valuation Time to occur after the satisfaction or waiver
of all of the conditions set forth in Sections 8 and 9 of this Agreement (other than the conditions that relate to actions to be taken, or documents to be delivered at the Closing, it being understood that the occurrence of the Closing shall remain
subject to the satisfaction or waiver of such conditions at Closing), or at such other time and date as may be mutually agreed to by the Funds (such date, the Closing Date).
(b) On the Closing Date, the Target Fund shall deliver the Target Fund Investments to the Acquiring Fund, and the
Acquiring Fund shall issue the Acquiring Fund Shares as provided in this Agreement. To the extent that any Target Fund Investments, for any reason, are not transferable on the Closing Date, the Target Fund shall cause such Target Fund Investments to
be transferred to the Acquiring Funds account with its custodian at the earliest practicable date thereafter.
(c) The Target Fund will deliver to the Acquiring Fund on the Closing Date confirmation or other adequate evidence as
to the tax basis of the Target Fund Investments delivered to the Acquiring Fund hereunder.
(d) On the Closing
Date, the Target Fund shall deliver or make available to (including by electronic format) the Acquiring Fund a list of the names and addresses of all of the Target Fund Common Shareholders of record
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immediately prior to the Closing Date and the number of Target Fund Common Shares owned by each such Target Fund Common Shareholder, certified to the best of its knowledge and belief by the
transfer agent for the Target Fund Common Shares or by the Target Funds Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer, or Secretary or any Assistant Secretary.
8.
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CONDITIONS OF THE TARGET FUND.
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The obligations of the Target Fund hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been approved by at least two-thirds of the
members of the Board of the Target Fund and by the affirmative vote of the Target Fund Common Shareholders and the Target Fund VRDP Holders, voting as a single class, representing a majority of the outstanding shares entitled to vote on this
Agreement, and by the affirmative vote of the Target Fund VRDP Holders, voting as a separate class, representing a 1940 Act Majority (as defined below) of the outstanding VRDP Shares entitled to vote on this Agreement. A 1940 Act
Majority means the affirmative vote of either (i) 67% or more of the class or classes of Target Fund Shares entitled to vote on such proposal present at the Target Funds shareholder meeting where this Agreement shall be approved, if
the holders of more than 50% of the outstanding class or classes of Target Fund Shares entitled to vote on such proposal are present or represented by proxy or (ii) more than 50% of the outstanding class or classes of Target Fund Shares
entitled to vote on such proposal, whichever is less.
(b) That the Acquiring Fund shall have delivered (including
in electronic format) to the Target Fund (i) a copy of the resolutions approving this Agreement and the issuance of additional Acquiring Fund Shares in connection with the Reorganization adopted by the Board of the Acquiring Fund, (ii) a
certificate setting forth the vote of the Acquiring Fund VRDP Holders, voting as a separate class, approving this Agreement and the issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization, and the vote of the
Acquiring Fund Common Shareholders and the Acquiring Fund VRDP Holders, voting as a single class, approving the issuance of additional Acquiring Fund Common Shares in connection with the Reorganization, and (iii) a certificate certifying that
the Acquiring Fund has received all requisite consents and approvals necessary to consummate the Reorganization, each certified by the Acquiring Funds Secretary or any Assistant Secretary.
(c) That the Acquiring Fund shall have provided or made available (including by electronic format) to the Target Fund
the Acquiring Fund Closing Financial Statements, together with a schedule of the Acquiring Funds investments, all as of the Valuation Time, certified on the Acquiring Funds behalf by its Chief Executive Officer, President, any Vice
President, Chief Financial Officer, Treasurer or any Assistant Treasurer, and a certificate signed by the Acquiring Funds Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer,
dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of the Acquiring Fund since the date of the Acquiring Funds most recent
Annual or Semi-Annual Report, as applicable, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.
(d) That the Acquiring Fund shall have furnished to the Target Fund a certificate signed by the Acquiring Funds
Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer, dated as of the Closing Date, certifying that, as of the Valuation Time and as of the Closing Date, all representations and
warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates, and that the Acquiring Fund has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to each of such dates.
(e) That there shall
not be any material litigation pending with respect to the matters contemplated by this Agreement.
(f) That the
Target Fund shall have received the opinion of Miles & Stockbridge P.C., special Maryland counsel to the Acquiring Fund, dated as of the Closing Date, addressed to the Target Fund, that substantively provides the following:
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(i) The Acquiring Fund is validly existing as a
corporation under the laws of the State of Maryland and in good standing under the laws of the State of Maryland and has the corporate power to conduct its business as described in the definitive Joint Proxy Statement/Prospectus filed with the SEC
pursuant to Rule 424(b) under the 1933 Act.
(ii) The Acquiring Fund has the corporate power and
authority to execute, deliver and perform all of the obligations under the Agreement under the applicable laws of the State of Maryland. The execution and delivery of the Agreement and the consummation by the Acquiring Fund of the transactions
contemplated hereby have been duly authorized by all requisite corporate action on the part of the Acquiring Fund under the laws of the State of Maryland and the Acquiring Funds charter.
(iii) The execution and delivery by the Acquiring Fund of this Agreement and the performance of the
Acquiring Funds obligations under the Agreement do not violate the Acquiring Funds charter or By-laws.
(iv) Neither the execution, delivery or performance by the Acquiring Fund of the Agreement nor the
compliance by the Acquiring Fund with the terms and provisions thereof will violate any provision of law of the State of Maryland applicable to the Acquiring Fund.
(v) Assuming that the Acquiring Fund Shares will be issued in accordance with the terms of this
Agreement, the Acquiring Fund Shares to be issued and delivered to the Target Fund Shareholders as provided by this Agreement are duly authorized and upon such delivery will be validly issued and fully paid and
non-assessable by the Acquiring Fund, and no shareholder of the Acquiring Fund has, as such holder, any preemptive rights to acquire, purchase or subscribe for any securities of the Acquiring Fund under the
Acquiring Funds charter, By-laws or the laws of the State of Maryland.
(g) That the Target Fund shall have received the opinion of Willkie, counsel to the Acquiring Fund, dated as of the
Closing Date, addressed to the Target Fund, that substantively provides the following:
(i) The
Acquiring Fund is registered with the SEC as a closed-end management investment company under the 1940 Act.
(ii) To the best of such counsels knowledge, no governmental approval, which has not been obtained
and is not in full force and effect, is required to authorize, or is required in connection with, the execution or delivery of the Agreement by the Acquiring Fund, or the enforceability of the Agreement against the Acquiring Fund.
(iii) Neither the execution, delivery or performance by the Acquiring Fund of the Agreement nor the
compliance by the Acquiring Fund with the terms and provisions thereof will contravene any provision of applicable federal securities law of the United States of America.
(h) That the Target Fund shall have obtained an opinion from counsel for the Acquiring Fund, dated as of the Closing
Date, addressed to the Target Fund, that the consummation of the transactions set forth in this Agreement complies with the requirements of a reorganization as described in Section 368(a) of the Code.
(i) That all proceedings taken by the Acquiring Fund and its counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and substance to the Target Fund.
(j) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of the Acquiring Fund, be contemplated by
the SEC.
(k) That the liquidity provider for the Target Fund VRDP Shares shall have consented to this Agreement.
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9.
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CONDITIONS OF THE ACQUIRING FUND.
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The obligations of the Acquiring Fund hereunder shall be subject to the following conditions:
(a) That this Agreement and the issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization
shall have been approved by the Board of the Acquiring Fund and by the affirmative vote of the Acquiring Fund VRDP Holders, voting as a separate class, of a 1940 Act Majority of the outstanding Acquiring Fund VRDP Shares.
(b) That the issuance of additional Acquiring Fund Common Shares in connection with the Reorganization shall have been
approved by the Board of the Acquiring Fund and by the affirmative vote of the Acquiring Fund Common Shareholders and the Acquiring Fund VRDP Holders, voting as a single class, of a majority of shares entitled to vote on such issuance.
(c) The Target Fund shall have delivered (including in electronic format) to the Acquiring Fund (i) a copy of the
resolutions approving this Agreement adopted by the Board of the Target Fund, (ii) a certificate setting forth the vote of the Target Fund Common Shareholders and the Target Fund VRDP Holders, voting as a single class, approving this Agreement,
and the vote of the Target Fund VRDP Holders, voting as a separate class, approving this Agreement, and (iii) a certificate certifying that the Target Fund has received all requisite consents and approvals necessary to consummate the
Reorganization, each certified by the Target Funds Secretary or any Assistant Secretary.
(d) That the Target
Fund shall have provided or made available (including by electronic format) to the Acquiring Fund the Target Fund Closing Financial Statements, together with a schedule of the Target Funds investments with their respective dates of acquisition
and tax costs, all as of the Valuation Time, certified on the Target Funds behalf by its Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer, and a certificate signed the Target
Funds Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no
material adverse change in the financial position of the Target Fund since the date of the Target Funds most recent Annual Report or Semi-Annual Report, as applicable, other than changes in the Target Fund Investments since that date or
changes in the market value of the Target Fund Investments.
(e) That the Target Fund shall have furnished to the
Acquiring Fund a certificate signed by the Target Funds Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer, dated as of the Closing Date, certifying that as of the Valuation
Time and as of the Closing Date all representations and warranties of the Target Fund made in this Agreement are true and correct in all material respects with the same effect as if made at and as of such dates and the Target Fund has complied with
all of the agreements and satisfied all of the conditions on its part to be performed or satisfied at or prior to such dates.
(f) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.
(g) That the Acquiring Fund shall have received the opinion of Miles & Stockbridge P.C., special Maryland
counsel to the Target Fund, dated as of the Closing Date, addressed to the Acquiring Fund, that substantively provides the following:
(i) The Target Fund is validly existing and is in good standing under the laws of the State of Maryland.
(ii) The Target Fund has the corporate power and authority to execute and deliver the Agreement and
perform all of its obligations under the Agreement under the laws of the State of Maryland. The execution and delivery of the Agreement and the consummation by the Target Fund of the transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Target Fund under the laws of the State of Maryland and the Target Funds charter.
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(iii) The Agreement has been duly executed by the
Target Fund.
(iv) The execution and delivery by the Target Fund of the Agreement did not, and the
performance of the Target Funds obligations under the Agreement will not, violate the charter or the By-laws of the Target Fund.
(v) Neither the execution, delivery or performance by the Target Fund of the Agreement nor the
compliance by the Target Fund with the terms and provisions thereof will violate any provision of any applicable law of the State of Maryland.
(h) That the Acquiring Fund shall have received the opinion of Willkie, counsel to the Target Fund, dated as of the
Closing Date, addressed to the Acquiring Fund, that substantively provides the following:
(i) The
Target Fund is registered with the SEC as a closed-end management investment company under the 1940 Act.
(ii) To the best of such counsels knowledge, no governmental approval, which has not been obtained
and is not in full force and effect, is required to authorize, or is required in connection with, the execution or delivery of the Agreement by the Target Fund, or the enforceability of the Agreement against the Target Fund.
(iii) Neither the execution, delivery or performance by the Target Fund of the Agreement nor the
compliance by the Target Fund with the terms and provisions thereof will contravene any provision of applicable federal securities law of the United States of America.
(i) That the Acquiring Fund shall have obtained an opinion from counsel for the Target Fund, dated as of the Closing
Date, addressed to the Acquiring Fund, that the consummation of the transactions set forth in this Agreement complies with the requirements of a reorganization as described in Section 368(a) of the Code.
(j) That all proceedings taken by the Target Fund and its counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and substance to the Acquiring Fund.
(k) That the N-14 Registration Statement shall have become effective under the 1933 Act and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of the Target Fund, be contemplated by the
SEC.
(l) That prior to the Closing Date, the Target Fund shall have declared a dividend or dividends which,
together with all such previous dividends, shall have the effect of distributing to the Target Fund Common Shareholders entitled to such dividends (i) all of its investment company taxable income to and including the Closing Date, if any
(computed without regard to any deduction for dividends paid), (ii) all of its net capital gain, if any, recognized to and including the Closing Date and (iii) the excess of its interest income excludable from gross income under
Section 103(a) of the Code, if any, over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for the period to and including the Closing Date. The Target Fund may pay amounts in respect of such UNII Distributions in one or
more distributions to Target Fund Common Shareholders entitled to receive such UNII Distributions after the Closing Date. In addition, the Acquiring Fund may pay amounts in respect of such UNII Distributions on behalf of the Target Fund to the
Target Fund Common Shareholders entitled to receive such UNII Distributions after the Closing Date as an agent out of cash or other short-term liquid assets maturing prior to the payment date of the UNII Distributions acquired from the Target Fund
in the Reorganization, segregated for this purpose and maintained in an amount at least equal to the remaining payment obligations in respect of the UNII Distributions.
(m) That the liquidity provider for the Acquiring Fund VRDP Shares shall have consented to this Agreement and the
issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization.
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(n) That the liquidity provider, remarketing agent, tender and paying
agent and the rating agencies for the Acquiring Fund VRDP Shares shall have consented to any amendments to the Articles Supplementary, the Notice of Special Rate Period for the Acquiring Fund VRDP Shares, share certificates representing Acquiring
Fund VRDP Shares and such other agreements, instruments or documents relating to the Acquiring Fund VRDP Shares that are necessary to reflect the issuance of additional Acquiring Fund VRDP Shares in connection with the Reorganization, but only to
the extent such consent is required under the Related Documents (as defined in the Articles Supplementary).
10.
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TERMINATION, POSTPONEMENT AND WAIVERS.
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(a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and the
Reorganization abandoned at any time (whether before or after adoption thereof by the shareholders of the Target Fund and the Acquiring Fund) prior to the Closing Date, or the Closing Date may be postponed, (i) by mutual consent of the Boards
of the Acquiring Fund and the Target Fund; (ii) by the Board of the Target Fund if any condition of the Target Funds obligations set forth in Section 8 of this Agreement has not been fulfilled or waived by such Board; and
(iii) by the Board of the Acquiring Fund if any condition of the Acquiring Funds obligations set forth in Section 9 of this Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been consummated by [●], this Agreement
automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of the Acquiring Fund and the Target Fund.
(c) In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become void and
have no further effect, and there shall not be any liability on the part of any Fund or its respective directors, trustees, officers, agents or shareholders in respect of this Agreement other than with respect to Section 11 and payment by each
Fund of its respective expenses incurred in connection with the Reorganization.
(d) At any time prior to the
Closing Date, any of the terms or conditions of this Agreement may be waived by the Board of the Acquiring Fund or the Target Fund (whichever is entitled to the benefit thereof), if, in the judgment of such Board after consultation with its counsel,
such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of their respective Fund, on behalf of which such action is taken.
(e) The respective representations and warranties contained in Sections 1 and 2 of this Agreement shall expire with,
and be terminated by, the consummation of the Reorganization, and neither the Funds, nor any of their respective officers, directors, trustees, agents or shareholders shall have any liability with respect to such representations or warranties after
the Closing Date. This provision shall not protect any officer, director, trustee, agent or shareholder of either of the Funds against any liability to the entity for which that officer, director, trustee, agent or shareholder so acts or to its
shareholders, to which that officer, director, trustee, agent or shareholder otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his or her duties in the conduct of such office.
(f) If any order or orders of the SEC with respect to this Agreement shall be issued prior to the Closing Date and
shall impose any terms or conditions which are determined by action of the Boards of the Acquiring Fund and the Target Fund to be acceptable, such terms and conditions shall be binding as if a part of this Agreement without further vote or approval
of the Target Fund Shareholders and the Acquiring Fund Shareholders unless such terms and conditions shall result in a change in the method of computing the number of Acquiring Fund Shares to be issued to the Target Fund Shareholders, in which
event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the Target Fund Shareholders prior to the meeting at which the Reorganization shall have been approved, this Agreement shall not be
consummated and shall terminate unless the Target Fund promptly shall call a special meeting of the Target Fund Shareholders at which such conditions so imposed shall be submitted for approval.
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(a) Each party (an Indemnitor) shall indemnify and hold the other and its officers, directors,
trustees, agents and persons controlled by or controlling any of them (each an Indemnified Party) harmless from and against any and all losses, damages, liabilities, claims, demands, judgments, settlements, deficiencies, taxes,
assessments, charges, costs and expenses of any nature whatsoever (including reasonable attorneys fees) including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by such
Indemnified Party in connection with the defense or disposition of any claim, action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which such Indemnified Party may be or may have
been involved as a party or otherwise or with which such Indemnified Party may be or may have been threatened (collectively, the Losses) arising out of or related to any claim of a breach of any representation, warranty or
covenant made herein by the Indemnitor; provided, however, that no Indemnified Party shall be indemnified hereunder against any Losses arising directly from such Indemnified Partys (i) willful misfeasance, (ii) bad
faith, (iii) gross negligence or (iv) reckless disregard of the duties involved in the conduct of such Indemnified Partys position.
(b) The Indemnified Party shall use its best efforts to minimize any liabilities, damages, deficiencies, claims,
judgments, assessments, costs and expenses in respect of which indemnity may be sought hereunder. The Indemnified Party shall give written notice to Indemnitor within the earlier of ten (10) days of receipt of written notice to the Indemnified
Party or thirty (30) days from discovery by the Indemnified Party of any matters which may give rise to a claim for indemnification or reimbursement under this Agreement. The failure to give such notice shall not affect the right of the
Indemnified Party to indemnity hereunder unless such failure has materially and adversely affected the rights of the Indemnitor. At any time after ten (10) days from the giving of such notice, the Indemnified Party may, at its option, resist,
settle or otherwise compromise, or pay such claim unless it shall have received notice from the Indemnitor that the Indemnitor intends, at the Indemnitors sole cost and expense, to assume the defense of any such matter, in which case the
Indemnified Party shall have the right, at no cost or expense to the Indemnitor, to participate in such defense. If the Indemnitor does not assume the defense of such matter, and in any event until the Indemnitor states in writing that it will
assume the defense, the Indemnitor shall pay all costs of the Indemnified Party arising out of the defense until the defense is assumed; provided, however, that the Indemnified Party shall consult with the Indemnitor and obtain
indemnitors prior written consent to any payment or settlement of any such claim. The Indemnitor shall keep the Indemnified Party fully apprised at all times as to the status of the defense. If the Indemnitor does not assume the defense, the
Indemnified Party shall keep the Indemnitor apprised at all times as to the status of the defense. Following indemnification as provided for hereunder, the Indemnitor shall be subrogated to all rights of the Indemnified Party with respect to all
third parties, firms or corporations relating to the matter for which indemnification has been made.
(a) All covenants, agreements, representations and warranties made under this Agreement and any certificates delivered
pursuant to this Agreement shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf.
(b) All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered
personally or sent by registered mail or certified mail, postage prepaid. Notice to the Target Fund shall be addressed to BlackRock MuniYield New Jersey Fund, Inc. c/o BlackRock Advisors, LLC, 40 East 52nd Street, New York, New York 10022,
Attention: Janey Ahn, Secretary of the Target Fund or at such other address as the Target Fund may designate by written notice to the Acquiring Fund. Notice to the Acquiring Fund shall be addressed to BlackRock MuniHoldings New Jersey Quality Fund,
Inc. c/o BlackRock Advisors, LLC, 40 East 52nd Street New York, New York 10022, Attention: Janey Ahn, Secretary of the Acquiring Fund, or at such other address and to the attention of such other person as the Acquiring Fund may designate by
written notice to the Target Fund. Any notice shall be deemed to have been served or given as of the date such notice is delivered personally or mailed.
(c) This Agreement supersedes all previous correspondence and oral communications between the Funds regarding the
Reorganization, constitutes the only understanding with respect to the Reorganization, may not be changed except by a letter of agreement signed by each Fund and shall be governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said state.
(d) This Agreement may be amended or modified by
the parties hereto prior to the Closing Date, by action taken or authorized by their respective Boards at any time before or after adoption of this Agreement and
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approval of the Reorganization by the Target Fund Shareholders or the Acquiring Fund Shareholders, but, after any such adoption and approval, no amendment or modification shall be made which by
law requires further approval by shareholders without such further approval. This Agreement may not be amended or modified except by an instrument in writing signed on behalf of each of the Funds.
(e) This Agreement is not intended to confer upon any person other than the parties hereto (or their respective
successors and assigns) any rights, remedies, obligations or liabilities hereunder. If any provision of this Agreement shall be held or made invalid by statute rule, regulation, decision of a tribunal or otherwise, the remainder of this Agreement
shall not be affected thereby and, to such extent, the provisions of this Agreement shall be deemed severable provided that this Agreement shall be deemed modified to give effect to the fullest extent permitted under applicable law to the intentions
of the party as reflected by this Agreement prior to the invalidity of such provision.
(f) It is expressly agreed
that the obligations of the Funds hereunder shall not be binding upon any of their respective directors, trustees, shareholders, nominees, officers, agents, or employees personally, but shall bind only the property of the respective Fund. The
execution and delivery of this Agreement has been authorized by the Boards of the Acquiring Fund and the Target Fund and signed by an authorized officer of each of the Acquiring Fund and the Target Fund, acting as such, and neither such
authorization by such Board nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of each Fund.
(g) This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be
deemed to be an original but all such counterparts together shall constitute but one instrument.
[Remainder of Page Intentionally Left
Blank]
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APPENDIX B
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Acquiring Fund
The following are fundamental
investment restrictions of the Fund and may not be changed without the approval of the holders of a majority of the outstanding shares of common stock and the outstanding shares of preferred stock, voting together as a single class, and a majority
of the outstanding shares of preferred stock, voting separately as a class. For this purpose and under the 1940 Act, for the common stock and preferred stock voting together as a single class, majority means the lesser of
(i) 67% of the shares of each class of capital stock represented at a meeting at which more than 50% of the outstanding shares of each class of capital stock are represented or (ii) more than 50% of the outstanding shares of each class of
capital stock, but for the shares of preferred stock voting separately as a single class, majority means more than 50% of the outstanding shares of preferred stock. The Fund may not:
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1.
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Make investments for the purpose of exercising control or management.
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2.
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Purchase or sell real estate, commodities or commodity contracts; provided, that the Fund may invest in
securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein, and the Fund may purchase and sell financial futures contracts and options thereon.
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3.
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Issue senior securities or borrow money except as permitted by Section 18 of the 1940 Act.
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4.
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Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the
Securities Act, in selling portfolio securities.
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5.
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Make loans to other persons, except that the Fund may purchase MUJ New Jersey Municipal Bonds, MUJ Municipal
Bonds and other debt securities and enter into repurchase agreements in accordance with its investment objective, policies and limitations.
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6.
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Invest more than 25% of its total assets (taken at market value at the time of each investment) in securities
of issuers in a single industry; provided, that for purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry.
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For purposes of restriction (6), the exception for states, municipalities and their political subdivisions applies only to
tax-exempt securities issued by such entities.
Additional investment restrictions adopted by the Fund, which may
be changed by the Board of Directors without stockholder approval, provided that the Fund may not:
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a.
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Purchase securities of other investment companies, except to the extent that such purchases are permitted by
applicable law. Applicable law currently prohibits the Fund from purchasing the securities of other investment companies except if immediately thereafter not more than (i) 3% of the total outstanding voting stock of such company is owned by the
Fund, (ii) 5% of the Funds total assets, taken at market value, would be invested in any one such company, (iii) 10% of the Funds total assets, taken at market value, would be invested in such securities, and (iv) the Fund, together
with other investment companies having the same investment advisor and companies controlled by such companies, owns not more than 10% of the total outstanding stock of any one closed-end investment company.
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b.
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Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with borrowings mentioned in investment restriction (3) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon.
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B-1
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c.
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Purchase any securities on margin, except that the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities (the deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on
margin).
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d.
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Make short sales of securities or maintain a short position or invest in put, call, straddle or spread options,
except that the Fund may write, purchase and sell options and futures on MUJ New Jersey Municipal Bonds, MUJ Municipal Bonds, U.S. Government obligations and related indices or otherwise in connection with bona fide hedging activities and may
purchase and sell Call Rights to require mandatory tender for the purchase of related MUJ New Jersey Municipal Bonds and MUJ Municipal Bonds.
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If a percentage restriction on the investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
The Funds VRDP Shares are assigned long-term ratings by Moodys
and Fitch. In order to maintain the required ratings, the Fund is required to comply with certain investment quality, diversification and other guidelines established by Moodys and Fitch. Such guidelines may be more restrictive than the
restrictions set forth above. The Fund does not anticipate that such guidelines would have a material adverse effect on its ability to achieve its investment objective. Moodys and Fitch receive fees in connection with their ratings
issuances. The Fund is also subject to certain covenants and requirements under the terms of the Fund VRDP Shares and related documents, including the terms of the liquidity facility supporting the Fund VRDP Shares. Such requirements may
be more restrictive than the restrictions set forth above. The Fund does not anticipate that such requirements would have a material adverse effect on its ability to achieve its investment objective. Please see Information about the VRDP
Shares of the Funds for additional information about each Funds VRDP Shares.
MYJ
The following are fundamental investment restrictions of the Fund and may not be changed without the approval of the holders of a majority of the Funds
outstanding common shares and outstanding VRDP Shares and any other Preferred Shares, voting together as a single class, and a majority of the outstanding VRDP Shares and any other Preferred Shares, voting as a separate class (which for this purpose
and under the 1940 Act means the lesser of (i) 67% of the shares of each class of capital stock represented at a meeting at which more than 50% of the outstanding shares of each class of capital stock are represented or (ii) more than 50% of
the outstanding shares of each class of capital stock). The Fund may not:
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1.
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Make investments for the purpose of exercising control or management.
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2.
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Purchase securities of other investment companies, except (i) in connection with a merger, consolidation,
acquisition or reorganization, (ii) by purchase of shares of tax-exempt money market funds advised by the Investment Advisor or its affiliates (as defined in the 1940 Act) to the extent permitted by an
exemptive order issued to the Fund by the SEC, or (iii) by purchase in the open market of securities of closed-end investment companies and only if immediately thereafter not more than 10% of the
Funds total assets would be invested in such securities.
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3.
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Purchase or sell real estate, real estate limited partnerships, commodities or commodity contracts; provided
that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein and the Fund may purchase and sell financial futures contracts and options thereon.
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4.
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Issue senior securities other than preferred stock or borrow in excess of 5% of its total assets taken at
market value; provided, however, that the Fund is authorized to borrow moneys in excess of 5% of the value of its total assets for the purpose of repurchasing shares of common stock or redeeming shares of preferred stock.
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5.
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Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, in selling portfolio securities.
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B-2
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6.
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Make loans to other persons, except that the Fund may purchase MYJ New Jersey Municipal Bonds, MYJ Municipal
Bonds and other debt securities in accordance with its investment objective, policies and limitations.
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7.
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Purchase any securities on margin, except that the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities (the deposit or payment by the Fund or initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on
margin).
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8.
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Make short sales of securities or maintain a short position or invest in put, call, straddle or spread options,
except that the Fund may write, purchase and sell options and futures on MYJ New Jersey Municipal Bonds, MYJ Municipal Bonds, U.S. Government obligations and related indices or otherwise in connection with bona fide hedging activities.
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9.
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Invest more than 25% of its total assets (taken at market value at the time of each investment) in securities
of issuers in a single industry; provided that, for purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry.
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For purposes of investment restriction (4) above, the Fund may borrow moneys in excess of 5% of the value of its total assets to the extent permitted by
Section 18 of the 1940 Act or otherwise as permitted by applicable law for the purpose of repurchasing shares of common stock or redeeming shares of preferred stock. For purposes of fundamental investment restriction (9) above, the
exception for states, municipalities and their political subdivisions applies only to tax-exempt securities issued by such entities.
An additional investment restriction adopted by the Fund, which may be changed by the Board of Directors without stockholder approval, provides that the Fund
may not mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in investment restriction (4) above or
except as may be necessary in connection with transactions in financial futures contracts and options thereon.
If a percentage restriction on the
investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentage resulting from changing values will not be considered a violation.
The Funds VRDP Shares are assigned long-term ratings by Moodys and Fitch. In order to maintain the required ratings, the Fund is required to
comply with certain investment quality, diversification and other guidelines established by Moodys and Fitch. Such guidelines may be more restrictive than the restrictions set forth above. The Fund does not anticipate that such guidelines
would have a material adverse effect on its ability to achieve its investment objective. Moodys and Fitch receive fees in connection with their ratings issuances. The Fund is also subject to certain covenants and requirements under the terms
of the Fund VRDP Shares and related documents, including the terms of the liquidity facility supporting the Fund VRDP Shares. Such requirements may be more restrictive than the restrictions set forth above. The Fund does not anticipate that such
requirements would have a material adverse effect on its ability to achieve its investment objective.
B-3
The information in this statement of additional information is not complete and may
be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This statement of additional information is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO
COMPLETION, DATED DECEMBER 15, 2021
STATEMENT OF ADDITIONAL INFORMATION
BLACKROCK MUNIYIELD NEW JERSEY FUND, INC.
BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
Dated [●], 2021
This
Statement of Additional Information is available to the common shareholders of BlackRock MuniYield New Jersey Fund, Inc. (NYSE Ticker: MYJ) (MYJ), in connection with the Reorganization (the Reorganization) of MYJ into
BlackRock MuniHoldings New Jersey Quality Fund, Inc. (NYSE Ticker: MUJ) (MUJ or the Acquiring Fund and together with MYJ, the Funds, and each, a Fund), whereby the Acquiring Fund will acquire
substantially all of the assets and assume substantially all of the liabilities of MYJ in exchange solely for newly issued shares of the Acquiring Funds common stock, par value $0.10 per share and Variable Rate Demand Preferred Shares, par
value $0.10 per share and with a liquidation preference of $100,000 per share (VRDP Shares and the holders thereof, VRDP Holders) (plus any accumulated and unpaid dividends that have accrued on the MYJ VRDP Shares up to and
including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been paid prior to such Closing Date), in the form of book-entry interests. The Acquiring Fund will list the newly issued common shares on the
New York Stock Exchange (NYSE). MYJ will then distribute the newly issued Acquiring Fund common shares and Acquiring Fund VRDP Shares to MYJ common shareholders (although cash may be distributed in lieu of fractional common shares) and
VRDP Holders, respectively. MYJ will then terminate its registration under the Investment Company Act of 1940, as amended (the 1940 Act), and liquidate, dissolve and terminate in accordance with its respective charter and Maryland law.
The Acquiring Fund will continue to operate after the Reorganization as a registered, non-diversified, closed-end management investment company with the investment
objective, investment strategies, investment policies and restrictions described in the Joint Proxy Statement/Prospectus. MYJ may be referred to herein as a Target Fund.
The aggregate net asset value (NAV) (not the market value) of the Acquiring Fund common shares received by the common shareholders of MYJ in the
Reorganization will equal the aggregate NAV (not the market value) of the MYJ common shares held by such common shareholders immediately prior to the Closing Date (although MYJ common shareholders may receive cash for their fractional common
shares). The value of each Funds net assets will be calculated net of the liquidation preference (including accumulated and unpaid dividends) of all outstanding VRDP Shares of such Fund. In connection with the Reorganization, each outstanding
VRDP Share of MYJ will, without any action on the part of the holder thereof, be exchanged for one newly issued VRDP Share of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms
of the outstanding MYJ VRDP Shares, with certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of
July 1, 2041. The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the outstanding Acquiring Fund VRDP Shares and will rank on parity with the Acquiring Funds
outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund. The newly issued Acquiring Fund VRDP Shares will be subject to the same special
rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period will terminate on April 15, 2022, unless extended. The Reorganization will
not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding. A copy of a form of the Agreement and Plan of Reorganization that will be entered into between MYJ with the Acquiring Fund is attached as
Appendix A to the Joint Proxy Statement/Prospectus. Unless otherwise defined herein, capitalized terms have the meanings given to them in the Joint Proxy Statement/Prospectus.
1
This Statement of Additional Information is not a prospectus and should be read in conjunction with the Joint
Proxy Statement/Prospectus dated [●], 2021 relating to the Reorganization. A copy of the Joint Proxy Statement/Prospectus may be obtained, without charge, by writing to the Funds at 1 University Square Drive, Princeton, New Jersey 08540-6455,
or by calling (800) 882-0052.
The Acquiring Fund will provide, without charge, upon the written or oral request
of any person to whom this Statement of Additional Information is delivered, a copy of any and all documents that have been incorporated by reference in the registration statement of which this Statement of Additional Information is a part.
2
TABLE OF CONTENTS
3
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Acquiring Funds investment objective, policies and techniques that are described in the
Joint Proxy Statement/Prospectus.
Environmental, Social and Governance (ESG) Integration. Although the Acquiring Fund does not seek to
implement a specific ESG, impact or sustainability strategy, Acquiring Fund management will consider ESG characteristics as part of the investment process for actively managed funds such as the Acquiring Fund. These considerations will vary
depending on a funds particular investment strategies and may include consideration of third-party research as well as consideration of proprietary research of the Investment Advisor across the ESG risks and opportunities regarding an issuer.
Acquiring Fund management will consider those ESG characteristics it deems relevant or additive when making investment decisions for the Acquiring Fund. The ESG characteristics utilized in the Acquiring Funds investment process are anticipated
to evolve over time and one or more characteristics may not be relevant with respect to all issuers that are eligible for investment.
ESG characteristics
are not the sole considerations when making investment decisions for the Acquiring Fund. Further, investors can differ in their views of what constitutes positive or negative ESG characteristics. As a result, the Acquiring Fund may invest in issuers
that do not reflect the beliefs and values with respect to ESG of any particular investor. ESG considerations may affect the Acquiring Funds exposure to certain companies or industries and the Acquiring Fund may forego certain investment
opportunities. While Acquiring Fund management views ESG considerations as having the potential to contribute to the Acquiring Funds long-term performance, there is no guarantee that such results will be achieved.
ADDITIONAL RISK FACTORS AND SPECIAL CONSIDERATIONS
The following information supplements the discussion of the Acquiring Funds risk factors that are described in the Joint Proxy Statement/Prospectus.
Risk Factors in Strategic Transactions and Derivatives. The Acquiring Funds use of derivative instruments involves risks different from, and
possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks such as credit risk, currency risk, leverage risk, liquidity risk, correlation risk,
index risk and volatility as described below:
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Credit Riskthe risk that the counterparty in a derivative transaction will be unable to honor its
financial obligation to the Acquiring Fund, or the risk that the reference entity in a derivative will not be able to honor its financial obligations. In particular, derivatives traded in over the counter OTC markets often are not
guaranteed by an Exchange (as defined herein) or clearing corporation and often do not require payment of margin, and to the extent that the Acquiring Fund has unrealized gains in such instruments or has deposited collateral with its counterparties,
the Acquiring Fund is at risk that its counterparties will become bankrupt or otherwise fail to honor their obligations.
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Currency Riskthe risk that changes in the exchange rate between two currencies will adversely affect
the value (in U.S. dollar terms) of an investment.
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Leverage Riskthe risk associated with certain types of investments or trading strategies (such as,
for example, borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain transactions in derivatives (such as futures transactions or sales of put
options) involve substantial leverage risk and may expose the Acquiring Fund to potential losses that exceed the amount originally invested by the Acquiring Fund. When the Acquiring Fund engages in such a transaction, the Acquiring Fund will deposit
in a segregated account, or earmark on its books and records, liquid assets with a value at least equal to the Acquiring Funds exposure, on a mark-to-market basis,
to the transaction (as calculated pursuant to requirements of the SEC). Such segregation or earmarking will ensure that the Acquiring Fund has assets available to satisfy its obligations with respect to the transaction, but will not limit the
Acquiring Funds exposure to loss.
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4
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Liquidity Riskthe risk that certain securities may be difficult or impossible to sell at the time
that the Acquiring Fund would like or at the price that the Acquiring Fund as seller believes the security is currently worth. There can be no assurances that, at any specific time, either a liquid secondary market will exist for a derivative or the
Acquiring Fund will otherwise be able to sell such instrument at an acceptable price. It may, therefore, not be possible to close a position in a derivative without incurring substantial losses, if at all. The absence of liquidity may also make it
more difficult for the Acquiring Fund to ascertain a market value for such instruments. Although both OTC and exchange-traded derivatives markets may experience a lack of liquidity, certain derivatives traded in OTC markets, including indexed
securities, swaps and OTC options, involve substantial illiquidity risk. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of
speculators, government regulation and intervention, and technical and operational or system failures. In addition, the liquidity of a secondary market in an exchange-traded derivative contract may be adversely affected by daily price
fluctuation limits established by the exchanges which limit the amount of fluctuation in an exchange-traded contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days. If it is not possible to close an open derivative position entered into by the
Acquiring Fund, the Acquiring Fund would continue to be required to make daily cash payments of variation margin in the event of adverse price movements. In such a situation, if the Acquiring Fund has insufficient cash, it may have to sell portfolio
securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so.
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Correlation Riskthe risk that changes in the value of a derivative will not match the changes in the
value of the portfolio holdings that are being hedged or of the particular market or security to which the Acquiring Fund seeks exposure through the use of the derivative. There are a number of factors which may prevent a derivative instrument from
achieving the desired correlation (or inverse correlation) with an underlying asset, rate or index, such as the impact of fees, expenses and transaction costs, the timing of pricing, and disruptions or illiquidity in the markets for such derivative
instrument.
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Index Riskif the derivative is linked to the performance of an index, it will be subject to the
risks associated with changes in that index. If the index changes, the Acquiring Fund could receive lower interest payments or experience a reduction in the value of the derivative to below the price that the Acquiring Fund paid for such derivative.
Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable
index.
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Volatility Riskthe risk that the Acquiring Funds use of derivatives may reduce income or gain
and/or increase volatility. Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price over a defined time period. The Acquiring Fund could suffer losses related to its derivative positions as
a result of unanticipated market movements, which losses are potentially unlimited.
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When a derivative is used as a hedge against a
position that the Acquiring Fund holds, any loss generated by the derivative generally should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate
gains. Hedges are sometimes subject to imperfect matching between the derivative and the underlying security, and there can be no assurances that the Acquiring Funds hedging transactions will be effective. The Acquiring Fund could also suffer
losses related to its derivative positions as a result of unanticipated market movements, which losses are potentially unlimited. BlackRock Advisors, LLC (the Investment Advisor) may not be able to predict correctly the direction of
securities prices, interest rates and other economic factors, which could cause the Acquiring Funds derivatives positions to lose value. In addition, some derivatives are more sensitive to interest rate changes and market price fluctuations
than other securities. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Acquiring Fund to sell or otherwise close a derivatives position could expose the Acquiring Fund to losses and could make
derivatives more difficult for the Acquiring Fund to value accurately.
When engaging in a hedging transaction, the Acquiring Fund may determine not to
seek to establish a perfect correlation between the hedging instruments utilized and the portfolio holdings being hedged. Such an imperfect
5
correlation may prevent the Acquiring Fund from achieving the intended hedge or expose the Acquiring Fund to a risk of loss. The Acquiring Fund may also determine not to hedge against a
particular risk because it does not regard the probability of the risk occurring to be sufficiently high as to justify the cost of the hedge or because it does not foresee the occurrence of the risk. It may not be possible for the Acquiring Fund to
hedge against a change or event at attractive prices or at a price sufficient to protect the assets of the Acquiring Fund from the decline in value of the portfolio positions anticipated as a result of such change. The Acquiring Fund may also be
restricted in its ability to effectively manage the portion of its assets that are segregated or earmarked to cover its obligations. In addition, it may not be possible to hedge at all against certain risks.
If the Acquiring Fund invests in a derivative instrument it could lose more than the principal amount invested. Moreover, derivatives raise certain tax,
legal, regulatory and accounting issues that may not be presented by investments in securities, and there is some risk that certain issues could be resolved in a manner that could adversely impact the performance of the Acquiring Fund.
The Acquiring Fund is not required to use derivatives or other portfolio strategies to seek to increase return or to seek to hedge its portfolio and may
choose not to do so. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurances that the Acquiring Fund will engage in these transactions to reduce exposure to other risks when that would be
beneficial. Although the Investment Advisor seeks to use derivatives to further the Acquiring Funds investment objective, there is no assurance that the use of derivatives will achieve this result.
Options Risk. There are several risks associated with transactions in options on securities and indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. In addition, a liquid secondary market for particular options, whether traded
OTC or on a recognized securities exchange (e.g., NYSE), separate trading boards of a securities exchange or through a market system that provides contemporaneous transaction pricing information (an exchange) may be absent for reasons
which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying securities; unusual or unforeseen circumstances may interrupt normal operations on an exchange; the facilities of an exchange or the Office of the Comptroller of the
Currency (OCC) may not at all times be adequate to handle current trading volume; or one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by the OCC as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Futures Transactions and Options Risk. The primary risks associated with
the use of futures contracts and options are (a) the imperfect correlation between the change in market value of the instruments held by the Acquiring Fund and the price of the futures contract or option; (b) possible lack of a liquid
secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the Investment Advisors inability
to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (e) the possibility that the counterparty will default in the performance of its obligations.
Investment in futures contracts involves the risk of imperfect correlation between movements in the price of the futures contract and the price of the
security being hedged. The hedge will not be fully effective when there is imperfect correlation between the movements in the prices of two financial instruments. For example, if the price of the futures contract moves more or less than the price of
the hedged security, the Acquiring Fund will experience either a loss or gain on the futures contract which is not completely offset by movements in the price of the hedged securities. To compensate for imperfect correlations, the Acquiring Fund may
purchase or sell futures contracts in a greater dollar amount than the hedged securities if the volatility of the hedged securities is historically greater than the volatility of the futures contracts. Conversely, the Acquiring Fund may purchase or
sell fewer futures contracts if the volatility of the price of the hedged securities is historically lower than that of the futures contracts.
6
The particular securities comprising the index underlying a securities index financial futures contract may vary
from the securities held by the Acquiring Fund. As a result, the Acquiring Funds ability to hedge effectively all or a portion of the value of its securities through the use of such financial futures contracts will depend in part on the degree
to which price movements in the index underlying the financial futures contract correlate with the price movements of the securities held by the Acquiring Fund. The correlation may be affected by disparities in the average maturity, ratings,
geographical mix or structure of the Acquiring Funds investments as compared to those comprising the securities index and general economic or political factors. In addition, the correlation between movements in the value of the securities
index may be subject to change over time as additions to and deletions from the securities index alter its structure. The correlation between futures contracts on U.S. Government securities and the securities held by the Acquiring Fund may be
adversely affected by similar factors and the risk of imperfect correlation between movements in the prices of such futures contracts and the prices of securities held by the Acquiring Fund may be greater. The trading of futures contracts also is
subject to certain market risks, such as inadequate trading activity, which could at times make it difficult or impossible to liquidate existing positions.
The Acquiring Fund may liquidate futures contracts it enters into through offsetting transactions on the applicable contract market. There can be no
assurances, however, that a liquid secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close out a futures position. In the event of adverse price movements, the Acquiring Fund would
continue to be required to make daily cash payments of variation margin. In such situations, if the Acquiring Fund has insufficient cash, it may be required to sell portfolio securities to meet daily variation margin requirements at a time when it
may be disadvantageous to do so. The inability to close out futures positions also could have an adverse impact on the Acquiring Funds ability to hedge effectively its investments in securities. The liquidity of a secondary market in a futures
contract may be adversely affected by daily price fluctuation limits established by commodity exchanges which limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached
in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days. The Acquiring Fund
will enter into a futures position only if, in the judgement of the Investment Advisor, there appears to be an actively traded secondary market for such futures contracts.
The successful use of transactions in futures and related options also depends on the ability of the Investment Advisor to forecast correctly the direction
and extent of interest rate movements within a given time frame. To the extent interest rates remain stable during the period in which a futures contract or option is held by the Acquiring Fund or such rates move in a direction opposite to that
anticipated, the Acquiring Fund may realize a loss on the Strategic Transaction which is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Acquiring Funds total return for such period may be
less than if it had not engaged in the Strategic Transaction.
Because of low initial margin deposits made upon the opening of a futures position, futures
transactions involve substantial leverage. As a result, relatively small movements in the price of the futures contracts can result in substantial unrealized gains or losses. There is also the risk of loss by the Acquiring Fund of margin deposits in
the event of bankruptcy of a broker with which the Acquiring Fund has an open position in a financial futures contract. Because the Acquiring Fund will engage in the purchase and sale of futures contracts for hedging purposes or to seek to enhance
the Acquiring Funds return, any losses incurred in connection therewith may, if the strategy is successful, be offset in whole or in part by increases in the value of securities held by the Acquiring Fund or decreases in the price of
securities the Acquiring Fund intends to acquire.
The amount of risk the Acquiring Fund assumes when it purchases an option on a futures contract is the
premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of an option on a futures contract also entails the risk that changes in the value of the underlying futures contract will
not be fully reflected in the value of the option purchased.
Over-the-Counter Trading Risk. The derivative instruments that may be
purchased or sold by the Acquiring Fund may include instruments not traded on an exchange. The risk of nonperformance by the counterparty to an instrument may be greater than, and the ease with which the Acquiring Fund can dispose of or enter into
closing transactions with respect to an instrument may be less than, the risk associated with an exchange traded instrument. In addition, significant disparities may exist between bid and asked prices for derivative
instruments that are not traded on an exchange. Derivative instruments not traded on exchanges also are not subject to the same type of government
7
regulation as exchange traded instruments, and many of the protections afforded to participants in a regulated environment may not be available in connection with the transactions. Because
derivatives traded in OTC markets generally are not guaranteed by an exchange or clearing corporation, to the extent that the Acquiring Fund has unrealized gains in such instruments or has deposited collateral with its counterparties, the Acquiring
Fund is at risk that its counterparties will become bankrupt or otherwise fail to honor its obligations.
Certain derivatives traded in OTC markets,
including indexed securities, swaps and OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible for the Acquiring Fund to sell such instruments promptly at an acceptable price. The absence of
liquidity may also make it more difficult for the Acquiring Fund to ascertain a market value for such instruments. The Acquiring Fund will, therefore, acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is
purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Investment Advisor anticipates the Acquiring Fund can receive on each business day at least two independent bids or offers, unless a
quotation from only one dealer is available, in which case that dealers quotation may be used. Because derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not require payment of margin,
to the extent that the Acquiring Fund has unrealized gains in such instruments or has deposited collateral with its counterparties the Acquiring Fund is at risk that its counterparties will become bankrupt or otherwise fail to honor its obligations.
The Acquiring Fund will attempt to minimize these risks by engaging in transactions in derivatives traded in OTC markets only with financial institutions that have substantial capital or that have provided the Acquiring Fund with a third-party
guaranty or other credit enhancement.
Dodd-Frank Act Risk. Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the
Dodd-Frank Act) (the Derivatives Title) imposed a substantially new regulatory structure on derivatives markets, with particular emphasis on swaps (which were subject to oversight by the CFTC) and security-based swaps (which
were subject to oversight by the SEC). The regulatory framework covers a broad range of swap market participants, including banks, non-banks, credit unions, insurance companies, broker-dealers and investment
advisers. Prudential regulators were granted authority to regulate margining of swaps and security-based swaps of banks and bank-related entities.
Although the CFTC and the prudential regulators have adopted and have begun implementing required regulations, the SEC rules were not finalized until December
2019 and firms had until October 2021 to come into compliance.
Current regulations for swaps require the mandatory central clearing and
mandatory exchange trading of particular types of interest rate swaps and index credit default swaps (together, Covered Swaps). The Fund is required to clear its Covered Swaps through a clearing broker, which requires, among other
things, posting initial margin and variation margin to the Funds clearing broker in order to enter into and maintain positions in Covered Swaps. Covered Swaps generally are required to be executed through a swap execution facility
(SEF), which can involve additional transaction fees.
Additionally, under the Dodd-Frank Act, swaps (and both swaps and security-based swaps
entered into with banks) are subject to margin requirements and swap dealers are required to collect margin from the Fund and post variation margin to the Fund with respect to such derivatives. Specifically, regulations are now in effect that
require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with the Fund. Shares of investment companies (other than certain money
market funds) may not be posted as collateral under these regulations. Requirements for posting of initial margin in connection with OTC swaps (as well as security-based swaps in addition to OTC swaps where the dealer is a bank or subsidiary of a
bank holding company) will be phased-in through September 2021. The CFTC has not yet adopted capital requirements for swap dealers. As uncleared capital requirements for swap dealers and uncleared capital and
margin requirements for security-based swaps are phased in and implemented, such requirements may make certain types of trades and/or trading strategies more costly. There may be market dislocations due to uncertainty during the implementation
period of any new regulation and the Investment Advisor cannot know how the derivatives market will adjust to the CFTCs new capital regulations and to the new SEC regulations governing security-based swaps.
In addition, regulations adopted by global prudential regulators that are now in effect require certain bank- regulated counterparties and certain of their
affiliates to include in qualified financial contracts, including many derivatives
8
contracts as well as repurchase agreements and securities lending agreements, terms that delay or restrict the rights of counterparties to terminate such contracts, foreclose upon collateral,
exercise other default rights or restrict transfers of affiliate credit enhancements (such as guarantees) in the event that the bank-regulated counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings.
Legal and Regulatory Risk. At any time after the date hereof, legislation or additional regulations may be enacted that could negatively affect
the assets of the Acquiring Fund. Changing approaches to regulation may have a negative impact on the securities in which the Acquiring Fund invests. Legislation or regulation may also change the way in which the Acquiring Fund itself is regulated.
There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Acquiring Fund or will not impair the ability of the Acquiring Fund to achieve its investment objective. In addition, as new
rules and regulations resulting from the passage of the Dodd-Frank Act are implemented and new international capital and liquidity requirements are introduced under the Basel III Accords, the market may not react the way the Investment Advisor
expects. Whether the Acquiring Fund achieves its investment objective may depend on, among other things, whether the Investment Advisor correctly forecasts market reactions to this and other legislation. In the event the Investment Advisor
incorrectly forecasts market reaction, the Acquiring Fund may not achieve its investment objective.
Regulation as a Commodity Pool.
The Commodity Futures Trading Commission (CFTC) subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by the investment adviser either (i) invests, directly or indirectly, more than
a prescribed level of its liquidation value in CFTC regulated futures, options and swaps (CFTC Derivatives), or (ii) markets itself as providing investment exposure to such instruments. To the extent the Acquiring Fund uses CFTC
Derivatives, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, the Investment Advisor has claimed an exclusion from the definition of
the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant to Rule 4.5 under the CEA. The Investment Advisor is not, therefore, subject to registration or regulation as a commodity pool
operator under the CEA in respect of the Acquiring Fund.
Failure of Futures Commission Merchants and Clearing Organizations. The Acquiring
Fund is required to deposit funds to margin open positions in cleared derivative instruments (both futures and swaps) with a clearing broker registered as a futures commission merchant (FCM). The CEA requires an FCM to
segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCMs proprietary assets. Similarly, the CEA requires each FCM to hold in a separate
secure account all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and
other property received by an FCM from its customers are held by an FCM on a commingled basis in an omnibus account and amounts in excess of assets posted to the clearing organization may be invested by an FCM in certain instruments permitted under
the applicable regulation. There is a risk that assets deposited by the Acquiring Fund with any FCM as margin for futures contracts or commodity options may, in certain circumstances, be used to satisfy losses of other clients of the Acquiring
Funds FCM. In addition, the assets of the Acquiring Fund posted as margin against both swaps and futures contracts may not be fully protected in the event of the FCMs bankruptcy.
MANAGEMENT OF THE FUNDS
The Board of Directors and Officers
The Board of Directors (the Board), of each Fund currently consists of thirteen individuals (each, a Board Member), eleven of whom are
not interested persons of each Fund as defined in the 1940 Act (the Independent Board Members). The registered investment companies advised by the Investment Advisor or its affiliates (the BlackRock-Advised Funds)
are organized into one complex of closed-end funds and open-end non-index fixed-income funds (the BlackRock Fixed-Income
Complex), one complex of open-end equity, multi-asset, index and money market funds (the BlackRock Multi-Asset Complex) and one complex of exchange-traded funds (each, a BlackRock Fund
Complex). Each Fund is included in the BlackRock Fixed-Income Complex. The Board Members also oversee as Board members the operations of the other closed-end registered investment companies included in
the BlackRock Fixed-Income Complex.
9
Certain biographical and other information relating to the Board Members and officers of each Fund is set forth
below, including their year of birth, their principal occupation for at least the last five years, the length of time served, the total number of investment companies overseen in the BlackRock Fund Complexes and any public directorships or
trusteeships.
Please refer to the below table which identifies the Board Members and sets forth certain biographical information about the Board Members
for each Fund.
|
|
|
|
|
|
|
|
|
Name and Year of
Birth(1)
|
|
Position(s)
Held
(Length of
Service) (3)
|
|
Principal Occupation(s) During Past Five Years
|
|
Number
of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen(4)
|
|
Other Public
Company
or
Investment
Company
Directorships
Held During
Past Five
Years(5)
|
|
Independent Board
Members(2)
|
|
|
|
|
|
Richard E. Cavanagh
1946
|
|
Co-Chair of the Board and Board Member (Since 2007)
|
|
Director, The Guardian Life Insurance Company of America since 1998; Board Chair, Volunteers of America (a not-for-profit organization) from
2015 to 2018 (board member since 2009); Director, Arch Chemicals (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since
2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007 and Executive Dean from 1987 to 1995; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from
1995 to 2007.
|
|
73 RICs consisting of 102 Portfolios
|
|
None
|
|
|
|
|
|
Karen P. Robards
1950
|
|
Co-Chair of the Board and Board Member (Since 2007)
|
|
Principal of Robards & Company, LLC (consulting and private investing) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Injections, LLC (medical devices) since 2019; Investment Banker at Morgan Stanley from 1976 to
1987.
|
|
73 RICs consisting of 102 Portfolios
|
|
Greenhill & Co., Inc.; AtriCure, Inc. (medical devices) from 2000 until 2017
|
|
|
|
|
|
Michael J. Castellano 1946
|
|
Board Member (Since 2011)
|
|
Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009
to June 2015 and from 2017 to September 2020; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company)
from 2015 to July 2020.
|
|
73 RICs consisting of 102 Portfolios
|
|
None
|
|
|
|
|
|
Cynthia L. Egan
1955
|
|
Board Member (Since 2016)
|
|
Advisor, U.S. Department of the Treasury from 2014 to 2015; President, Retirement Plan Services, for T. Rowe Price Group, Inc. from 2007 to 2012; executive positions within Fidelity Investments from 1989 to 2007.
|
|
73 RICs consisting of 102 Portfolios
|
|
Unum (insurance); The Hanover Insurance Group (insurance); Envestnet (investment platform) from 2013 until 2016
|
10
|
|
|
|
|
|
|
|
|
Name and Year of
Birth(1)
|
|
Position(s)
Held
(Length of
Service) (3)
|
|
Principal Occupation(s) During Past Five Years
|
|
Number
of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen(4)
|
|
Other Public
Company
or
Investment
Company
Directorships
Held During
Past Five
Years(5)
|
|
|
|
|
|
Frank J. Fabozzi
1948
|
|
Board Member (Since 2007)
|
|
Editor of The Journal of Portfolio Management since 1986; Professor of Finance, EDHEC Business School (France) since 2011; Visiting Professor, Princeton University for the 2013 to 2014 academic year and Spring 2017 semester;
Professor in the Practice of Finance, Yale University School of Management from 1994 to 2011 and currently a Teaching Fellow in Yales Executive Programs; Board Member, BlackRock Equity-Liquidity Funds from 2014 to 2016; affiliated professor
Karlsruhe Institute of Technology from 2008 to 2011; Visiting Professor, Rutgers University for the Spring 2019 semester; Visiting Professor, New York University for the 2019 academic year.
|
|
75 RICs consisting of 104 Portfolios
|
|
None
|
|
|
|
|
|
Lorenzo A. Flores
1964
|
|
Board Member (Since 2021)
|
|
Vice Chairman, Kioxia, Inc. since 2019; Chief Financial Officer, Xilinx, Inc. from 2016 to 2019; Corporate Controller, Xilinx, Inc. from 2008 to 2016.
|
|
73 RICs consisting of 102 Portfolios
|
|
None
|
|
|
|
|
|
Stayce D. Harris
1959
|
|
Board Member (Since 2021)
|
|
Lieutenant General, Inspector General, Office of the Secretary of the United States Air Force from 2017 to 2019; Lieutenant General, Assistant Vice Chief of Staff and Director, Air Staff, United States Air Force from 2016 to 2017;
Major General, Commander, 22nd Air Force, AFRC, Dobbins Air Reserve Base, Georgia from 2014 to 2016; Pilot, United Airlines from 1990 to 2020.
|
|
73 RICs consisting of 102 Portfolios
|
|
The Boeing Company
|
|
|
|
|
|
J. Phillip Holloman
1955
|
|
Board Member (Since 2021)
|
|
President and Chief Operating Officer, Cintas Corporation from 2008 to 2018.
|
|
73 RICs consisting of 102 Portfolios
|
|
None
|
|
|
|
|
|
R. Glenn Hubbard
1958
|
|
Board Member (Since 2007)
|
|
Dean, Columbia Business School from 2004 to 2019; Faculty member, Columbia Business School since 1988.
|
|
73 RICs consisting of 102 Portfolios
|
|
ADP (data and information services); Metropolitan Life Insurance Company (insurance); KKR Financial Corporation (finance) from 2004 until 2014
|
|
|
|
|
|
W. Carl Kester
1951
|
|
Board Member (Since 2007)
|
|
George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008; Deputy Dean for Academic Affairs from 2006 to 2010; Chairman of the Finance Unit, from 2005 to 2006; Senior Associate Dean and
Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981.
|
|
75 RICs consisting of 104 Portfolios
|
|
None
|
|
|
|
|
|
Catherine A. Lynch 1961
|
|
Board Member (Since 2016)
|
|
Chief Executive Officer, Chief Investment Officer and various other positions, National Railroad Retirement Investment Trust from 2003 to 2016; Associate Vice President for Treasury Management, The George Washington University from
1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.
|
|
75 RICs consisting of 104 Portfolios
|
|
None
|
11
|
|
|
|
|
|
|
|
|
Name and Year of
Birth(1)
|
|
Position(s)
Held
(Length of
Service) (3)
|
|
Principal Occupation(s) During Past Five Years
|
|
Number
of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen(4)
|
|
Other Public
Company
or
Investment
Company
Directorships
Held During
Past Five
Years(5)
|
|
|
|
Interested Board
Members(5)
|
|
|
|
|
|
|
|
|
|
Robert Fairbairn
1965
|
|
Board Member (Since 2018)
|
|
Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRocks Global Executive and Global Operating Committees; Co-Chair of BlackRocks Human Capital Committee; Senior
Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRocks Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018;
Global Head of BlackRocks Retail and iShares® businesses from 2012 to 2016.
|
|
103 RICs consisting of 261 Portfolios
|
|
None
|
|
|
|
|
|
John M. Perlowski 1964
|
|
Board Member (Since 2015), President and Chief Executive Officer (Since 2010
|
|
Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009.
|
|
105 RICs consisting of 263 Portfolios
|
|
None
|
(1)
|
The address of each Board Member is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055.
|
(2)
|
Each Independent Board Member holds office until his or her successor is elected and qualifies, or until his or
her earlier death, resignation, retirement or removal, or until December 31 of the year in which he or she turns 75. Board Members who are interested persons, as defined in the 1940 Act, serve until their successor is elected and
qualifies or until their earlier death, resignation, retirement or removal as provided by each Funds bylaws or statute, or until December 31 of the year in which they turn 72. The Board may determine to extend the terms of Independent
Board Members on a case-by-case basis, as appropriate.
|
(3)
|
Date shown is the earliest date a person has served for the Funds covered by this Joint Proxy
Statement/Prospectus. Following the combination of Merrill Lynch Investment Managers, L.P. (MLIM) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three
new fund boards in 2007. Certain Independent Board Members first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; R. Glenn Hubbard, 2004; W. Carl Kester, 1995;
and Karen P. Robards, 1998. Certain other Independent Board Members became members of the boards of the closed-end funds in the BlackRock Fixed-Income Complex as follows: Michael J. Castellano, 2011; Cynthia
L. Egan, 2016; and Catherine A. Lynch, 2016.
|
(4)
|
Dr. Fabozzi, Dr. Kester, Ms. Lynch and Mr. Perlowski are also trustees of the BlackRock
Credit Strategies Fund and BlackRock Private Investments Fund.
|
(5)
|
Mr. Fairbairn and Mr. Perlowski are both interested persons, as defined in the 1940 Act,
of each Fund based on their positions with BlackRock, Inc. and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the BlackRock Multi-Asset Complex.
|
Experience, Qualifications and Skills of the Board Members
The Independent Board Members have adopted a statement of policy that describes the experiences, qualifications, skills and attributes that are necessary and
desirable for potential Independent Board Member candidates (the Statement of Policy). The Boards believe that each Independent Board Member satisfied, at the time he or she was initially elected or appointed a Board Member, and
continues to satisfy, the standards contemplated by the Statement of Policy as well as the standards set forth in each Funds By-laws. Furthermore, in determining that a particular Board Member was and
continues to be qualified to serve as a Board Member, the Boards have considered a variety of criteria, none of which, in isolation, was controlling. The Boards believe that, collectively, the Board Members
12
have balanced and diverse experiences, skills, attributes and qualifications, which allow the Boards to operate effectively in governing the Funds and protecting the interests of shareholders.
Among the attributes common to all Board Members is their ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the Funds Investment Advisor, other service providers, counsel
and independent auditors, and to exercise effective business judgment in the performance of their duties as Board Members. Each Board Members ability to perform his or her duties effectively is evidenced by his or her educational background or
professional training; business, consulting, public service or academic positions; experience from service as a board member of the Funds or the other funds in the BlackRock Fund Complexes (and any predecessor funds), other investment funds, public
companies, or not-for-profit entities or other organizations; ongoing commitment and participation in Board and Committee meetings, as well as his or her leadership of
standing and other committees of other BlackRock-advised funds throughout the years; or other relevant life experiences.
The table below discusses some
of the experiences, qualifications and skills of Board Members that support the conclusion that he or she should serve on the Boards.
|
|
|
Board Members
|
|
Experience, Qualifications and Skills
|
|
|
Independent Board Members
|
|
|
|
|
Richard E. Cavanagh
|
|
Richard E. Cavanagh brings to the Boards a wealth of practical business knowledge and leadership as an experienced director/trustee of various public and private companies. In particular, because Mr. Cavanagh served for over
a decade as President and Chief Executive Officer of The Conference Board, Inc., a global business research organization, he is able to provide the Boards with expertise about business and economic trends and governance practices. Mr. Cavanagh
created the blue ribbon Commission on Public Trust and Private Enterprise in 2002, which recommended corporate governance enhancements. Mr. Cavanaghs service as a director of The Guardian Life Insurance Company of America and
as a senior advisor and director of The Fremont Group provides added insight into investment trends and conditions. Mr. Cavanaghs long-standing service as a director/trustee/chair of the BlackRock Fixed-Income Complex also provides him
with a specific understanding of the Funds, its operations, and the business and regulatory issues facing the Funds. Mr. Cavanagh is also an experienced board leader, having served as the lead independent director of a NYSE public company (Arch
Chemicals) and as the Board Chairman of the Educational Testing Service. Mr. Cavanaghs independence from the Funds and the Investment Advisor enhances his service as Co-Chair of the Boards, Chair of
the Executive Committee, and a member of the Compliance Committee, the Governance and Nominating Committee and the Performance Oversight Committee.
|
|
|
Karen P. Robards
|
|
The Boards benefit from Karen P. Robardss many years of experience in investment banking and the financial advisory industry where she obtained extensive knowledge of the capital markets and advised clients on corporate
finance transactions, including mergers and acquisitions and the issuance of debt and equity securities. Ms. Robardss prior position as an investment banker at Morgan Stanley provides useful oversight of the Funds investment
decisions and investment valuation processes. Additionally, Ms. Robardss experience as a director of publicly held and private companies allows her to provide the Boards with insight into the management and governance practices of other
companies. Ms. Robardss long-standing service on the boards of directors/trustees of closed-end funds in the BlackRock Fixed-Income Complex also provides her with a specific understanding of the
Funds, their operations, and the business and regulatory issues facing the Funds. Ms. Robardss knowledge of financial and accounting matters qualifies her to serve as Co-Chair of the Boards and
Chair of each Funds Audit Committee. Ms. Robardss independence from the Funds and the Investment Advisor enhances her service as a member of the Governance and Nominating Committee, the Performance Oversight Committee, and the
Executive Committee.
|
13
|
|
|
Board Members
|
|
Experience, Qualifications and Skills
|
|
|
Michael J. Castellano
|
|
The Boards benefit from Michael J. Castellanos career in accounting which spans over forty years. Mr. Castellano has served as Chief Financial Officer of Lazard Ltd. and as a Managing Director and Chief Financial
Officer of Lazard Group. Prior to joining Lazard, Mr. Castellano held various senior management positions at Merrill Lynch & Co., including Senior Vice PresidentChief Control Officer for Merrill Lynchs capital markets
businesses, Chairman of Merrill Lynch International Bank and Senior Vice PresidentCorporate Controller. Prior to joining Merrill Lynch & Co., Mr. Castellano was a partner with Deloitte & Touche where he served a number
of investment banking clients over the course of his 24 years with the firm. Mr. Castellano currently serves as a director for CircleBlack Inc. Mr. Castellanos knowledge of financial and accounting matters qualifies him to serve as
Chair of each Funds Audit Committee. Mr. Castellanos independence from the Funds and the Investment Advisor enhances his service as a member of the Governance and Nominating Committee and the Performance Oversight
Committee.
|
|
|
Cynthia L. Egan
|
|
Cynthia L. Egan brings to the Boards a broad and diverse knowledge of investment companies and the retirement industry as a result of her many years of experience as President, Retirement Plan Services, for T. Rowe Price Group,
Inc. and her various senior operating officer positions at Fidelity Investments, including her service as Executive Vice President of FMR Co., President of Fidelity Institutional Services Company and President of the Fidelity Charitable Gift Fund.
Ms. Egan has also served as an advisor to the U.S. Department of Treasury as an expert in domestic retirement security. Ms. Egan began her professional career at the Board of Governors of the Federal Reserve and the Federal Reserve Bank of
New York. Ms. Egan is also a director of UNUM Corporation, a publicly traded insurance company providing personal risk reinsurance, and of The Hanover Group, a public property casualty insurance company. Ms. Egans independence from
the Funds and the Investment Advisor enhances her service as Chair of the Compliance Committee, and a member of the Governance and Nominating Committee and the Performance Oversight Committee.
|
|
|
Frank J. Fabozzi
|
|
Frank J. Fabozzi has served for over 25 years on the boards of registered investment companies. Dr. Fabozzi holds the designations of Chartered Financial Analyst and Certified Public Accountant. Dr. Fabozzi was inducted
into the Fixed Income Analysts Societys Hall of Fame and is the 2007 recipient of the C. Stewart Sheppard Award and the 2015 recipient of the James R. Vertin Award, both given by the CFA Institute. The Boards benefit from
Dr. Fabozzis experiences as a professor and author in the field of finance. Dr. Fabozzis experience as a professor at various institutions, including EDHEC Business School, Yale, MIT, and Princeton, as well as
Dr. Fabozzis experience as a Professor in the Practice of Finance and Becton Fellow at the Yale University School of Management and as editor of the Journal of Portfolio Management demonstrates his wealth of expertise in the investment
management and structured finance areas. Dr. Fabozzi has authored and edited numerous books and research papers on topics in investment management and financial econometrics, and his writings have focused on fixed-income securities and
portfolio management, many of which are considered standard references in the investment management industry. Dr. Fabozzis long-standing service on the boards of directors/trustees of the closed-end
funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Funds, their operations and the business and regulatory issues facing the Funds. Moreover, Dr. Fabozzis knowledge of financial and
accounting matters qualifies him to serve as a member of each Funds Audit Committee. Dr. Fabozzis independence from the Funds and the Investment Advisor enhances his service as Chair of the Performance Oversight
Committee.
|
14
|
|
|
Board Members
|
|
Experience, Qualifications and Skills
|
|
|
Lorenzo A. Flores
|
|
The Board benefits from Lorenzo A. Floress many years of business, leadership and financial experience in his roles at various public and private companies. In particular, Mr. Floress service as Chief Financial
Officer and Corporate Controller of Xilinx, Inc. and Vice Chairman of Kioxia, Inc. and his long experience in the technology industry allow him to provide insight to into financial, business and technology trends. Mr. Floress knowledge of
financial and accounting matters qualifies him to serve as a member of the Audit Committee. Mr. Floress independence from the Funds and the Investment Advisor enhances his service as a member of the Performance Oversight Committee.
|
|
|
Stayce D. Harris
|
|
The Board benefits from Stayce D. Harriss leadership and governance experience gained during her extensive military career, including as a three-star Lieutenant General of the United States Air Force. In her most recent
role, Ms. Harris reported to the Secretary and Chief of Staff of the Air Force on matters concerning Air Force effectiveness, efficiency and the military discipline of active duty, Air Force Reserve and Air National Guard forces.
Ms. Harriss experience on governance matters includes oversight of inspection policy and the inspection and evaluation system for all Air Force nuclear and conventional forces; oversight of Air Force counterintelligence operations and
service on the Air Force Intelligence Oversight Panel; investigation of fraud, waste and abuse; and oversight of criminal investigations and complaints resolution programs. Ms. Harriss independence from the Funds and the Investment
Advisor enhances her service as a member of the Compliance Committee and the Performance Oversight Committee.
|
|
|
J. Phillip Holloman
|
|
The Board benefits from J. Phillip Hollomans many years of business and leadership experience as an executive, director and advisory board member of various public and private companies. In particular,
Mr. Hollomans service as President and Chief Operating Officer of Cintas Corporation and director of PulteGroup, Inc. and Rockwell Automation Inc. allows him to provide insight into business trends and conditions. Mr. Hollomans
knowledge of financial and accounting matters qualifies him to serve as a member of the Audit Committee. Mr. Hollomans independence from the Funds and the Investment Advisor enhances his service as a member of the Performance Oversight
Committee.
|
|
|
R. Glenn Hubbard
|
|
R. Glenn Hubbard has served in numerous roles in the field of economics, including as the Chairman of the U.S. Council of Economic Advisers of the President of the United States. Dr. Hubbard has served as the Dean of
Columbia Business School, as a member of the Columbia Faculty and as a Visiting Professor at the John F. Kennedy School of Government at Harvard University, the Harvard Business School and the University of Chicago. Dr. Hubbards
experience as an adviser to the President of the United States adds a dimension of balance to the Funds governance and provides perspective on economic issues. Dr. Hubbards service on the boards of ADP and Metropolitan Life
Insurance Company provides the Boards with the benefit of his experience with the management practices of other financial companies. Dr. Hubbards long-standing service on the boards of directors/trustees of the closed-end funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Dr. Hubbards
independence from the Funds and the Investment Advisor enhances his service as Chair of the Governance and Nominating Committee and a member of the Compliance Committee and the Performance Oversight Committee.
|
|
|
W. Carl Kester
|
|
The Boards benefit from W. Carl Kesters experiences as a professor and author in finance, and his experience as the George Fisher Baker Jr. Professor of Business Administration at Harvard Business School and as Deputy Dean
of Academic Affairs at Harvard Business School from 2006 through 2010 adds to the Boards a wealth of expertise in corporate finance and corporate governance. Dr. Kester has authored
and
|
15
|
|
|
Board Members
|
|
Experience, Qualifications and Skills
|
|
|
|
|
edited numerous books and research papers on both subject matters, including co-editing a leading volume of finance case studies used worldwide. Dr. Kesters long-standing service
on the boards of directors/trustees of the closed-end funds in the BlackRock Fixed-Income Complex also provides him with a specific understanding of the Funds, their operations, and the business and regulatory
issues facing the Funds. Dr. Kesters independence from the Funds and the Investment Advisor enhances his service as a member of the Compliance Committee and Performance Oversight Committee.
|
|
|
Catherine A. Lynch
|
|
Catherine A. Lynch, who served as the Chief Executive Officer and Chief Investment Officer of the National Railroad Retirement Investment Trust, benefits the Boards by providing business leadership and experience and a diverse
knowledge of pensions and endowments. Ms. Lynch also holds the designation of Chartered Financial Analyst. Ms. Lynchs knowledge of financial and accounting matters qualifies her to serve as a member of each Funds Audit
Committee. Ms. Lynchs independence from the Funds and the Investment Advisor enhances her service as a member of the Performance Oversight Committee.
|
|
Interested Board Members
|
|
|
Robert Fairbairn
|
|
Robert Fairbairn has more than 25 years of experience with BlackRock, Inc. and over 30 years of experience in finance and asset management. In particular, Mr. Fairbairns positions as Vice Chairman of BlackRock, Inc.,
Member of BlackRocks Global Executive and Global Operating Committees and Co-Chair of BlackRocks Human Capital Committee provide the Boards with a wealth of practical business knowledge and
leadership. In addition, Mr. Fairbairn has global investment management and oversight experience through his former positions as Global Head of BlackRocks Retail and
iShares® businesses, Head of BlackRocks Global Client Group, Chairman of BlackRocks international businesses and his previous oversight over BlackRocks Strategic Partner
Program and Strategic Product Management Group. Mr. Fairbairn also serves as a board member for the funds in the BlackRock Multi-Asset Complex.
|
|
|
John M. Perlowski
|
|
John M. Perlowskis experience as Managing Director of BlackRock, Inc. since 2009, as the Head of BlackRock Global Accounting and Product Services since 2009, and as President and Chief Executive Officer of the Funds
provides him with a strong understanding of the Funds, their operations, and the business and regulatory issues facing the Funds. Mr. Perlowskis prior position as Managing Director and Chief Operating Officer of the Global Product Group
at Goldman Sachs Asset Management, and his former service as Treasurer and Senior Vice President of the Goldman Sachs Mutual Funds and as Director of the Goldman Sachs Offshore Funds provides the Boards with the benefit of his experience with the
management practices of other financial companies. Mr. Perlowski also serves as a board member for the funds in the BlackRock Multi-Asset Complex. Mr. Perlowskis experience with BlackRock enhances his service as a member of the
Funds Executive Committee.
|
Board Leadership Structure and Oversight
The Boards have overall responsibility for the oversight of the Funds. The Chair of the Boards and the Chief Executive Officer are two different people. Not
only is each Co-Chair of the Boards an Independent Board Member, but also the Chair of each Board committee (each, a Committee) is an Independent Board Member. The Boards have five standing
Committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Executive Committee.
16
The role of each Co-Chair of the Boards is to preside over all meetings
of the Boards and to act as a liaison with service providers, officers, attorneys, and other Board Members between meetings. The Chair of each Committee performs a similar role with respect to the Committee. The
Co-Chairs of the Boards or Chair of a Committee may also perform such other functions as may be delegated by the Boards or the Committee from time to time. The Independent Board Members meet regularly outside
the presence of the Funds management, in executive sessions or with other service providers to the Funds. The Boards have regular in-person meetings five times a year, including a meeting to consider the
approval of the Funds investment management agreements and, if necessary, may hold special meetings before their next regular meeting. Each Committee meets regularly to conduct the oversight functions delegated to that Committee by the Boards
and reports its findings to the Boards. The Boards and each standing Committee conduct annual assessments of their oversight function and structure. The Boards have determined that the Boards leadership structure is appropriate because it
allows the Boards to exercise independent judgment over management and to allocate areas of responsibility among Committees and the Boards to enhance oversight.
|
|
|
The Boards decided to separate the roles of Chief Executive Officer from the
Co-Chairs because they believe that having independent Co-Chairs:
|
|
|
|
increases the independent oversight of the Funds and enhances the Boards objective evaluation of the Chief
Executive Officer;
|
|
|
|
allows the Chief Executive Officer to focus on the Funds operations instead of Board administration;
|
|
|
|
provides greater opportunities for direct and independent communication between shareholders and the Boards; and
|
|
|
|
provides an independent spokesman for the Funds.
|
The Boards have engaged the Investment Advisor to manage the Funds on a
day-to-day basis. Each Board is responsible for overseeing the Investment Advisor, other service providers, the operations of each Fund and associated risks in
accordance with the provisions of the 1940 Act, state law, other applicable laws, each Funds charter, and each Funds investment objective(s) and strategies. The Boards review, on an ongoing basis, the Funds performance, operations,
and investment strategies and techniques. The Boards also conduct reviews of the Investment Advisor and its role in running the operations of the Funds.
Day-to-day risk management with respect to the Funds is the responsibility of the Investment Advisor or other service providers (depending on the nature of the risk), subject
to the supervision of the Investment Advisor. The Funds are subject to a number of risks, including investment, compliance, operational and valuation risks, among others. While there are a number of risk management functions performed by the
Investment Advisor or other service providers, as applicable, it is not possible to eliminate all of the risks applicable to the Funds. Risk oversight is part of the Boards general oversight of the Funds and is addressed as part of various
Board and Committee activities. The Boards, directly or through Committees, also review reports from, among others, management, the independent registered public accounting firm for the Funds, the Investment Advisor, and internal auditors for the
Investment Advisor or its affiliates, as appropriate, regarding risks faced by the Funds and managements or the service providers risk functions. The Committee system facilitates the timely and efficient consideration of matters by the
Board Members and facilitates effective oversight of compliance with legal and regulatory requirements and of the Funds activities and associated risks. The Boards have approved the appointment of a Chief Compliance Officer (the
CCO), who oversees the implementation and testing of the Funds compliance program and reports regularly to the Boards regarding compliance matters for the Funds and their service providers. The Independent Board Members have
engaged independent legal counsel to assist them in performing their oversight responsibilities.
During the calendar year 2020, the Board of each
Fund met 8 times. During the most recent full fiscal year for each Fund, the Board met the following number of times:
|
|
|
|
|
|
|
Fund Name
|
|
Ticker
|
|
Fiscal Year
End
|
|
Number of
Board Meetings
|
BlackRock MuniYield New Jersey Fund, Inc.
|
|
MYJ
|
|
July 31, 2021
|
|
12
|
BlackRock MuniHoldings New Jersey Quality Fund, Inc.
|
|
MUJ
|
|
July 31, 2021
|
|
12
|
17
No incumbent Board Member attended less than 75% of the aggregate number of meetings of each Board and of each
Committee on which the Board Member served during each Funds most recently completed fiscal year.
Audit Committee. Each Board has a
standing Audit Committee composed of Michael J. Castellano (Chair), Frank J. Fabozzi, Catherine A. Lynch and Karen P. Robards, all of whom are Independent Board Members and all of whom have been determined by the Audit Committee and the Board to be
Audit Committee Financial Experts. The principal responsibilities of the Audit Committee are to assist the Board in fulfilling its oversight responsibilities relating to the accounting and financial reporting policies and practices of the Fund. The
Audit Committees responsibilities include, without limitation: (i) approving and recommending to the full Board for approval the selection, retention, termination and compensation of the Funds independent registered public
accounting firm (the Independent Registered Public Accounting Firm) and evaluating the independence and objectivity of the Independent Registered Public Accounting Firm; (ii) approving all audit engagement terms and fees for the
Fund; (iii) reviewing the conduct and results of each audit; (iv) reviewing any issues raised by the Funds Independent Registered Public Accounting Firm or management regarding the accounting or financial reporting policies and
practices of the Fund, its internal controls, and, as appropriate, the internal controls of certain service providers and managements response to any such issues; (v) reviewing and discussing the Funds audited and unaudited
financial statements and disclosure in the Funds shareholder reports relating to the Funds performance; (vi) assisting the Boards responsibilities with respect to the internal controls of the Fund and its service providers
with respect to accounting and financial matters; and (vii) resolving any disagreements between the Funds management and the Funds Independent Registered Public Accounting Firm regarding financial reporting.
Each Board has adopted a written charter for such Boards Audit Committee. A copy of the Audit Committee Charter for each Fund can be found in the
Corporate Governance section of the BlackRock Closed-End Fund website at
https://www.blackrock.com/us/individual/education/closed-end-funds/corporate-governance.
Governance and Nominating Committee. Each Board has a standing Governance and Nominating Committee composed of R. Glenn Hubbard
(Chair), Michael J. Castellano, Richard E. Cavanagh, Cynthia L. Egan and Karen P. Robards, all of whom are Independent Board Members.
The principal
responsibilities of the Governance and Nominating Committee are: (i) identifying individuals qualified to serve as Independent Board Members and recommending Board nominees that are not interested persons of the Funds (as defined in
the 1940 Act) for election by shareholders or appointment by the Board; (ii) advising the Board with respect to Board composition, procedures and Committees of the Board (other than the Audit Committee); (iii) overseeing periodic
self-assessments of the Board and committees of the Board (other than the Audit Committee); (iv) reviewing and making recommendations in respect to Independent Board Member compensation; (v) monitoring corporate governance matters and making
recommendations in respect thereof to the Board; (vi) acting as the administrative committee with respect to Board policies and procedures, committee policies and procedures (other than the Audit Committee) and codes of ethics as they relate to
the Independent Board Members; and (vii) reviewing and making recommendations to the Board in respect of Fund share ownership by the Independent Board Members. Each Board has adopted a written charter for such Boards Governance and
Nominating Committee.
The Governance and Nominating Committee of each Board seeks to identify individuals to serve on the Board who have a diverse range
of viewpoints, qualifications, experiences, backgrounds and skill sets so that the Board will be better suited to fulfill its responsibility of overseeing the Funds activities. In so doing, the Governance and Nominating Committee reviews the
size of the Board, the ages of the current Board Members and their tenure on the Board, and the skills, background and experiences of the Board Members in light of the issues facing the Fund in determining whether one or more new board members
should be added to the Board. The Board as a group strives to achieve diversity in terms of gender, race and geographic location. The Governance and Nominating Committee believes that the Board Members as a group possess the array of skills,
experiences and backgrounds necessary to guide the Fund. The Board Members biographies included herein highlight the diversity and breadth of skills, qualifications and expertise that the Board Members bring to the Fund.
18
Each Governance Committee may consider nominations for Board Members made by the Funds shareholders as
it deems appropriate. Under each Funds By-laws, shareholders must follow certain procedures to nominate a person for election as a Board Member at an annual or special meeting, or to introduce an item of
business at an annual meeting. Under these advance notice procedures, shareholders must submit the proposed nominee or item of business by delivering a notice to the Secretary of the Fund at its principal executive offices. Each Fund must receive
notice of a shareholders intention to introduce a nomination or proposed item of business for an annual shareholder meeting not less than 120 days nor more than 150 days before the anniversary of the prior years annual shareholder
meeting. Assuming that the 2022 annual shareholder meeting of each Fund is held within 25 days of July 29, 2022, the relevant Fund must receive notice pertaining to the 2022 annual meeting of shareholders no earlier than Tuesday,
March 1, 2022 and no later than Thursday, March 31, 2022. However, if a Fund holds its 2022 annual shareholder meeting on a date that is not within 25 days before or after July 29, 2022, such Fund must receive the notice of a
shareholders intention to introduce a nomination or proposed item of business not later than the close of business on the tenth day following the day on which the notice of the date of the shareholder meeting was mailed or the public
disclosure of the date of the shareholder meeting was made, whichever comes first.
Each Funds By-laws
provide that notice of a proposed nomination must include certain information about the shareholder and the nominee, as well as a written consent of the proposed nominee to serve if elected. A notice of a proposed item of business must include a
description of and the reasons for bringing the proposed business to the meeting, any material interest of the shareholder in the business, and certain other information about the shareholder.
Further, each Fund has adopted Board Member qualification requirements which can be found in each Funds By-laws
and are applicable to all Board Members that may be nominated, elected, appointed, qualified or seated to serve as Board Members. The qualification requirements may include: (i) age limits; (ii) limits on service on other boards;
(iii) restrictions on relationships with investment advisers other than BlackRock; and (iv) character and fitness requirements. In addition to not being an interested person of the Fund as defined under Section 2(a)(19) of
the 1940 Act, each Independent Board Member may not be or have certain relationships with a shareholder owning five percent or more of the Funds voting securities or owning other percentage ownership interests in investment companies
registered under the 1940 Act. Reference is made to each Funds By-laws for more details.
A copy of the
Governance Committee Charter for each Fund can be found in the Corporate Governance section of the BlackRock Closed-End Fund website at https://www.blackrock.com/us/individual/education/closed-end-funds/corporate-governance.
Compliance
Committee. The Boards have a Compliance Committee composed of Cynthia L. Egan (Chair), Richard E. Cavanagh, R. Glenn Hubbard and W. Carl Kester, all of whom are Independent Board Members. The Compliance Committees purpose is to assist
the Board in fulfilling its responsibility with respect to the oversight of regulatory and fiduciary compliance matters involving the Fund, the fund-related activities of BlackRock, and any sub-advisers and
the Funds other third-party service providers. The Compliance Committees responsibilities include, without limitation: (i) overseeing the compliance policies and procedures of the Fund and its service providers and recommending
changes or additions to such policies and procedures; (ii) reviewing information on and, where appropriate, recommending policies concerning the Funds compliance with applicable law; (iii) reviewing information on any significant
correspondence with or other actions by regulators or governmental agencies with respect to the Fund and any employee complaints or published reports that raise concerns regarding compliance matters; and (iv) reviewing reports from, overseeing
the annual performance review of, and making certain recommendations in respect of the CCO, including, without limitation, determining the amount and structure of the CCOs compensation. Each Board has adopted a written charter for the
Boards Compliance Committee.
Performance Oversight Committee. The Boards have a Performance Oversight Committee composed of Frank
J. Fabozzi (Chair), Michael J. Castellano, Richard E. Cavanagh, Cynthia L. Egan, Lorenzo A. Flores, Stayce D. Harris, J. Phillip Holloman, R. Glenn Hubbard, W. Carl Kester, Catherine A. Lynch and Karen P. Robards, all of whom are Independent Board
Members. The Performance Oversight Committees purpose is to assist the Board in fulfilling its responsibility to oversee the Funds investment performance relative to the Funds investment objective(s), policies and practices. The
Performance Oversight Committees responsibilities include, without limitation: (i) reviewing the Funds investment objective(s), policies and practices;
19
(ii) recommending to the Board any required action in respect of changes in fundamental and non-fundamental investment restrictions; (iii) reviewing
information on appropriate benchmarks and competitive universes; (iv) reviewing the Funds investment performance relative to such benchmarks; (v) reviewing information on unusual or exceptional investment matters; (vi) reviewing
whether the Fund has complied with its investment policies and restrictions; and (vii) overseeing policies, procedures and controls regarding valuation of the Funds investments. Each Board has adopted a written charter for the
Boards Performance Oversight Committee.
Executive Committee. The Boards have an Executive Committee composed of Richard E. Cavanagh
(Chair) and Karen P. Robards, both of whom are Independent Board Members, and John M. Perlowski, who serves as an interested Board Member. The principal responsibilities of the Executive Committee include, without limitation: (i) acting on
routine matters between meetings of the Board; (ii) acting on such matters as may require urgent action between meetings of the Board; and (iii) exercising such other authority as may from time to time be delegated to the Executive
Committee by the Board. Each Board has adopted a written charter for the Boards Executive Committee.
Information about the specific experience,
skills, attributes and qualifications of each Board Member, which in each case led to each Boards conclusion that the Board Member should serve (or continue to serve) as a Board Member of the Funds, is provided in Biographical
Information of the Trustees.
Each Audit Committee, Governance Committee, Compliance Committee, Performance Oversight Committee and Executive
Committee met the following number of times for each Funds most recent fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ticker
|
|
Fiscal Year End
|
|
Number of
Audit
Committee
Meetings
|
|
Number of
Governance
Committee
Meetings
|
|
Number of
Compliance
Committee
Meetings
|
|
Number of
Performance
Oversight
Committee
Meetings
|
|
Number of
Executive
Committee
Meetings
|
MYJ
|
|
July 31, 2021
|
|
12
|
|
5
|
|
4
|
|
4
|
|
0
|
Acquiring Fund (MUJ)
|
|
July 31, 2021
|
|
12
|
|
5
|
|
4
|
|
4
|
|
0
|
Compensation of the Board Members
Effective January 1, 2021, each Independent Board Member is paid an annual retainer of $370,000 per year for his or her services as a board member of the
BlackRock-advised Funds, including each Fund, and each Board Member may also receive a $10,000 board meeting fee for special unscheduled meetings or meetings in excess of six Board meetings held in a calendar year, together with out-of-pocket expenses in accordance with a Board policy on travel and other business expenses relating to attendance at meetings. In addition, each Co-Chair of the Board is paid an additional annual retainer of $100,000. The Chairs of the Audit Committee, Performance Oversight Committee, Compliance Committee and Governance and Nominating Committee are paid an
additional annual retainer of $45,000, $37,500, $45,000 and $37,500, respectively. Each of the members of the Audit Committee and Compliance Committee are paid an additional annual retainer of $30,000 and $25,000, respectively, for his or her
service on such committee. Each Fund pays a pro rata portion quarterly (based on relative net assets) of the foregoing Board Member fees paid by the funds in the BlackRock Fixed-Income Complex.
The Independent Board Members have agreed that a maximum of 50% of each Independent Board Members total compensation paid by funds in the BlackRock
Fixed-Income Complex may be deferred pursuant to the BlackRock Fixed-Income Complexs deferred compensation plan. Under the deferred compensation plan, deferred amounts earn a return for the Independent Board Members as though equivalent dollar
amounts had been invested in shares of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Board Members. This has approximately the same economic effect for the Independent Board Members as if they had invested the
deferred amounts in such other funds in the BlackRock Fixed-Income Complex. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of a fund and are recorded as a
liability for accounting purposes.
20
Prior to January 1, 2021, each Board Member who was an Independent Board Member was paid an annual retainer
of $330,000 per year for his or her services as a Board member of the BlackRock-advised Funds, including the Funds. The Chairs of the Performance Oversight Committee and Governance and Nominating Committee were paid an additional annual retainer of
$30,000 and $20,000, respectively.
The following table sets forth the aggregate compensation, including deferred compensation amounts, paid to each
Independent Board Member by each Fund during its most recently completed fiscal year and by all BlackRock-advised Funds for the calendar year ended December 31, 2020. Mr. Perlowski and Mr. Fairbairn serve without compensation from the
Funds because of their affiliation with BlackRock, Inc. and the Investment Advisor.
|
|
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|
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|
|
|
|
|
|
|
|
|
Name1
|
|
Compensat
ion from
MYJ
|
|
|
Compensa
tion from
the
Acquiring
Fund
(MUJ)
|
|
|
Estimated
Annual
Benefits
upon
Retirement
|
|
|
Aggregate
Compensation
from
the
Funds
and Other
BlackRock-
Advised
Funds2,3
|
|
Independent Board Members:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Castellano
|
|
|
$2,746
|
|
|
|
$3,367
|
|
|
|
None
|
|
|
|
$405,000
|
|
Richard E. Cavanagh
|
|
|
$3,061
|
|
|
|
$3,728
|
|
|
|
None
|
|
|
|
$455,000
|
|
Cynthia L. Egan
|
|
|
$2,714
|
|
|
|
$3,328
|
|
|
|
None
|
|
|
|
$400,000
|
|
Frank J. Fabozzi
|
|
|
$2,677
|
|
|
|
$3,281
|
|
|
|
None
|
|
|
|
$420,000
|
|
Lorenzo A. Flores4
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
N/A
|
|
Henry Gabbay5
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
$90,000
|
|
Stayce D. Harris6
|
|
|
$193
|
|
|
|
$236
|
|
|
|
None
|
|
|
|
N/A
|
|
J. Phillip Holloman7
|
|
|
$193
|
|
|
|
$236
|
|
|
|
None
|
|
|
|
N/A
|
|
R. Glenn Hubbard
|
|
|
$2,616
|
|
|
|
$3,205
|
|
|
|
None
|
|
|
|
$375,000
|
|
W. Carl Kester
|
|
|
$2,431
|
|
|
|
$2,976
|
|
|
|
None
|
|
|
|
$385,000
|
|
Catherine A. Lynch
|
|
|
$2,463
|
|
|
|
$3,015
|
|
|
|
None
|
|
|
|
$390,000
|
|
Karen P. Robards
|
|
|
$3,092
|
|
|
|
$3,797
|
|
|
|
None
|
|
|
|
$460,000
|
|
Interested Board Members:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Fairbairn
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
John M. Perlowski
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
1
|
For the number of BlackRock-advised Funds from which each Board Member receives compensation see the
Biographical Information Chart beginning on page 10.
|
2
|
For the Independent Board Members, this amount represents the aggregate compensation earned from the funds in
the BlackRock Fixed-Income Complex during the calendar year ended December 31, 2020. Of this amount, Mr. Castellano, Mr. Cavanagh, Dr. Fabozzi, Dr. Hubbard, Dr. Kester, Ms. Lynch and Ms. Robards deferred
$121,500, $150,150, $84,000, $187,500, $50,000, $58,500 and $23,000, respectively, pursuant to the BlackRock Fixed-Income Complexs deferred compensation plan.
|
3
|
Total amount of deferred compensation payable by the BlackRock Fixed-Income Complex to Mr. Castellano,
Mr. Cavanagh, Dr. Fabozzi, Dr. Hubbard, Dr. Kester, Ms. Lynch and Ms. Robards is $1,219,536, $1,833,807, $1,005,663, $2,999,679, $1,481,108, $283,963 and $1,068,129, respectively, as of December 31, 2020.
Ms. Egan did not participate in the deferred compensation plan as of December 31, 2020.
|
4
|
Mr. Flores was appointed as a Board Member of each Fund effective July 30, 2021, a member of the Audit
Committee effective August 5, 2021 and a member of the Performance Oversight Committee effective November 18, 2021.
|
5
|
Mr. Gabbay resigned as a Board Member of each Fund effective February 19, 2020.
|
6
|
Ms. Harris was appointed as a Board Member of each Fund effective June 10, 2021, a member of the
Compliance Committee effective July 31, 2021 and a member of the Performance Oversight Committee effective November 18, 2021.
|
7
|
Mr. Holloman was appointed as a Board Member of each Fund effective June 10, 2021, a member of the
Audit Committee effective July 31, 2021 and a member of the Performance Oversight Committee effective November 18, 2021.
|
Share Ownership
Information
relating to each Board Members share ownership in each Fund and in the other funds in the BlackRock Fixed-Income Complex that are overseen by the respective director (Supervised Funds) as of December 31, 2020 is set forth in
the chart below:
21
|
|
|
|
|
|
|
|
|
Name of Board
Member
|
|
Aggregate
Dollar Range
of Common Shares
in MYJ
|
|
Aggregate
Dollar Range
of Common Shares
in the Acquiring
Fund (MUJ)
|
|
Aggregate
Dollar Range
of Common
Shares in
Supervised
Funds*
|
|
Michael J. Castellano
|
|
$50,001-$100,000
|
|
$50,001-$100,000
|
|
Over $
|
100,000
|
|
Richard E. Cavanagh
|
|
$1-$10,000
|
|
$1-$10,000
|
|
Over $
|
100,000
|
|
Cynthia L. Egan
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
Frank J. Fabozzi
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
Lorenzo A. Flores**
|
|
None
|
|
None
|
|
|
None
|
|
Stayce D. Harris***
|
|
None
|
|
None
|
|
|
None
|
|
J. Phillip Holloman****
|
|
None
|
|
None
|
|
|
None
|
|
R. Glenn Hubbard
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
W. Carl Kester
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
Catherine A. Lynch
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
Karen P. Robards
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
John M. Perlowski
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
Robert Fairbairn
|
|
None
|
|
None
|
|
Over $
|
100,000
|
|
*
|
Includes share equivalents owned under the deferred compensation plan in the Supervised Funds by certain
Independent Board Members who have participated in the deferred compensation plan of the Supervised Funds.
|
**
|
Mr. Flores was appointed as a Board Member of each Fund effective July 30, 2021.
|
***
|
Ms. Harris was appointed as a Board Member of each Fund effective June 10, 2021.
|
****
|
Mr. Holloman was appointed as a Board Member of each Fund effective June 10, 2021.
|
As of December 31, 2020, none of the Independent Board Members of each Fund or their immediate family members owned beneficially
or of record any securities of BlackRock or any affiliate of BlackRock or underwriter or any person controlling, controlled by or under common control with any such entities nor did any Independent Board Member of each Fund or their immediate family
member have any material interest in any transaction, or series of similar transactions, during the most recently completed two calendar years involving each Fund, BlackRock or any affiliate of BlackRock or underwriter or any person controlling,
controlled by or under common control with any such entities.
Independent Board Member Ownership of Securities
As of December 31, 2030, the Independent Board Members (and their respective immediate family members) did not beneficially own securities of the
Investment Advisor, or an entity controlling, controlled by or under common control with the Investment Advisor (not including registered investment companies).
Information Pertaining to the Officers
Certain biographical and other information relating to the officers of the Funds who are not Board Members is set forth below, including their address and year
of birth, principal occupations for at least the last five years and length of time served. With the exception of the Chief Compliance Officer (CCO), executive officers receive no compensation from the Funds. The Acquiring Fund
compensates the CCO for his services as its CCO.
Each executive officer is an interested person of the Funds (as defined in the 1940 Act) by
virtue of that individuals position with BlackRock or its affiliates described in the table below.
22
|
|
|
|
|
Name, Address(1),(2) and
Year of Birth
|
|
Position(s) Held (Length
of Service)
|
|
Principal Occupations(s)
During Past Five
Years
|
Jonathan Diorio
1980
|
|
Vice President
(Since 2015)
|
|
Managing Director of BlackRock since 2015; Director of BlackRock from 2011 to 2015.
|
|
|
|
Trent Walker
1974
|
|
Chief Financial Officer
(Since 2021)
|
|
Managing Director of BlackRock, Inc. since September 2019; Executive Vice President of PIMCO from 2016 to 2019; Senior Vice President of PIMCO from 2008 to 2015; Treasurer from 2013 to 2019 and Assistant Treasurer from 2007 to 2017
of PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series, PIMCO Equity Series VIT, PIMCO Managed Accounts Trust, 2 PIMCO-sponsored interval funds and 21 PIMCO-sponsored closed-end
funds.
|
|
|
|
Jay M. Fife
1970
|
|
Treasurer
(Since 2007)
|
|
Managing Director of BlackRock, Inc. since 2007.
|
|
|
|
Charles Park
1967
|
|
Chief Compliance Officer
(Since
2014)
|
|
Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the
BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (BFA) since
2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management
International Inc. since 2012.
|
|
|
|
Janey Ahn
1975
|
|
Secretary
(Since 2012)
|
|
Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017.
|
(1)
|
The address of each executive officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055.
|
(2)
|
Officers of the Funds serve at the pleasure of the Board.
|
Indemnification of Board Members and Officers
The governing documents of each Fund generally provide that, to the extent permitted by applicable law, the Fund will indemnify its Board Members and officers
against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Fund unless they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices. In addition, the Fund will not indemnify Board Members with respect to any matter as to which Board Members did not act in good faith in the reasonable belief that his or her action was in the best interest of the Fund or,
in the case of any criminal proceeding, as to which Board Members had reasonable cause to believe that the conduct was unlawful. Indemnification provisions contained in a Funds governing documents are subject to any limitations imposed by
applicable law.
The funds in the BlackRock Fixed-Income Complex, including the Funds, have also entered into a separate indemnification agreement with
the Board Members of each Board (the Indemnification Agreement). The Indemnification Agreement (i) extends the indemnification provisions contained in a Funds governing documents to
23
Board Members who leave that Funds Board and serve on an advisory board of a different fund in the BlackRock Fixed-Income Complex; (ii) sets in place the terms of the indemnification
provisions of a Funds governing documents once a director retires from a Board; and (iii) in the case of Board Members who left the Board of a Fund in connection with or prior to the board consolidation that occurred in 2007 as a result
of the merger of BlackRock and Merrill Lynch & Co., Inc.s investment management business, clarifies that such Fund continues to indemnify the director for claims arising out of his or her past service to that Fund.
INVESTMENT MANAGEMENT AGREEMENTS
Investment Management Agreements
The Investment Management Agreement between each Fund and the Investment Advisor was approved by such Funds Board, including a majority of the
Independent Board Members. The Investment Advisor is responsible for the management of each Funds portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operation of the Funds. The
Investment Advisor, located at 100 Bellevue Parkway, Wilmington, Delaware 19809, is a wholly-owned subsidiary of BlackRock.
The Investment Management
Agreement of each Fund is in effect for a one year term ending June 30, 2022 and will continue in effect for successive periods of 12 months thereafter, provided that each continuance is specifically approved at least annually by both
(1) the vote of a majority of such Funds Board or the vote of a majority of the securities of such Fund at the time outstanding and entitled to vote (as such term is defined in the 1940 Act) and (2) by the vote of a majority of the
Board Members of such Fund who are not interested persons (as such term is defined in the 1940 Act) to the Investment Management Agreement or interested persons of any party to the Investment Management Agreement, cast in person at a meeting called
for the purpose of voting on such approval.
The Investment Management Agreement of each Fund may be terminated at any time, without the payment of any
penalty, by such Fund (upon the vote of a majority of such Funds Board or a majority of the outstanding voting securities of such Fund) or by the Investment Advisor, upon 60 days written notice by either party to the other which can be
waived by the non-terminating party. The Investment Management Agreement of each Fund will terminate automatically in the event of its assignment (as such term is defined in the 1940 Act and the rules
thereunder).
The Investment Management Agreement of each Fund provides that the Investment Advisor will not be liable for any error of judgment or
mistake of law or for any loss suffered by such Fund in connection with the performance of such Funds Investment Management Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross negligence on the Investment Advisors part in the performance of its duties or from reckless disregard by the Investment Advisor of its duties under the Investment
Management Agreement. The Investment Management Agreement of each Fund also provides for indemnification by such Fund of the Investment Advisor, its Board Members, officers, employees, agents and control persons for liabilities incurred by them in
connection with their services to such Fund, subject to certain limitations and conditions.
The Investment Advisor will devote such time and effort to
the business of each Fund as is reasonably necessary to perform its duties to such Fund. However, the services of the Investment Advisor are not exclusive, and the Investment Advisor provides similar services to other investment companies and other
clients and may engage in other activities.
In addition to the fees paid to the Investment Advisor, each Fund pays all other costs and expenses of its
respective operations, including compensation of its Board Members (other than those affiliated with the Investment Advisor), custodian, leveraging expenses, transfer and dividend disbursing agent expenses, legal fees, rating agency fees, listing
fees and expenses, expenses of independent auditors, expenses of repurchasing shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if any.
Each Fund and the Investment Advisor have entered into a fee waiver agreement (the Fee Waiver Agreement), pursuant to which the Investment Advisor
has contractually agreed to waive the management fee with respect to any portion of each Funds assets attributable to investments in any equity and fixed-income mutual funds and exchange traded funds (ETFs) managed by the
Investment Advisor or its affiliates that have a contractual fee, through June 30,
24
2023. In addition, effective December 1, 2019, pursuant to the Fee Waiver Agreement, the Investment Advisor has contractually agreed to waive its management fees by the amount of investment
advisory fees each Fund pays to the Investment Advisor indirectly through its investment in money market funds advised by the Investment Advisor or its affiliates, through June 30, 2023. The Fee Waiver Agreement may be continued from year to
year thereafter, provided that such continuance is specifically approved by the Investment Advisor and each Fund (including by a majority of the Independent Board Members). Neither the Investment Advisor nor the Funds are obligated to extend the Fee
Waiver Agreement. The Fee Waiver Agreement may be terminated at any time, without the payment of any penalty, only by each Fund (upon the vote of a majority of the Independent Board Members or a majority of the outstanding voting securities of each
Fund), upon 90 days written notice by each Fund to the Investment Advisor. Prior to December 1, 2019, such agreement to waive a portion of each Funds management fee in connection with each Funds investment in affiliated money
market funds was voluntary.
Advisory Fees Paid to the Investment Advisor
BlackRock Advisors, LLC acts as the investment adviser for each Fund. The tables below set forth information about the total advisory fees paid by each Fund to
the Investment Advisor and any amounts waived by the Investment Advisor with respect to each Fund during each Funds previous three fiscal years.
|
|
|
|
|
|
|
|
|
MYJ
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
Paid to the Investment
Advisor
|
|
|
Waived by the Investment
Advisor
|
|
July 31, 2021
|
|
$
|
3,138,608
|
|
|
$
|
2,891
|
|
July 31, 2020
|
|
$
|
3,150,685
|
|
|
$
|
5,195
|
|
July 31, 2019
|
|
$
|
3,101,225
|
|
|
$
|
59,946
|
|
|
|
|
Acquiring Fund (MUJ)
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
Paid to the Investment
Advisor
|
|
|
Waived by the Investment
Advisor
|
|
July 31, 2021
|
|
$
|
3,900,949
|
|
|
$
|
4,875
|
|
July 31, 2020
|
|
$
|
3,901,836
|
|
|
$
|
3,848
|
|
July 31, 2019
|
|
$
|
3,803,360
|
|
|
$
|
2,210
|
|
Accounting Services Provider
State Street Bank and Trust Company provides certain administration and accounting services to the Funds pursuant to an Administration and Fund Accounting
Services Agreement. The following table sets forth the amounts paid by each Fund to State Street Bank and Trust Company during each Funds previous three fiscal years.
25
|
|
|
|
|
MYJ
|
|
|
|
For the Fiscal Year Ended
|
|
Administrative Services
Fees Paid
|
|
July 31, 2021
|
|
$
|
96,680
|
|
July 31, 2020
|
|
$
|
99,102
|
|
July 31, 2019
|
|
$
|
98,125
|
|
|
|
Acquiring Fund (MUJ)
|
|
|
|
For the Fiscal Year Ended
|
|
Administrative Services
Fees Paid
|
|
July 31, 2021
|
|
$
|
112,041
|
|
July 31, 2020
|
|
$
|
113,660
|
|
July 31, 2019
|
|
$
|
110,591
|
|
PORTFOLIO MANAGER INFORMATION
Other Accounts Managed by the Portfolio Managers
The tables below set forth information about accounts other than the respective Fund managed by MYJ and the Acquiring Funds portfolio managers as of July
31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MYJ:
|
|
|
|
Number of Other Accounts Managed and Assets
by Account Type
|
|
|
Number of Other Accounts and Assets for
Which Advisory Fee is
Performance-Based
|
|
Name of Portfolio Manager
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
|
Other
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
Phillip Soccio, CFA
|
|
11
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$5.39 Billion
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Theodore R. Jaeckel, Jr., CFA
|
|
23
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$28.23 Billion
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Acquiring Fund (MUJ):
|
|
|
|
Number of Other Accounts Managed and
Assets by Account Type
|
|
|
Number of Other Accounts and Assets for
Which Advisory Fee is
Performance-Based
|
|
Name of Portfolio Manager
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
|
Other
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
Phillip Soccio, CFA
|
|
11
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$5.30 Billion
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Theodore R. Jaeckel, Jr., CFA
|
|
23
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$28.14 Billion
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Christian Romaglino will serve as a portfolio manager of the Combined Fund in addition to Messrs. Soccio and Jaeckel.
Information about the accounts managed by Mr. Romaglino as of November 30, 2021 is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Accounts Managed and
Assets by Account Type
|
|
|
Number of Accounts and Assets for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio Manager
|
|
Registered
Investment
Companies
|
|
|
Pooled
Investment
Vehicles
|
|
|
Accounts
|
|
|
Registered
Investment
Companies
|
|
|
Pooled
Investment
Vehicles
|
|
|
Accounts
|
|
Christian Romaglino
|
|
|
11
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
$6.62 Billion
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
26
Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against
potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other
potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and
BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or
may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their
families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of
BlackRock, Inc.s (or its affiliates or significant shareholders) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the
officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment
strategies may at times be opposed to the strategy utilized for a fund. It should also be noted that a portfolio manager may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or long only accounts,
subject to incentive fees. Such portfolio managers may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of the Funds are not entitled to receive a portion of incentive fees
of other accounts.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving
preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is
consistent with the particular investment discipline and client base, as appropriate.
Portfolio Manager Compensation
Overview
The discussion below describes the portfolio managers compensation as of each Funds most recent fiscal year end.
BlackRocks financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value
senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based
discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.
Base Compensation
Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation
Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio managers
group within BlackRock, the investment performance, including risk-adjusted returns, of the firms assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individuals performance and
contribution to the overall performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are
measured. Among other things,
27
BlackRocks Chief Investment Officers make a subjective determination with respect to each portfolio managers compensation based on the performance of the Funds and other accounts
managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time
periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the
Fund and other accounts are: a combination of market-based indices (e.g., Standard & Poors Municipal Bond Index), certain customized indices and certain fund industry peer groups.
Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio managers in a combination of cash, deferred BlackRock, Inc. stock awards, and/or deferred cash
awards that notionally track the return of certain BlackRock investment products.
Portfolio managers receive their annual discretionary incentive
compensation in the form of cash. Portfolio managers whose total compensation is above a specified threshold also receive deferred BlackRock, Inc. stock awards annually as part of their discretionary incentive compensation. Paying a portion of
discretionary incentive compensation in the form of deferred BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year at risk based on BlackRocks ability to sustain and improve its performance over
future periods. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key employees as part of a long-term incentive award to aid in retention, align interests with long-term shareholders and motivate performance.
Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers
of these Funds have deferred BlackRock, Inc. stock awards.
For certain portfolio managers, a portion of the discretionary incentive compensation is also
distributed in the form of deferred cash awards that notionally track the returns of select BlackRock investment products they manage, which provides direct alignment of portfolio manager discretionary incentive compensation with investment product
results. Deferred cash awards vest ratably over a number of years and, once vested, settle in the form of cash. Only portfolio managers who manage specified products and whose total compensation is above a specified threshold are eligible to
participate in the deferred cash award program.
Other Compensation Benefits
In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the
following:
Incentive Savings PlansBlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees
are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the
first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit
($290,000 for 2021). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by
participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in
BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair
market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.
28
Securities Ownership of Portfolio Managers as of July 31, 2021 for MYJ and the Acquiring
Fund, each
Funds most recent fiscal year end
|
|
|
|
|
Portfolio Manager
|
|
Dollar Range
of Equity
Securities of
MYJ
Beneficially
Owned
|
|
Dollar Range of
Equity
Securities of the
Acquiring Fund
(MUJ)
Beneficially
Owned
|
Theodore R. Jaeckel, Jr., CFA
|
|
$100,001 - $500,000
|
|
$50,001 - $100,000
|
Phillip Soccio, CFA
|
|
None
|
|
None
|
Christian Romaglino*
|
|
N/A
|
|
$10,001 - $50,000
|
*
|
Information provided as of November 30, 2021. Mr. Romaglino will be a portfolio manager of the Combined Fund
effective upon closing of the Reorganization.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
ALLOCATION
Subject to policies established by the Board, the Investment Advisor is primarily responsible for the execution of each Funds
portfolio transactions and the allocation of brokerage. The Investment Advisor does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for each Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, operational facilities of the firm and the firms risk and skill in positioning blocks of securities. While the Investment Advisor
generally seeks reasonable trade execution costs, the Funds do not necessarily pay the lowest spread or commission available, and payment of the lowest commission or spread is not necessarily consistent with obtaining the best price and execution in
particular transactions. Subject to applicable legal requirements, the Investment Advisor may select a broker based partly upon brokerage or research services provided to the Investment Advisor and its clients, including the Funds. In return for
such services, the Investment Advisor may cause the Funds to pay a higher commission than other brokers would charge if the Investment Advisor determines in good faith that the commission is reasonable in relation to the services provided.
In selecting brokers or dealers to execute portfolio transactions, the Investment Advisor seeks to obtain the best price and most favorable execution for each
Fund, taking into account a variety of factors including: (i) the size, nature and character of the security or instrument being traded and the markets in which it is purchased or sold; (ii) the desired timing of the transaction;
(iii) the Investment Advisors knowledge of the expected commission rates and spreads currently available; (iv) the activity existing and expected in the market for the particular security or instrument, including any anticipated
execution difficulties; (v) the full range of brokerage services provided; (vi) the brokers or dealers capital; (vii) the quality of research and research services provided; (viii) the reasonableness of the
commission, dealer spread or its equivalent for the specific transaction; and (ix) the Investment Advisors knowledge of any actual or apparent operational problems of a broker or dealer.
The securities in which the Funds invest are traded primarily in the OTC market. Each Fund intends to deal directly with the dealers who make a market in the
particular securities, except in those circumstances in which better prices and execution are available elsewhere. Under the 1940 Act, persons affiliated with the Funds and persons who are affiliated with such affiliated persons are prohibited from
dealing with the Funds as principals in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the SEC. Since transactions in the OTC market usually involve transactions with the dealers acting as
principal for their own accounts, the Funds will not deal with affiliated persons in connection with such transactions. However, an affiliated person of a Fund may serve as its broker in OTC transactions conducted on an agency basis provided that,
among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable
transactions.
OTC issues, including most fixed income securities such as municipal bonds, corporate debt and U.S. Government securities, are normally
traded on a net basis without a stated commission, through dealers acting for their own account and not as brokers. The Funds will primarily engage in transactions with these dealers or deal directly with the issuer unless a better price
or execution could be obtained by using a broker. Prices paid to a dealer with respect to both foreign and domestic securities will generally include a spread, which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at the time, and includes the dealers normal profit.
29
Purchases of money market instruments by the Funds are made from dealers, underwriters and issuers. The Funds do
not currently expect to incur any brokerage commission expense on such transactions because money market instruments are generally traded on a net basis with dealers acting as principal for their own accounts without a stated commission.
The price of the security, however, usually includes a profit to the dealer.
Section 28(e) of the Exchange Act (Section 28(e))
permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer a commission for effecting a transaction that exceeds the amount another broker or dealer would have charged for effecting the same transaction
in recognition of the value of brokerage and research services provided by that broker or dealer. This includes commissions paid on riskless principal transactions under certain conditions. Brokerage and research services include:
(1) furnishing advice as to the value of securities, including pricing and appraisal advice, credit analysis, risk measurement analysis, performance and other analysis, as well as the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions incidental to securities transactions (such as clearance, settlement, and custody). The Investment Advisor believes that access to independent investment research is
beneficial to its investment decision-making processes and, therefore, to the Funds.
The Investment Advisor may participate in client commission
arrangements under which the Investment Advisor may execute transactions through a broker-dealer and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research to the Investment
Advisor. The Investment Advisor believes that research services obtained through soft dollar or commission sharing arrangements enhance its investment decision-making capabilities, thereby increasing the prospects for higher investment returns. The
Investment Advisor will engage only in soft dollar or commission sharing transactions that comply with the requirements of Section 28(e). The Investment Advisor regularly evaluates the soft dollar products and services utilized, as well as the
overall soft dollar and commission sharing arrangements to ensure that trades are executed by firms that are regarded as best able to execute trades for client accounts, while at the same time providing access to the research and other services the
Investment Advisor views as impactful to its trading results.
The Investment Advisor may utilize soft dollars and related services, including research
(whether prepared by the broker-dealer or prepared by a third-party and provided to the Investment Advisor by the broker-dealer) and execution or brokerage services within applicable rules and the Investment Advisors policies to the extent
that such permitted services do not compromise the Investment Advisors ability to seek to obtain best execution. In this regard, the portfolio management investment and/or trading teams may consider a variety of factors, including the degree
to which the broker-dealer: (a) provides access to company management; (b) provides access to their analysts; (c) provides meaningful/insightful research notes on companies or other potential investments; (d) facilitates calls on
which meaningful or insightful ideas about companies or potential investments are discussed; (e) facilitates conferences at which meaningful or insightful ideas about companies or potential investments are discussed; or (f) provides
research tools such as market data, financial analysis, and other third party related research and brokerage tools that aid in the investment process.
Research-oriented services for which the Investment Advisor might pay with fund commissions may be in written form or through direct contact with individuals
and may include information as to particular companies or industries and securities or groups of securities, as well as market, economic, or institutional advice and statistical information, political developments and technical market information
that assists in the valuation of investments. Except as noted immediately below, research services furnished by brokers may be used in servicing some or all client accounts and not all services may be used in connection with the Funds or account
that paid commissions to the broker providing such services. In some cases, research information received from brokers by investment company management personnel, or personnel principally responsible for the Investment Advisors individually
managed portfolios, is not necessarily shared by and between such personnel. Any investment advisory or other fees paid by the Funds to the Investment Advisor are not reduced as a result of the Investment Advisors receipt of research services.
In some cases, the Investment Advisor may receive a service from a broker that has both a research and a non-research use. When this occurs the Investment Advisor makes a good faith
allocation, under all the circumstances, between the
30
research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions,
while the Investment Advisor will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Investment Advisor faces a
potential conflict of interest, but the Investment Advisor believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
Payments of commissions to brokers who are affiliated persons of the Funds will be made in
accordance with Rule 17e-1 under the 1940 Act.
From time to time, Funds may purchase new issues of securities in
a fixed price offering. In these situations, the broker may be a member of the selling group that will, in addition to selling securities, provide the Investment Advisor with research services. The Financial Industry Regulatory Authority, Inc. has
adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the broker will provide research credits in these situations at a rate that is higher than that available for typical secondary market
transactions. These arrangements may not fall within the safe harbor of Section 28(e).
The Investment Advisor does not consider sales of shares of
the investment companies it advises as a factor in the selection of brokers or dealers to execute portfolio transactions for the Funds; however, whether or not a particular broker or dealer sells shares of the investment companies advised by the
Investment Advisor neither qualifies nor disqualifies such broker or dealer to execute transactions for those investment companies.
Securities purchased
in underwritten offerings include a fixed amount of compensation to the underwriter, generally referred to as the underwriters concession or discount. When securities are purchased or sold directly from or to an issuer, no commissions or
discounts are paid.
The Investment Advisor may seek to obtain an undertaking from issuers of commercial paper or dealers selling commercial paper to
consider the repurchase of such securities from the Funds prior to maturity at their original cost plus interest (sometimes adjusted to reflect the actual maturity of the securities), if it believes that the Funds respective anticipated need
for liquidity makes such action desirable. Any such repurchase prior to maturity reduces the possibility that the Funds would incur a capital loss in liquidating commercial paper, especially if interest rates have risen since acquisition of such
commercial paper.
Investment decisions for the Funds and for other investment accounts managed by the Investment Advisor are made independently of each
other in light of differing conditions. The Investment Advisor allocates investments among client accounts in a fair and equitable manner. A variety of factors will be considered in making such allocations. These factors include: (i) investment
objectives or strategies for particular accounts, including sector, industry, country or region and capitalization weightings, (ii) tax considerations of an account, (iii) risk or investment concentration parameters for an account,
(iv) supply or demand for a security at a given price level, (v) size of available investment, (vi) cash availability and liquidity requirements for accounts, (vii) regulatory restrictions, (viii) minimum investment size of
an account, (ix) relative size of account, and (x) such other factors as may be approved by the Investment Advisors general counsel. Moreover, investments may not be allocated to one client account over another based on any of the
following considerations: (i) to favor one client account at the expense of another, (ii) to generate higher fees paid by one client account over another or to produce greater performance compensation to the Investment Advisor,
(iii) to develop or enhance a relationship with a client or prospective client, (iv) to compensate a client for past services or benefits rendered to the Investment Advisor or to induce future services or benefits to be rendered to the
Investment Advisor, or (v) to manage or equalize investment performance among different client accounts.
Equity securities will generally be
allocated among client accounts within the same investment mandate on a pro rata basis. This pro-rata allocation may result in the Funds receiving less of a particular security than if pro-ration had not occurred. All allocations of equity securities will be subject, where relevant, to share minimums established for accounts and compliance constraints.
Initial public offerings of securities may be over-subscribed and subsequently trade at a premium in the secondary market. When the Investment Advisor is
given an opportunity to invest in such an initial offering or new or hot issue, the supply of securities available for client accounts is often less than the amount of securities the accounts
31
would otherwise take. In order to allocate these investments fairly and equitably among client accounts over time, each portfolio manager or a member of his or her respective investment team will
indicate to the Investment Advisors trading desk their level of interest in a particular offering with respect to eligible clients accounts for which that team is responsible. Initial public offerings of U.S. equity securities will be
identified as eligible for particular client accounts that are managed by portfolio teams who have indicated interest in the offering based on market capitalization of the issuer of the security and the investment mandate of the client account and
in the case of international equity securities, the country where the offering is taking place and the investment mandate of the client account. Generally, shares received during the initial public offering will be allocated among participating
client accounts within each investment mandate on a pro rata basis. In situations where supply is too limited to be allocated among all accounts for which the investment is eligible, portfolio managers may rotate such investment opportunities among
one or more accounts so long as the rotation system provides for fair access for all client accounts over time. Other allocation methodologies that are considered by the Investment Advisor to be fair and equitable to clients may be used as well.
Because different accounts may have differing investment objectives and policies, the Investment Advisor may buy and sell the same securities at the same
time for different clients based on the particular investment objectives, guidelines and strategies of those accounts. For example, the Investment Advisor may decide that it may be entirely appropriate for a growth fund to sell a security at the
same time a value fund is buying that security. To the extent that transactions on behalf of more than one client of the Investment Advisor or its affiliates during the same period may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price. For example, sales of a security by the Investment Advisor on behalf of one or more of its clients may decrease the market price of such security, adversely impacting other clients
of the Investment Advisor that still hold the security. If purchases or sales of securities arise for consideration at or about the same time that would involve the Funds or other clients or funds for which the Investment Advisor or an affiliate act
as investment manager, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all.
In certain instances, the Investment Advisor may find it efficient for purposes of seeking to obtain best execution, to aggregate or bunch certain
contemporaneous purchases or sale orders of its advisory accounts. In general, all contemporaneous trades for client accounts under management by the same portfolio manager or investment team will be bunched in a single order if the trader believes
the bunched trade would provide each client with an opportunity to achieve a more favorable execution at a potentially lower execution cost. The costs associated with a bunched order will be shared pro rata among the clients in the bunched order.
Generally, if an order for a particular portfolio manager or management team is filled at several different prices through multiple trades, all accounts participating in the order will receive the average price except in the case of certain
international markets where average pricing is not permitted. While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Funds are concerned, in other cases it could be beneficial to the
Funds. Transactions effected by the Investment Advisor on behalf of more than one of its clients during the same period may increase the demand for securities being purchased or the supply of securities being sold, causing an adverse effect on
price. The trader will give the bunched order to the broker dealer that the trader has identified as being able to provide the best execution of the order. Orders for purchase or sale of securities will be placed within a reasonable amount of time
of the order receipt and bunched orders will be kept bunched only long enough to execute the order.
The Funds will not purchase securities during the
existence of any underwriting or selling group relating to such securities of which the Investment Advisor or any affiliated person (as defined in the 1940 Act) thereof is a member except pursuant to procedures adopted by the Board in accordance
with Rule 10f-3 under the 1940 Act. In no instance will portfolio securities be purchased from or sold to the Investment Advisor or any affiliated person of the foregoing entities except as permitted by SEC
exemptive order or by applicable law.
While the Funds generally do not expect to engage in trading for short-term gains, they will effect portfolio
transactions without regard to any holding period if, in the Investment Advisors judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market,
economic or financial conditions. The portfolio turnover rate is calculated by dividing the lesser of each Funds annual sales or purchases of portfolio securities (exclusive of purchases or sales of U.S. Government Securities and all other
securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year. A high rate of portfolio turnover results in certain tax consequences, such as increased
capital gain dividends and/or ordinary income dividends, and in correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by the Funds.
32
Information about the brokerage commissions paid by each Fund, including commissions paid to affiliated
broker-dealers, is set forth in the following tables.
MYJ
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
Aggregate Brokerage
Commissions Paid
|
|
|
Commissions Paid to
Affiliates
|
|
July 31, 2021
|
|
$
|
2,194
|
|
|
$
|
0
|
|
July 31, 2020
|
|
$
|
4,030
|
|
|
$
|
0
|
|
July 31, 2019
|
|
$
|
3,744
|
|
|
$
|
0
|
|
Acquiring Fund (MUJ)
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
Aggregate Brokerage
Commissions Paid
|
|
|
Commissions Paid to
Affiliates
|
|
July 31, 2021
|
|
$
|
2,783
|
|
|
$
|
0
|
|
July 31, 2020
|
|
$
|
5,556
|
|
|
$
|
0
|
|
July 31, 2019
|
|
$
|
5,405
|
|
|
$
|
0
|
|
The Acquiring Fund and MYJ held no securities of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) during the fiscal year ended July
31, 2021.
CONFLICTS OF INTEREST
Certain activities of BlackRock, Inc., the Investment Advisor and the other subsidiaries of BlackRock, Inc. (collectively referred to in this section as
BlackRock) and their respective directors, officers or employees, with respect to each Fund and/or other accounts managed by BlackRock, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the worlds largest asset management firms. BlackRock, its subsidiaries and their respective directors, officers and employees,
including the business units or entities and personnel who may be involved in the investment activities and business operations of a Fund, are engaged worldwide in businesses, including managing equities, fixed income securities, cash and
alternative investments, and other financial services, and have interests other than that of managing a Fund. These are considerations of which investors in a Fund should be aware, and which may cause conflicts of interest that could disadvantage a
Fund and its shareholders. These businesses and interests include potential multiple advisory, transactional, financial and other relationships with, or interests in companies and interests in securities or other instruments that may be purchased or
sold by a Fund.
BlackRock has proprietary interests in, and may manage or advise with respect to, accounts or funds (including separate accounts and
other funds and collective investment vehicles) that have investment objectives similar to those of the Funds and/or that engage in transactions in the same types of securities, currencies and instruments as the Funds. BlackRock is also a major
participant in the global currency, equities, swap and fixed income markets, in each case, for the accounts of clients and, in some cases, on a proprietary basis. As such, BlackRock is or may be actively engaged in transactions in the same
securities, currencies, and instruments in which each Fund invests. Such activities could affect the prices and availability of the securities, currencies, and instruments in which each Fund invests, which could have an adverse impact on a
Funds performance. Such transactions, particularly in respect of most proprietary accounts or client accounts, will be executed independently of a Funds transactions and thus at prices or rates that may be more or less favorable than
those obtained by such Fund.
When BlackRock seeks to purchase or sell the same assets for managed accounts, including the Funds, the assets actually
purchased or sold may be allocated among the accounts on a basis determined in its good faith discretion to be equitable. In some cases, this system may adversely affect the size or price of the assets purchased or sold for a Fund. In addition,
transactions in investments by one or more other accounts managed by BlackRock may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of a Fund, particularly, but not limited to, with respect to small
capitalization, emerging market or less liquid strategies. This may occur with respect to BlackRock-advised accounts when investment decisions regarding a Fund are based on research or other information that is also used to support decisions for
other accounts. When BlackRock implements a portfolio decision or strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for a Fund, market impact, liquidity constraints, or other factors could
result in a Fund receiving less favorable trading results and the costs of implementing such decisions or strategies could be increased or a Fund could otherwise be disadvantaged. BlackRock may, in certain cases, elect to implement internal policies
and procedures designed to limit such consequences, which may cause a Fund to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable for it to do so. Conflicts may also arise
because portfolio decisions regarding a Fund may benefit other accounts managed by BlackRock. For example, the sale of a long position or establishment of a short position by a Fund may impair the price of the same security sold short by (and
therefore benefit) BlackRock or its other accounts or funds, and the purchase of a security or covering of a short position in a security by a Fund may increase the price of the same security held by (and therefore benefit) BlackRock or its other
accounts or funds.
33
BlackRock, on behalf of other client accounts, on the one hand, and a Fund, on the other hand, may invest in or
extend credit to different parts of the capital structure of a single issuer. BlackRock may pursue rights, provide advice or engage in other activities, or refrain from pursuing rights, providing advice or engaging in other activities, on behalf of
other clients with respect to an issuer in which a Fund has invested, and such actions (or refraining from action) may have a material adverse effect on a Fund. In situations in which clients of BlackRock (including a Fund) hold positions in
multiple parts of the capital structure of an issuer, BlackRock may not pursue certain actions or remedies that may be available to a Fund, as a result of legal and regulatory requirements or otherwise. BlackRock addresses these and other potential
conflicts of interest based on the facts and circumstances of particular situations. For example, BlackRock may determine to rely on information barriers between different business units or portfolio management teams. BlackRock may also determine to
rely on the actions of similarly situated holders of loans or securities rather than, or in connection with, taking such actions itself on behalf of a Fund.
In addition, to the extent permitted by applicable law, a Fund may invest its assets in other funds advised by BlackRock, including funds that are managed by
one or more of the same portfolio managers, which could result in conflicts of interest relating to asset allocation, timing of Fund purchases and redemptions, and increased remuneration and profitability for BlackRock and/or its personnel,
including portfolio managers.
In certain circumstances, BlackRock, on behalf of a Fund, may seek to buy from or sell securities to another fund or
account advised by BlackRock. BlackRock may (but is not required to) effect purchases and sales between BlackRock clients (cross trades), including such Fund, if BlackRock believes such transactions are appropriate based on each
partys investment objectives and guidelines, subject to applicable law and regulation. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit BlackRocks decision to engage in
these transactions for a Fund. BlackRock may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
BlackRock and its clients may pursue or enforce rights with respect to an issuer in which a Fund has invested, and those activities may have an adverse effect
on such Fund. As a result, prices, availability, liquidity and terms of a Funds investments may be negatively impacted by the activities of BlackRock or its clients, and transactions for a Fund may be impaired or effected at prices or terms
that may be less favorable than would otherwise have been the case.
The results of a Funds investment activities may differ significantly from the
results achieved by BlackRock for its proprietary accounts or other accounts (including investment companies or collective investment vehicles) which it manages or advises. It is possible that one or more accounts managed or advised by BlackRock and
such other accounts will achieve investment results that are substantially more or less favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which one or more proprietary or other
accounts managed or advised by BlackRock achieve significant profits. The opposite result is also possible.
From time to time, a Fund may be restricted
from purchasing or selling securities, or from engaging in other investment activities because of regulatory, legal or contractual requirements applicable to BlackRock or other accounts managed or advised by BlackRock, and/or the internal policies
of BlackRock designed to comply with such requirements. As a result, there may be periods, for example, when BlackRock will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock
is performing services or when position limits have been reached. For example, the investment activities of BlackRock for its proprietary accounts and accounts under its management may limit the investment opportunities for a Fund in certain
emerging and other markets in which limitations are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors.
In connection with its management of a Fund, BlackRock may have access to certain fundamental analysis and proprietary technical models developed by
BlackRock. BlackRock will not be under any obligation, however, to effect transactions on behalf of a Fund in accordance with such analysis and models. In addition, BlackRock will not have any obligation to make available any information regarding
its proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of a Fund and it is not anticipated that BlackRock will have access to such information for the
purpose of managing such Fund. The proprietary activities or portfolio strategies of BlackRock, or the activities or strategies used for accounts managed by BlackRock or other client accounts could conflict with the transactions and strategies
employed by BlackRock in managing a Fund.
34
In addition, certain principals and certain employees of a Funds investment adviser are also principals or
employees of other business units or entities within BlackRock. As a result, these principals and employees may have obligations to such other business units or entities or their clients and such obligations to other business units or entities or
their clients may be a consideration of which investors in a Fund should be aware.
BlackRock may enter into transactions and invest in securities,
instruments and currencies on behalf of a Fund in which clients of BlackRock, or, to the extent permitted by the SEC and applicable law, BlackRock, serves as the counterparty, principal or issuer. In such cases, such partys interests in the
transaction will be adverse to the interests of a Fund, and such party may have no incentive to assure that such Fund obtains the best possible prices or terms in connection with the transactions. In addition, the purchase, holding and sale of such
investments by a Fund may enhance the profitability of BlackRock.
BlackRock may also create, write or issue derivatives for its clients, the underlying
securities, currencies or instruments of which may be those in which a Fund invests or which may be based on the performance of such Fund. BlackRock has entered into an arrangement with Markit Indices Limited, the index provider for underlying
fixed-income indexes used by certain iShares ETFs, related to derivative fixed-income products that are based on such iShares ETFs. BlackRock will receive certain payments for licensing intellectual property belonging to BlackRock and for
facilitating provision of data in connection with such derivative products, which may include payments based on the trading volumes of, or revenues generated by, the derivative products. A Fund and other accounts managed by BlackRock may from time
to time transact in such derivative products where permitted by a Funds investment strategy, which could contribute to the viability of such derivative products by making them more appealing to funds and accounts managed by third parties, and
in turn lead to increased payments to BlackRock. Trading activity in these derivative products could also potentially lead to greater liquidity for such products, increased purchase activity with respect to these iShares ETFs and increased assets
under management for BlackRock.
A Fund may, subject to applicable law, purchase investments that are the subject of an underwriting or other distribution
by BlackRock and may also enter into transactions with other clients of BlackRock where such other clients have interests adverse to those of such Fund. At times, these activities may cause business units or entities within BlackRock to give advice
to clients that may cause these clients to take actions adverse to the interests of such Fund. To the extent such transactions are permitted, such Fund will deal with BlackRock on an arms-length basis.
To the extent authorized by applicable law, BlackRock may act as broker, dealer, agent, lender or adviser or in other commercial capacities for a Fund. It is
anticipated that the commissions, mark-ups, mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees, other fees, compensation or profits,
rates, terms and conditions charged by BlackRock will be in its view commercially reasonable, although BlackRock, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable to BlackRock and such sales
personnel, which may have an adverse effect on a Fund.
Subject to applicable law, BlackRock (and its personnel and other distributors) will be entitled
to retain fees and other amounts that they receive in connection with their service to a Fund as broker, dealer, agent, lender, adviser or in other commercial capacities. No accounting to a Fund or its shareholders will be required, and no fees or
other compensation payable by a Fund or its shareholders will be reduced by reason of receipt by BlackRock of any such fees or other amounts.
When
BlackRock acts as broker, dealer, agent, adviser or in other commercial capacities in relation to a Fund, BlackRock may take commercial steps in its own interests, which may have an adverse effect on such Fund.
A Fund will be required to establish business relationships with its counterparties based on such Funds own credit standing. BlackRock will not have any
obligation to allow its credit to be used in connection with a Funds establishment of its business relationships, nor is it expected that a Funds counterparties will rely on the credit of BlackRock in evaluating such Funds
creditworthiness.
35
BlackRock Investment Management, LLC (BIM), an affiliate of BlackRock, pursuant to SEC exemptive
relief, acts as securities lending agent to, and receives a share of securities lending revenues from, a Fund. BIM may receive compensation for managing the reinvestment of the cash collateral from securities lending. There are potential conflicts
of interests in managing a securities lending program, including but not limited to: (i) BIM as securities lending agent may have an incentive to increase or decrease the amount of securities on loan or to lend particular securities in order to
generate additional risk-adjusted revenue for BIM and its affiliates; and (ii) BIM as securities lending agent may have an incentive to allocate loans to clients that would provide more revenue to BIM. As described further below, BIM seeks to
mitigate this conflict by providing its securities lending clients with equal lending opportunities over time in order to approximate pro rata allocation.
As part of its securities lending program, BlackRock indemnifies certain clients and/or funds against a shortfall in collateral in the event of borrower
default. RQA calculates, on a regular basis, BlackRocks potential dollar exposure to the risk of collateral shortfall upon counterparty default (shortfall risk) under the securities lending program for both indemnified and non-indemnified clients. On a periodic basis, RQA also determines the maximum amount of potential indemnified shortfall risk arising from securities lending activities (indemnification exposure limit)
and the maximum amount of counterparty-specific credit exposure (credit limits) BlackRock is willing to assume as well as the programs operational complexity. RQA oversees the risk model that calculates projected shortfall values
using loan-level factors such as loan and collateral type and market value as well as specific borrower counterparty credit characteristics. When necessary, RQA may further adjust other securities lending program attributes by restricting eligible
collateral or reducing counterparty credit limits. As a result, the management of the indemnification exposure limit may affect the amount of securities lending activity BlackRock may conduct at any given point in time and impact indemnified and non-indemnified clients by reducing the volume of lending opportunities for certain loans (including by asset type, collateral type and/or revenue profile).
BlackRock uses a predetermined systematic process in order to approximate pro rata allocation over time. In order to allocate a loan to a portfolio:
(i) BlackRock as a whole must have sufficient lending capacity pursuant to the various program limits (i.e. indemnification exposure limit and counterparty credit limits); (ii) the lending portfolio must hold the asset at the time a loan
opportunity arrives; and (iii) the lending portfolio must also have enough inventory, either on its own or when aggregated with other portfolios into one single market delivery, to satisfy the loan request. In doing so, BlackRock seeks to
provide equal lending opportunities for all portfolios, independent of whether BlackRock indemnifies the portfolio. Equal opportunities for lending portfolios does not guarantee equal outcomes. Specifically, short and long-term outcomes for
individual clients may vary due to asset mix, asset/liability spreads on different securities, and the overall limits imposed by the firm.
Purchases and
sales of securities and other assets for a Fund may be bunched or aggregated with orders for other BlackRock client accounts, including with accounts that pay different transaction costs solely due to the fact that they have different research
payment arrangements. BlackRock, however, is not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if they determine that bunching or aggregating is not practicable or required, or
in cases involving client direction.
Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire
volume of securities purchased or sold. When this occurs, the various prices may be averaged, and a Fund will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of a
Fund. In addition, under certain circumstances, a Fund will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
As discussed in the section entitled Portfolio Transactions and Brokerage in this SAI, BlackRock, unless prohibited by applicable law, may cause a
Fund or account to pay a broker or dealer a commission for effecting a transaction that exceeds the amount another broker or dealer would have charged for effecting the same transaction in recognition of the value of brokerage and research services
provided by that broker or dealer.
Subject to applicable law, BlackRock may select brokers that furnish BlackRock, a Fund, other BlackRock client
accounts or personnel, directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRocks view, appropriate assistance to BlackRock in the investment decision-making process (including
with respect to futures, fixed-price offerings and OTC transactions). Such research or other services may include, to the extent permitted by law, research reports on companies, industries and securities; economic and financial data; financial
publications; proxy analysis; trade industry seminars; computer data bases; research-oriented software and other services and products.
36
Research or other services obtained in this manner may be used in servicing any or all of a Fund and other
BlackRock client accounts, including in connection with BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements. Such products and services may disproportionately benefit
other BlackRock client accounts relative to a Fund based on the amount of brokerage commissions paid by such Fund and such other BlackRock client accounts. For example, research or other services that are paid for through one clients
commissions may not be used in managing that clients account. In addition, other BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts in connection with products and
services that may be provided to a Fund and to such other BlackRock client accounts. To the extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock, unless prohibited by applicable law, may endeavor to execute trades through brokers who, pursuant to such arrangements, provide research or other
services in order to ensure the continued receipt of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time to time choose not to engage in the above described arrangements to
varying degrees. BlackRock, unless prohibited by applicable law, may also enter into commission sharing arrangements under which BlackRock may execute transactions through a broker-dealer and request that the broker-dealer allocate a portion of the
commissions or commission credits to another firm that provides research to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts related to traditional soft dollars may exist.
BlackRock may utilize certain electronic crossing networks (ECNs) (including, without limitation, ECNs in which BlackRock has an investment or
other interest, to the extent permitted by applicable law) in executing client securities transactions for certain types of securities. These ECNs may charge fees for their services, including access fees and transaction fees. The transaction fees,
which are similar to commissions or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included in the cost of the securities purchased. Access fees may be paid by BlackRock even
though incurred in connection with executing transactions on behalf of clients, including a Fund. In certain circumstances, ECNs may offer volume discounts that will reduce the access fees typically paid by BlackRock. BlackRock will only utilize
ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock owns a minority interest in, and is a member of,
Members Exchange (MEMX), a newly created U.S. stock exchange. Transactions for a Fund may be executed on MEMX if third party brokers select MEMX as the appropriate venue for execution of orders placed by BlackRock traders on behalf of
client portfolios.
BlackRock has adopted policies and procedures designed to prevent conflicts of interest from influencing proxy voting decisions
that it makes on behalf of advisory clients, including a Fund, and to help ensure that such decisions are made in accordance with BlackRocks fiduciary obligations to its clients. Nevertheless, notwithstanding such proxy voting policies and
procedures, actual proxy voting decisions of BlackRock may have the effect of favoring the interests of other clients or businesses of other divisions or units of BlackRock, provided that BlackRock believes such voting decisions to be in accordance
with its fiduciary obligations. For a more detailed discussion of these policies and procedures, see Appendix C.
It is possible that a Fund
may invest in securities of, or engage in transactions with, companies in which BlackRock has significant debt or equity investments or other interests. A Fund may also invest in issuances (such as structured notes) by entities for which BlackRock
provides and is compensated for cash management services relating to the proceeds from the sale of such issuances. In making investment decisions for a Fund, BlackRock is not permitted to obtain or use material
non-public information acquired by any unit of BlackRock, in the course of these activities. In addition, from time to time, the activities of BlackRock may limit a Funds flexibility in purchases and
sales of securities. As indicated below, BlackRock may engage in transactions with companies in which BlackRock-advised funds or other clients of BlackRock have an investment.
BlackRock and Chubb Limited (Chubb), a public company whose securities are held by BlackRock-advised funds and other accounts, partially funded
the creation of a re-insurance company (Re Co) pursuant to which each has approximately a 9.9% ownership interest and each has representation on the board of directors. Certain employees
37
and executives of BlackRock have a less than 1⁄2 of 1% ownership interest in Re Co. BlackRock manages the
investment portfolio of Re Co, which is held in a wholly-owned subsidiary. Re Co participates as a reinsurer with reinsurance contracts underwritten by subsidiaries of Chubb.
BlackRock may provide valuation assistance to certain clients with respect to certain securities or other investments and the valuation recommendations made
for such clients accounts may differ from the valuations for the same securities or investments assigned by a Funds pricing vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to a
Funds pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Funds pricing vendors and/or fund accountants, there may be instances where a Funds pricing vendors or fund
accountants assign a different valuation to a security or other investment than the valuation for such security or investment determined or recommended by BlackRock.
As disclosed in more detail in Net Asset Value in the Joint Proxy Statement/Prospectus, when market quotations are not readily available or are
believed by BlackRock to be unreliable, a Funds investments are valued at fair value by BlackRock, in accordance with procedures adopted by a Funds Board of Directors. When determining a fair value price, BlackRock seeks to
determine the price that a Fund might reasonably expect to receive from the current sale of that asset or liability in an arms-length transaction. The price generally may not be determined based on what
a Fund might reasonably expect to receive for selling an asset or liability at a later time or if it holds the asset or liability to maturity. While fair value determinations will be based upon all available factors that BlackRock deems relevant at
the time of the determination, and may be based on analytical values determined by BlackRock using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of an asset or liability. The fair
value of one or more assets or liabilities may not, in retrospect, be the price at which those assets or liabilities could have been sold during the period in which the particular fair values were used in determining a Funds NAV. As a result,
a Funds sale or repurchase of its shares at NAV, at a time when a holding or holdings are valued by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing
shareholders and may affect the amount of revenue received by BlackRock with respect to services for which it receives an asset-based fee.
To the extent
permitted by applicable law, a Fund may invest all or some of its short term cash investments in any money market fund or similarly-managed private fund advised or managed by BlackRock. In connection with any such investments, a Fund, to the extent
permitted by the 1940 Act, may pay its share of expenses of a money market fund or other similarly-managed private fund in which it invests, which may result in a Fund bearing some additional expenses.
BlackRock and its directors, officers and employees, may buy and sell securities or other investments for their own accounts and may have conflicts of
interest with respect to investments made on behalf of a Fund. As a result of differing trading and investment strategies or constraints, positions may be taken by directors, officers and employees of BlackRock that are the same, different from or
made at different times than positions taken for a Fund. To lessen the possibility that a Fund will be adversely affected by this personal trading, a Fund and the Investment Advisor each have adopted a Code of Ethics in compliance with
Section 17(j) of the 1940 Act that restricts securities trading in the personal accounts of investment professionals and others who normally come into possession of information regarding a Funds portfolio transactions. Each Code of Ethics
is also available on the EDGAR Database on the SECs Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov.
BlackRock will not purchase securities or other property from, or sell securities or other property to, a Fund, except that such Fund may in accordance with
rules or guidance adopted under the 1940 Act engage in transactions with accounts that are affiliated with a Fund as a result of common officers, directors, or investment advisers or pursuant to exemptive orders granted to such Fund and/or BlackRock
by the Commission. These transactions would be effected in circumstances in which BlackRock determined that it would be appropriate for a Fund to purchase and another client of BlackRock to sell, or such Fund to sell and another client of BlackRock
to purchase, the same security or instrument on the same day. From time to time, the activities of a Fund may be restricted because of regulatory requirements applicable to BlackRock and/or BlackRocks internal policies designed to comply with,
limit the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of
transactions, or may otherwise restrict or limit its advice in certain securities or instruments issued by or related to
38
companies for which BlackRock is performing advisory or other services or has proprietary positions. For example, when BlackRock is engaged to provide advisory or risk management services for a
company, BlackRock may be prohibited from or limited in purchasing or selling securities of that company on behalf of a Fund, particularly where such services result in BlackRock obtaining material non-public
information about the company (e.g., in connection with participation in a creditors committee). Similar situations could arise if personnel of BlackRock serve as directors of companies the securities of which a Fund wishes to purchase or
sell. However, if permitted by applicable law, and where consistent with BlackRocks policies and procedures (including the necessary implementation of appropriate information barriers), a Fund may purchase securities or instruments that are
issued by such companies, are the subject of an advisory or risk management assignment by BlackRock, or where personnel of BlackRock are directors or officers of the issuer.
The investment activities of BlackRock for its proprietary accounts and for client accounts may also limit the investment strategies and rights of a Fund. For
example, in certain circumstances where a Fund invests in securities issued by companies that operate in certain regulated industries, in certain emerging or international markets, or are subject to corporate or regulatory ownership restrictions, or
invest in certain futures and derivative transactions, there may be limits on the aggregate amount invested by BlackRock for its proprietary accounts and for client accounts (including a Fund) that may not be exceeded without the grant of a license
or other regulatory or corporate consent, or, if exceeded, may cause BlackRock, a Fund or other client accounts to suffer disadvantages or business restrictions. If certain aggregate ownership thresholds are reached or certain transactions
undertaken, the ability of BlackRock on behalf of clients (including a Fund) to purchase or dispose of investments, or exercise rights or undertake business transactions, may be restricted by regulation or otherwise impaired. As a result, BlackRock
on behalf of its clients (including a Fund) may limit purchases, sell existing investments, or otherwise restrict, forgo or limit the exercise of rights (including transferring, outsourcing or limiting voting rights or forgoing the right to receive
dividends) when BlackRock, in its sole discretion, deems it appropriate in light of potential regulatory or other restrictions on ownership or other consequences resulting from reaching investment thresholds.
In those circumstances where ownership thresholds or limitations must be observed, BlackRock seeks to allocate limited investment opportunities equitably
among clients (including a Fund), taking into consideration benchmark weight and investment strategy. When ownership in certain securities nears an applicable threshold, BlackRock may limit purchases in such securities to the issuers weighting
in the applicable benchmark used by BlackRock to manage a Fund. If client (including a Fund) holdings of an issuer exceed an applicable threshold and BlackRock is unable to obtain relief to enable the continued holding of such investments, it may be
necessary to sell down these positions to meet the applicable limitations. In these cases, benchmark overweight positions will be sold prior to benchmark positions being reduced to meet applicable limitations.
In addition to the foregoing, other ownership thresholds may trigger reporting requirements to governmental and regulatory authorities, and such reports may
entail the disclosure of the identity of a client or BlackRocks intended strategy with respect to such security or asset.
BlackRock may maintain
securities indices. To the extent permitted by applicable laws, a Fund may seek to license and use such indices as part of their investment strategy. Index based funds that seek to track the performance of securities indices also may use the name of
the index or index provider in the fund name. Index providers, including BlackRock (to the extent permitted by applicable law), may be paid licensing fees for use of their index or index name. BlackRock is not obligated to license its indices to a
Fund and such Fund is under no obligation to use BlackRock indices. A Fund cannot be assured that the terms of any index licensing agreement with BlackRock will be as favorable as those terms offered to other licensees.
BlackRock may not serve as an Authorized Participant in the creation and redemption of BlackRock-advised ETFs.
BlackRock may enter into contractual arrangements with third-party service providers to a Fund (e.g., custodians, administrators and index providers) pursuant
to which BlackRock receives fee discounts or concessions in recognition of BlackRocks overall relationship with such service providers. To the extent that BlackRock is responsible for paying these service providers out of its management fee,
the benefits of any such fee discounts or concessions may accrue, in whole or in part, to BlackRock.
39
BlackRock owns or has an ownership interest in certain trading, portfolio management, operations and/or
information systems used by a Funds service providers. These systems are, or will be, used by a Fund service provider in connection with the provision of services to accounts managed by BlackRock and funds managed and sponsored by BlackRock,
including a Fund, that engage the service provider (typically the custodian). A Funds service provider remunerates BlackRock for the use of the systems. A Funds service providers payments to BlackRock for the use of these systems
may enhance the profitability of BlackRock.
BlackRocks receipt of fees from a service provider in connection with the use of systems provided by
BlackRock may create an incentive for BlackRock to recommend that a Fund enter into or renew an arrangement with the service provider.
In recognition of
a BlackRock clients overall relationship with BlackRock, BlackRock may offer special pricing arrangements for certain services provided by BlackRock. Any such special pricing arrangements will not affect a Funds fees and expenses
applicable to such clients investment in a Fund.
Present and future activities of BlackRock and its directors, officers and employees, in addition
to those described in this section, may give rise to additional conflicts of interest.
OTHER INFORMATION
Code of Ethics
Each
Fund and the Investment Advisor has adopted a code of ethics (the Code of Ethics) in compliance with Section 17(j) of the 1940 Act and Rule 17j-1 thereunder. Each Code of Ethics establishes
procedures for personal investing and restricts certain transactions. Employees subject to a Code of Ethics may invest in securities for their personal investment accounts, including making investments in securities that may be purchased or held by
a Fund. The Codes of Ethics are available on the EDGAR Database on the SECs website at www.sec.gov.
Copies of the Codes of Ethics may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
Proxy Voting Policy
The Board of each Fund has delegated the voting of proxies for its Funds securities to the Investment Advisor
pursuant to the Investment Advisors proxy voting guidelines. Under these guidelines, the Investment Advisor will vote proxies related to Fund securities in the best interests of the Funds and their shareholders. From time to time, a vote may
present a conflict between the interests of a Funds shareholders, on the one hand, and those of the Investment Advisor, or any affiliated person of such Fund or the Investment Advisor, on the other. In such event, provided that the Investment
Advisors Equity Investment Policy Oversight Committee, or a sub-committee thereof (the Committee) is aware of the real or potential conflict, if the matter to be voted on represents a
material, non-routine matter and if the Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote
impartially, the Committee may retain an independent fiduciary to advise the Committee on how to vote or to cast votes on behalf of the Investment Advisors clients. If the Investment Advisor determines not to retain an independent fiduciary,
or does not desire to follow the advice of such independent fiduciary, the Committee shall determine how to vote the proxy after consulting with the Investment Advisors Portfolio Management Group and/or the Investment Advisors
Legal & Compliance Department and concluding that the vote cast is in its clients best interest notwithstanding the conflict. A copy of the Funds Proxy Voting Policy and Procedures is included as Appendix C to this
Statement of Additional Information. Information on how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at
www.blackrock.com and (ii) on the SECs website at http://www.sec.gov.
FINANCIAL STATEMENTS
The financial statements of the Acquiring Fund for the fiscal year ended July 31, 2021 are incorporated by reference herein to the Acquiring
Funds annual report filed on Form N-CSR on October 4, 2021.
40
The financial statements of MYJ for the fiscal year ended July 31, 2021 are incorporated by reference herein
to MYJs annual report filed on Form N-CSR on October 4, 2021.
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial information set forth herein is for informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the Reorganization had been consummated. The closing of each Reorganization is contingent upon certain conditions being satisfied, including that shareholders of each Target Fund must approve
the Agreement and Plan of Reorganization between the respective Target Fund and the Acquiring Fund and that shareholders of the Acquiring Fund must approve the issuance of additional Acquiring Fund common shares in connection with each
Reorganization. These pro forma numbers have been estimated in good faith based on information regarding each Fund as of July 31, 2021.
The
unaudited pro forma information provided herein should be read in conjunction with the Annual Report of MYJ and the Acquiring Fund, dated July 31, 2021, each of which is on file with the SEC and are available at no charge. Further
information on obtaining the Annual Report may be found on page (vi) of the Joint Proxy Statement/Prospectus.
The Reorganization is intended to
consolidate the Target Fund with a similar fund advised by the Investment Advisor.
The Funds have the same investment adviser, transfer agent, accounting
services agent and custodian. Each of such service providers has entered into an agreement with each Fund, which governs the provision of services to that Fund. Such agreements contain the same terms with respect to each Fund except for the
Investment Management Agreement. Each Fund entered into an Investment Management Agreement with the Investment Advisor to provide investment advisory services.
Each Fund currently pays the Investment Advisor a monthly fee at an annual contractual investment management fee rate of 0.50% of the average daily value of
its net assets. For purposes of calculating these fees, net assets means the total assets of each 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).
If the Reorganization is consummated, the annual contractual investment management fee rate of the Acquiring Fund
will be the annual contractual investment management fee rate of the Combined Fund, which will be 0.50% of the average daily net assets of the Combined Fund.
The unaudited pro forma information set forth below as of July 31, 2021 is intended to present supplemental data as if the Reorganization had been
consummated on August 1, 2020.
As of July 31, 2021, MYJ had approximately
$394.9 million in net assets and approximately $627.4 million in managed assets and the Acquiring Fund had approximately $490.2 million in net assets and approximately $788.8 million in managed assets. Managed
assets means the total assets of the relevant Fund, including any assets attributable to VRDP Shares and tender option bond (TOB) trusts, minus the sum of accrued liabilities. In the Reorganization, the outstanding common shares of
the Target Fund will be exchanged for newly issued common shares of the Acquiring Fund, par value $0.10 per share. The aggregate net asset value (not the market value) of Acquiring Fund common shares received by the shareholders of the Target Fund
in the Reorganization will equal the aggregate net asset value (not the market value) of Target Fund common shares held by such shareholders immediately prior to such Reorganization, less the distribution of undistributed net investment income
(although shareholders may receive cash for their fractional common shares). The aggregate NAV of each Fund immediately prior to the applicable Reorganization will reflect accrued expenses associated with such Reorganization. The amount of increased
common shares of 24,288,225 was calculated based on net asset value of the Acquiring Fund common shares of $15.91 in exchange for common shares of the Target Fund.
If the Reorganization is not consummated, then the Target Fund will continue to operate as a standalone Maryland corporation and the Acquiring Fund will
continue to operate as a standalone Maryland corporation. Both the Target Fund and the Acquiring Fund will continue to be advised by the Investment Advisor. If the Reorganization is not consummated, the Investment Advisor may recommend alternative
proposals to the Board of each Fund.
41
Assuming the Reorganization is approved by shareholders, upon the Closing Date of the Reorganization,
Target Fund VRDP Holders will receive on a one-for-one basis one newly issued Acquiring Fund VRDP Share, par value $0.10 per share and with a liquidation
preference of $100,000 per share (plus any accumulated and unpaid dividends that have accrued on the Target Fund VRDP Shares up to and including the day immediately preceding the Closing Date of the Reorganization if such dividends have not been
paid prior to the Closing Date), in exchange for the Target Fund VRDP Share held by the Target Fund VRDP Holders immediately prior to the Closing Date. The newly issued Acquiring Fund VRDP Shares may be of the same series as the Acquiring
Funds Series W-7 VRDP Shares or a substantially identical series. No fractional Acquiring Fund VRDP Shares will be issued.
The terms of the Acquiring Fund VRDP Shares to be issued in connection with the Reorganization will be identical to the terms of the Acquiring Funds
outstanding VRDP Shares and will rank on parity with the Acquiring Funds outstanding VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Acquiring Fund.
The newly issued Acquiring Fund VRDP Shares will be subject to the same special rate period (including the terms thereof) applicable to the outstanding Acquiring Fund VRDP Shares as of the Closing Date of the Reorganization. Such special rate period
will terminate on April 15, 2022, unless extended (as described below). The Reorganization will not result in any changes to the terms of the Acquiring Funds VRDP Shares currently outstanding.
The newly issued Acquiring Fund VRDP Shares will have terms that are substantially similar to the terms of the outstanding Target Fund VRDP Shares, with
certain differences. The VRDP Shares of MYJ have a mandatory redemption date of May 1, 2041, while the newly issued Acquiring Fund VRDP Shares are expected to have a mandatory redemption date of July 1, 2041. A Fund may designate any
succeeding subsequent rate period of the VRDP Shares as a special rate period subject to the restrictions and requirements set forth in the governing instrument for such Funds VRDP Shares. During a special rate period, a Fund may
choose to modify the terms of the VRDP Shares as permitted by the governing instrument for such Funds VRDP Shares, including, for example, special provisions relating to the calculation of dividends and the redemption of the VRDP Shares. The
VRDP Shares of the Acquiring Fund and MYJ are currently in a one year Special Rate Period that will end on April 15, 2022 for the Acquiring Fund and June 17, 2022 for MYJ, unless extended. The terms currently applicable to the VRDP Shares
of the Acquiring Fund and MYJ during their respective Special Rate Periods are otherwise substantially similar, including that each Funds dividend rate is based on the sum of the Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index and a percentage per annum based on the long-term ratings assigned to the Funds VRDP Shares. See Information About the Preferred Shares of the Funds in the Joint Proxy Statement/Prospectus for additional
information about the preferred shares of each Fund.
The unaudited pro forma information set forth below for the period ended July 31, 2021
is intended to present ratios and supplemental data as if the Reorganization had been consummated at July 31, 2021.
On a pro forma basis for the twelve months ended July 31, 2021, the proposed Reorganization would result in no change to the investment advisory
fees charged, a decrease in other operating expenses (including custody, legal, accounting and audit fees) of $259,724 and no change to investment advisory fee waivers.
For the fiscal year ended July 31, 2021, the total annual portfolio operating expenses of the Acquiring Fund and MYJ were 0.89% and 0.89%,
respectively, and the total annual portfolio operating expense ratio of the Acquiring Fund and MYJ were 1.44% and 1.39% respectively. Assuming the Reorganization is consummated, the Combined Funds net annual portfolio operating expense
ratio (excluding interest expenses) is expected to be 0.86% on a historical and pro forma basis for the fiscal year July 31, 2021.
No significant accounting policies will change as a result of the proposed Reorganization, specifically, policies regarding valuation and Subchapter M
compliance. As of July 31, 2021, all the securities held by the Target Fund complies with the compliance guidelines and/or investment restrictions of the Acquiring Fund. It is not anticipated that the Acquiring Fund will sell any securities of
the Target Fund acquired in the Reorganization other than in the ordinary course of business.
42
The Reorganization is expected to be tax free for federal income tax purposes. This means that no gain or loss
will be recognized by the Target Fund or its shareholders as a result of the Reorganization. The aggregate tax basis of the Acquiring Fund Shares received by the shareholders of the Target Fund will be the same as the aggregate tax basis the
shareholders of the Target Fund held in its shares of the Target Fund immediately before the Reorganization.
Accounting Survivor: The Acquiring
Fund is deemed to be the accounting survivor in connection with the Reorganization.
Cost of Reorganization: Regardless of whether
the Reorganization is completed, the costs associated with the proposed Reorganization, including the costs associated with the stockholder meetings, will be borne directly by the respective Fund incurring the expense, except that the Investment
Advisor has agreed to bear a portion of each Funds costs of the Reorganization. The estimated expenses of the Reorganization attributable to each Fund, which include the amount to be paid by the Investment Advisor, are as follows:
|
|
|
Estimated Reorganization
Expenses
|
Target Fund
(MYJ)
|
|
Acquiring Fund
(MUJ)
|
$ 366,537
|
|
$357,561
|
Undistributed Net Investment Income: If the Reorganization is approved by shareholders, then the greater of
(1) substantially all of the undistributed net investment income, if any, or (2) the monthly distribution of each Fund is expected to be declared to such Funds common shareholders prior to the Closing Date. As of July 31, 2021,
the amount of undistributed net investment income for each Fund was as follows:
|
|
|
Undistributed Net Investment
Income
|
Target Fund (MYJ)
|
|
Acquiring Fund (MUJ)
|
$1,079,317
|
|
$1,862,353
|
43
Capital Loss Carryforwards: As of July 31, 2021, the Funds unused capital loss carryforwards,
which have no expiration date and may be carried forward indefinitely, were as follows:
|
|
|
Capital Loss Carryforward
Amount
|
Target Fund
(MYJ)
|
|
Acquiring Fund
(MUJ)
|
$(6,572,209)
|
|
$(8,621,838)
|
44
APPENDIX A
FACTORS AFFECTING MUNICIPAL SECURITIES IN NEW JERSEY
The following information constitutes only a brief summary of some of the general factors that may impact certain issuers of municipal bonds
and does not purport to be a complete or exhaustive description of all adverse conditions to which the issuers of municipal bonds held by BlackRock MuniYield New Jersey Fund, Inc. (the Fund) are subject. Additionally, many factors,
including national economic, social and environmental policies and conditions, which are not within the control of the issuers of the municipal bonds, could affect or could have an adverse impact on the financial condition of the issuers. The Fund
is unable to predict whether or to what extent such factors or other factors may affect the issuers of the municipal securities, the market value or marketability of the municipal securities or the ability of the respective issuers of the municipal
bonds acquired by the Fund to pay interest on or principal of the municipal securities. This information has not been independently verified.
Special Considerations Relating to New Jersey Municipal Obligations. The Fund will have considerable investments in New
Jersey municipal obligations. Accordingly, the Fund is susceptible to certain factors which could adversely affect issuers of New Jersey municipal obligations. The ability of issuers to pay interest on, and repay principal of, New Jersey municipal
obligations may be affected by: (1) amendments to the Constitution of the State of New Jersey (State) and other statutes that limit the taxing and spending authority of State government entities; (2) the general financial and
economic profile as well as the political climate of the State, its public authorities and political subdivisions; and (3) a change in State laws and regulations or subsequent court decisions that may affect, directly or indirectly, New Jersey
municipal obligations. The Funds yield and share price are sensitive to these factors as one or more of such factors could undermine New Jersey issuers efforts to borrow, inhibit secondary market liquidity and erode credit ratings.
Furthermore, it should be noted that the creditworthiness of obligations issued by local New Jersey issuers may be unrelated to the creditworthiness of obligations issued by the State and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
Summarized below are important financial concerns relating to the Funds
investments in New Jersey municipal obligations. This section is not intended to be an entirely comprehensive description of all risks involved in investing in New Jersey municipal obligations. The information in this section is intended to give a
recent historical description and is not intended to indicate future or continuing trends in the financial or other positions of the State. It should be noted that the information recorded here is based on the economic and budget data and forecasts
found in certain publications issued by the State between April 9, 2021 and September 16, 2021. The accuracy and completeness of the information in those publications have not been independently verified. Since the time that certain of
those resources were published, there have been (and may still be) significant changes in circumstances altering the economic and budget predictions found in those publications and presented here.
It is also important to note that each dollar amount referenced in this section has been truncated to one digit after the decimal, rounded up
or down to the appropriate dollar denomination. Because such dollar amounts generally reference large sums of money (e.g., millions or billions of dollars), the truncation and rounding of such dollar amounts may significantly differ from the
untruncated and unrounded dollar amounts.
State Demographics. New Jersey is the most densely populated state in the
nation, with an average density of 1,208 persons per square mile as of 2019. The State is a part of a megalopolis that extends from Washington D.C. in the south to Boston, Massachusetts in the north and includes over
one-fifth of the nations population. Thus, New Jersey is an attractive location for businesses due to its central location and ability to access both regional and world markets.
The following core industry clusters are the center of the States diverse economy: technology, transportation and logistics, health
care, financial services, biopharmaceuticals, and advanced manufacturing. There is also a strong commercial agriculture sector in the rural areas. The Jersey Shore, along the Atlantic Seaboard, is the focus of the States tourism
sector and includes casino gambling in Atlantic City. The State attracted over 110.8 million visitors in 2018 and 116.2 million visitors in 2019.
There were just under 8.9 million persons residing in New Jersey according to the latest population estimates from the U.S. Census
Bureau as of July 1, 2019. New Jerseys population has grown an average of 0.1% per year from 2010 to 2019. This is above the average annual growth rate of 0.03% and 0.08% for New York and Pennsylvania, respectively. It is below the
national growth rate of 0.7%. 30.3% of New Jerseys population is under the age of 25, lower than the national average of 31.4%. In addition, 16.6% of the States population is 65 years or older, similar to the national share of 16.4%.
A-1
41.2% of New Jersey residents 25 years of age or older have a bachelors degree or
higher in 2019. This is the third highest rate in the nation and above the national average of 33.1%. New Jersey is also a diverse state. At 23.4%, New Jersey has the second highest share of foreign-born residents, behind only California, and above
the national average of 13.7%. New Jersey also has the fourth highest percentage of residents that speak a language other than English at home at 32.2%. The State ranks behind only California, Texas, and New Mexico and is above the national
percentage of 22%.
New Jerseys total population grew by 0.9% from 2010 to 2019. However, New Jersey also experienced net domestic out-migration during this period. Net domestic out-migration was greatest for residents aged 18-24, followed by residents aged 60 and
over, according to data from the U.S. Censuss American Community Survey. New Jerseys overall population still grew despite net domestic out-migration because natural population growth and foreign in-migration offset the losses from net domestic out-migration during this period.
New Jersey state income tax return data also indicates that the higher-income population grew faster than the overall population from 2009 to
2019 (the most recent year for which data is available). The total number of resident returns grew 8.2% during this time. Growth in the higher-income population was greatest with returns reporting income between $500,000 and $1.0 million
growing by 112.9% and returns with income greater than $1.0 million growing by 95.1%.
State Economy. The
discussion that follows is primarily based on information published by the State Department of the Treasury in the 2021 Financial Report (as defined herein). All predictions and past performance information contained in this subsection were made on
or before that time even though they may be stated in the present tense and may no longer be accurate.
The COVID-19 Pandemic upended the economic outlook for New Jersey and the nation. Calendar Year 2020 started off well with the New Jersey labor market adding 23,000 jobs in the first two months, continuing the growth
trend of 2019 when 31,100 jobs were added. Economic growth in New Jersey strengthened in both 2018 and 2019, with real GDP expanding by an average of 1.5 percent per year, which was expected to continue into 2020.
The positive outlook changed quickly. The U.S. Department of Health and Human Services declared a public health emergency on January 31,
2020, which was followed by a declaration of a national emergency by the President of the United States on March 13, 2020. The Governor issued Executive Order No. 103 on March 9, 2020, whereby the Governor declared a public health
emergency and a state of emergency. However, the rapid spread of COVID-19 across the country forced many states to strengthen restrictions by issuing stay-at-home orders. The Governor issued a stay-at-home order, Executive Order No. 107 on
March 21, 2020. The Governors of New York and Pennsylvania issued similar stay-at-home orders shortly thereafter.
Payroll employment in New Jersey declined by a total of 717,200 jobs, or 17.0 percent, during March and April 2020 as a result of the COVID-19 Pandemic restrictions. Other states suffered similar declines with employment falling by 20.2 percent in New York and 18.5 percent in Pennsylvania. New Jerseys real GDP deteriorated at a
seasonally adjusted annual rate of 35.6 percent in the second quarter of 2020, in line with New Yorks 36.3 percent decline and Pennsylvanias 34.0 percent decline.
Job growth rebounded when states began to re-open their economies in May 2020. Payroll employment
grew by an average of 69,600 jobs per month in New Jersey from May to September 2020. However, growth subsequently plateaued because health considerations required that the COVID-19 Pandemic-related
restrictions remain in place. The State added 5,300 jobs in total from October 2020 to January 2021. The States unemployment rate, which peaked at 16.6 percent in April 2020, improved to 7.9 percent by January 2021.
Through January 2021, the New Jersey labor market recovered 49.3 percent of the total jobs lost from this past spring, which is below
the 59.8 percent share of Pennsylvania, but above the 46.1 percent share for New York. The brunt of the economic impact of the COVID-19 Pandemic has been borne by workers in low-wage sectors. The leisure & hospitality services sector (hotels, restaurants, & bars); trade, transportation & utilities sector (retail trade); and other
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services sector accounted for 57.4 percent of job losses in March and April 2020. As of January 2021, both the leisure & hospitality services sector (47.0 percent) and the other
services sector (46.9 percent) have recovered just under half of the jobs lost during Spring 2020.
Real GDP recovered in the third
quarter with economic activity in New Jersey growing at a seasonally adjusted annual rate of 37.2 percent, which was faster than the 35.5 percent rate of Pennsylvania and 30.3 percent rate of New York. The housing market has been a
bright spot during the recovery. While, according to the estimates of New Jersey Realtors Association, single-family home sales in New Jersey were 19.1 percent lower year-over-year from March to June 2020, they rebounded in July and August
2020, up 6.0 percent over the same period during the prior year. Sales then rapidly accelerated beginning in September 2020, higher by 34.0 percent on average over the last four months of 2020. Transaction prices have also risen sharply,
with the average price of a single-family home sale in 2020 reaching nearly $475,000, which is 16.3 percent higher than in 2019.
The substantial federal stimulus provided to businesses and households in the spring provided necessary support to the economic recovery. New
Jersey residents received $6.7 billion in Economic Impact Payments last spring, while businesses received $17.4 billion in Paycheck Protection Program loans through August 2020. Unemployed workers in New Jersey received $14.1 billion
in unemployment insurance benefits through newly established federal programs, including this past falls Lost Wage Assistance Program that was funded by the Federal Emergency Management Agency (FEMA).
New Jerseys Personal Income grew at a 40.8 percent annual rate in the second quarter of 2020 due to the significant federal
stimulus, even though wage and salary income declined by 31.3 percent. Wages and salaries rebounded in the third quarter, increasing at a 26.6 percent annual rate because of the strong job growth. However, Personal Income declined at an
8.7 percent annual rate in the third quarter of 2020 due to the phase-out of federal aid.
The economic outlook has improved recently for both New Jersey and the United States, though COVID-19
continues to determine the path of the economic recovery. Members of the Federal Open Market Committee (FOMC) estimate real GDP in the U.S. to grow 4.2 percent in 2021 according to the FOMCs December 2020 projection.
Economists surveyed by the Wall Street Journal are forecasting real GDP growth of 6.0 percent for the U.S. in 2021 according to the March survey, which is more than two full percentage points over the December 2020 average forecast of
3.7 percent. The improved outlook is based on the additional federal stimulus this spring as well as continued success in the rollout of COVID-19 vaccines..
State Budget. The State operates on a fiscal year beginning July 1 and ending June 30. Annual budgets are adopted
for the General Fund and certain special revenue funds. The Legislature enacts the annual budget through specific departmental appropriations, the sum of which may not exceed estimated resources. The State Constitution requires that the annual State
budget be balanced. Pursuant to the State Constitution, no money may be drawn from the State Treasury except for appropriations made by law. In addition, all monies for the support of State government and all other State purposes, as far as can be
reasonably ascertained or predicted, must be provided for in one general appropriation law covering the span of a single fiscal year. No general appropriations law or other law appropriating money for any State purpose may be enacted if the amount
of money appropriated, together with all other appropriations for that fiscal year, exceeds the total amount of revenue available (current and anticipated) for such fiscal year, as certified by the Governor.
Debt Limitations. The State Constitution provides, in part, that the State Legislature shall not, in any manner, create in
any fiscal year a debt or liability of the State, which, together with any previous debts or liabilities, shall exceed at any time one percent of the total appropriations for such year, unless the same shall be authorized by a law for some single
object or work distinctly specified therein. No such law shall take effect until submitted to the people at a general election and approved by a majority of the legally qualified voters voting thereon; provided, however, no such voter approval is
required for any such law authorizing the creation of a debt for a refinancing of all or any portion of the outstanding debts or liabilities of the State, so long as such refinancing produces a debt service savings. Furthermore, any funds raised
under these authorizations must be applied only to the specific object stated therein. The State Constitution provides as to any law authorizing such debt: Regardless of any limitation relating to taxation in this Constitution, such law shall
provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be
repealed until such debt or liability and the interest thereon are fully paid and
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discharged. This constitutional provision does not apply to the creation of debts or liabilities for purposes of war, or to repel invasion, or to suppress insurrection or to meet
emergencies caused by disaster or act of God (Article VIII, Sec. 2, para. 3) (the Debt Limitation Clause). The Debt Limitation Clause was amended by voters on November 4, 2008. The amendment provides that, beginning after the
effective date of the amendment, the State Legislature is prohibited from enacting any law that creates or authorizes the creation of a debt or liability of an autonomous State corporate entity, which debt or liability has a pledge of an annual
appropriation as the means to pay the principal of and interest on such debt or liability, unless a law authorizing the creation of that debt or liability for some single object or work distinctly specified therein is submitted to the people and
approved by a majority of the legally qualified voters of the State voting thereon at a general election. The constitutional amendment does not require voter approval for any such law providing the means to pay the principal of and interest on such
debt or liability subject to appropriations of an independent non-State source of revenue paid by third persons for the use of the single object or work thereof, or from a source of State revenue
otherwise required to be appropriated pursuant to another provision of the State Constitution. Furthermore, voter approval is not needed for any law providing for the refinancing of all or a portion of any outstanding debts or liabilities of the
State or of an autonomous State corporate entity provided that such law requires that the refinancing produces debt service savings, or for any law authorizing the issuance of general obligation bonds to meet an emergency caused by a disaster.
State Funds. The States financial accounting is organized by funds which are accounting entities that segregate
financial resources according to the purposes for which they may be used. Individual funds are grouped into one of the following categoriesGeneral State Funds, Special Revenue, Capital Projects, Proprietary and Private Purpose Trust Funds. .
General State Funds. These funds include the General Fund, Property Tax Relief Fund, Casino Revenue Fund, Casino
Control Fund and Gubernatorial Elections Fund.
The General Fund. This fund is the States chief operating fund and is
the fund into which all State revenues, not otherwise restricted by State statute, are deposited and from which appropriations are made. The largest part of the total financial operations of the State is accounted for in the General Fund. Revenues
received from most taxes, federal sources and certain miscellaneous revenue items are recorded in this fund. The Appropriations Act enacted by the State Legislature provides the basic framework for the operations of the General Fund.
The Property Tax Relief Fund. This fund accounts for revenues from the New Jersey Gross Income Tax and revenues derived from a tax
rate of 0.5% imposed under the Sales and Use Tax both of which are constitutionally dedicated toward property tax relief and reform. All receipts from taxes levied on personal income of individuals, estates and trusts must be appropriated
exclusively for the purpose of reducing or offsetting property taxes. Annual appropriations are made from the Property Tax Relief Fund, pursuant to formulas established by the Legislature, to counties, municipalities and school districts. During
fiscal year 2020, $16.7 billion of property tax relief expenditures were made. The Property Tax Relief Funds fiscal year 2020 ending fund balance was $80.7 million.
The Casino Revenue Fund. This fund consists of taxes imposed on the States casinos and other related activities including
internet gambling. Gross revenue refers to the total of all sums actually received by a licensee from gaming operations, less the total sums paid out as winnings to patrons. Appropriations from this fund must be used for reductions in property
taxes, utility charges and other specified expenses of eligible senior and disabled citizens.
The Casino Control Fund. This
fund consists of fees collected from the issuance and annual renewal of casino licenses. Appropriations are made to fund the operations of the Casino Control Commission and the Division of Gaming Enforcement.
The Gubernatorial Elections Fund. This fund is used to account for receipts from the one dollar designations on State Gross Income
Tax returns. When indicated by the taxpayer on a State gross income tax return, one dollar of the tax is taken from the individuals New Jersey Gross Income Tax revenues and credited to the Gubernatorial Elections Fund. Such funds are available
for appropriations pursuant to the New Jersey Campaign Contributions and Expenditures Reporting Act, as amended.
Special Revenue
Funds. These funds account for resources legally restricted to expenditure for specific purposes. While the Property Tax Relief, Casino Revenue, Casino Control and Gubernatorial Elections Funds fall into this category, they are included
under General State Funds as they make up an integral portion of the States annual budget.
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Capital Projects Funds. These funds are used to account for financial
resources, usually general obligation bonds, to be used for the acquisition or construction of major capital facilities for the State. The Capital Projects Funds includes the Special Transportation Fund which is used to account for financial
resources for State transportation projects. Other projects funded by these funds may include mental health, educational and correctional facilities and public transportation projects.
Proprietary Funds. These funds are used to account for any State activity that is operated similar to a private business
for which a fee is charged to external users for goods and services. Activities are required to be reported as proprietary funds if laws or regulations require that the activitys cost of providing services be recovered with fees and charges.
Because these funds charge fees to external users for goods and services, they are known as enterprise funds. Two such funds are the State Lottery Fund and the Unemployment Compensation Fund.
State Lottery Fund. Monies derived from the sale of State lottery tickets are deposited into this fund. Disbursements are
authorized for the payment of prizes to holders of winning lottery tickets, vendor fees in the production and distribution of lottery tickets, and for the administrative expenses of the Division of State Lottery. Available fund balances are solely
available to and for the benefit of the Teachers Pension and Annuity Fund (77.78%), Public Employees Retirement System (21.02%), and Police and Firemens Retirement System (1.20%) for a 30 year term effective as of June 30,
2017. In Fiscal year 2020, gross revenues totaled $3.3 billion of which $2.0 billion was returned in prizes; $987.0 million went to State education and institutions; $245.5 million was paid to sales agents and ticket vendors; and
$54.4 million covered lottery operational and promotional expenses. For Fiscal Year 2022, the State is expected to make a full contribution to the Pension Plans equal to $5,292.0 million. While the States contribution is reduced by
the Special Asset Adjustment, from a pension funding perspective, that reduction is expected to be offset by the net proceeds of the Lottery Enterprise that began flowing to the Pension Plans at the start of Fiscal Year 2018. The combined
contribution in Fiscal Year 2022 from the State, along with the Lottery Net Proceeds, will total $6,388.0 million.
Unemployment Compensation Fund. This fund accounts for monies deposited from contributions of employees and employers for
unemployment compensation, amounts credited or advanced by the U.S. Government and monies received from other sources. After consideration is given to any claim made for refund of overpayment of contributions, the Division of Employment Security
transfers the remainder to the U.S. Treasurer for credit to this fund. Under State law, the rates for employers are subject to automatic annual adjustment, as necessary, to maintain the Funds sufficiency. The Fund operates independently and
its obligations are not payable from the General Fund. To provide for sufficient cash flow to fund unemployment claims, the State can make a request to the U.S. Treasurer for advances on an as needed basis. In Fiscal Year 2020, contributions from
employers and workers were approximately $2.0 billion, while regular State unemployment benefits were $4.3 billion. As of June 30, 2020, the States trust fund balance, on a cash basis, was approximately $0.9 billion.
Private Purpose Trust Funds. These funds account for all trust fund arrangements for which principal and income benefit
individuals, private organizations or other governments.
Fiscal Year 2020 Summary. The State Department of the
Treasurys Office of Management and Budget (OMB) has released the audited Comprehensive Annual Financial Report for the fiscal year ended June 30, 2020 (2020 Financial Report). The 2020 Financial Report presents the
audited financial position and operating results of the State under generally accepted accounting principles (GAAP) applicable to state and local governments as established by the Governmental Accounting Standards Board
(GASB).
For fiscal year 2020, State revenues, including transfers, totaled $73.6 billion or an increase of
$7.7 billion when compared to the prior fiscal year after restatements. This increase in total revenues is primarily attributable to higher operating grants.
General taxes totaled $35.8 billion and operating grants totaled $26.1 billion, accounting for 48.7% and 35.5%, respectively, of
total State revenues for fiscal year 2020. The States Gross Income Tax totaled $16.3 billion; the Sales and Use Tax totaled $9.8 billion; and the Corporation Business Tax totaled $3.8 billion. The States three major taxes
comprised 83.3% of the total general taxes that were collected during fiscal year 2020. The States general taxes increased by $0.1 billion compared to fiscal year 2019.
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Fiscal year 2020 expenses totaled $75.5 billion, for an increase of $8.8 billion
after restatements in comparison to the prior fiscal year. State spending increased by $9.4 billion in the Unemployment Compensation Fund due to claims exceeding available resources.
According to the 2020 Financial Report, the General Funds 2020 fiscal year end balance totaled $7.2 billion, of which
$2.2 billion represented unassigned fund balance. During fiscal year 2020, the States total governmental fund balance increased by $0.5 billion.
The Surplus Revenue Fund is an account within the States General Fund that is used as a rainy day fund. Surplus revenue is
defined as an amount equivalent to 50% of the excess between the amount certified by the Governor at the time of the approval of the annual budget and the amount of General Fund revenue reported from the annual financial report of the General Fund
for that fiscal year. In response to the COVID-19 pandemic, the State transferred its Surplus Revenue Fund Fiscal Year 2019 deposit of $420.6 million to the General Fund to help balance the budget. As of
June 30, 2020, the States Surplus Revenue Fund had a balance of $6.7 million.
Total expenditures were $2.2 billion
lower than original appropriations as set forth in the annual Appropriations Act plus supplemental appropriations enacted during the fiscal year. A major cause for under-spending resulted from spending freezes and contractions enacted due to the
impact of the COVID-19 pandemic. During fiscal year 2020, the States appropriation of federal funds and other grants exceeded expenditures by $2.5 billion; these excess appropriations are available
for use in future years. From a fiscal year 2020 program perspective, under-spending transpired in community development and environmental management ($851.4 million); public safety and criminal justice ($535.1 million); economic planning,
development, and security ($113.7 million); transportation programs ($376.6 million); special government services ($13.4 million); government direction, management, and control ($1.2 billion); and offset by over-spending in educational, cultural,
and intellectual development ($611.9 million) and physical and mental health ($286.2 million).
On a budgetary basis, the General Fund
collected general revenues of $37.6 billion. Due to the impact of the COVID-19 pandemic, while these general revenues were $0.1 billion higher than final budget, this was $2.2 billion lower than
originally anticipated. The impact was the result of the pandemics effect on certain consumption taxes from March to June 2020, such as Sales and Use and other motor fuels taxes.
State Indebtedness. As of June 30, 2020, New Jerseys outstanding long-term obligations for governmental
activities totaled $204.2 billion, a $13.5 billion decrease over the prior fiscal year. Of the $13.5 billion decrease, primarily all is attributable to decreases in the Net Pension Liability and Net OPEB Liability. Additionally, there
was a decrease of $33.7 million in bonded debt and an $8.3 million decrease in all other non-bonded debt. Long-term bonded obligations totaled $44.4 billion, while other long-term obligations
totaled $159.8 billion. In addition, the State has $12.7 billion of legislatively authorized bonding capacity that has not yet been issued. As of June 30, 2020, the legislatively authorized but unissued debt decreased by
$1.8 billion from the prior fiscal year.
General Obligation Bonds. The State is empowered by voters to authorize, issue,
and incur debt subject to certain constitutional restrictions. General obligation bond acts are both legislatively and voter-approved, subject to certain contractual obligations, and are backed by the States full faith and credit. As of
June 30, 2020, the State had $1.6 billion of State general obligation bonds outstanding with another $768.2 million of bonding authorization remaining from various State general obligation bond acts. The amount provided by the
States General Fund for debt service payments for Fiscal year 2020 was $347.4 million.
The State has refunded various
outstanding general obligation bonds. Refunding bond proceeds are used to purchase and deposit United States Treasury ObligationsState and Local Government Series or open market U.S. Treasury Securities into a separate irrevocable trust fund
held by a trustee. The investments and the fixed earnings that accrue are sufficient to fully service the defeased debt until it is called or matures. For financial reporting purposes, the refunded debt is considered defeased at the time the
refunding bonds have been issued. Therefore, the refunded debt is removed as a liability from the States long-term obligations. During Fiscal Year 2020, $325.0 million of general obligation refunding bonds were issued by the State. As of
June 30, 2020, the amount of defeased general obligation debt outstanding, but removed from the States long-term obligations, amounted to zero.
Revenue Bonds. This debt classification represents bond issuances whose segment of debt service is derived solely from legally
restricted revenues. Revenue bonds include debt issued by the New Jersey Building Authority (NJBA), the Garden State Preservation Trust (GSPT), and the New Jersey Transportation Trust Fund Authority
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(TTFA). During Fiscal year 2020, the TTFA issued $2.6 billion of bonds, of which $1.6 billion were refunding bonds, that were issued in order to defease $1.6 billion of existing
debt. The liability on these refunded bonds has been removed from the States long-term obligations. Total debt service payments over the next 22 years were decreased by $204.0 million which resulted in $156.7 million in present value
savings. During Fiscal year 2020, no NJBA and GSPT debt was issued. Total authorized but unissued revenue bonds equal $10.1 billion as of June 30, 2020.
Installment Obligations. Installment Obligations represent agreements between the State and several authorities which have issued
bonds for the purpose of purchasing or constructing facilities to be rented by the State or to provide financing for other State projects. The State agrees to make payments equal to the corresponding authoritys debt service, subject to and
dependent upon appropriations being made from time to time by the State Legislature. At the conclusion of the term of the installment obligation agreement, title to the various facilities is transferred to the State, except in the case of the School
Facilities Construction Program. During Fiscal year 2020, these authorities issued $1.9 billion of bonds, of which $414.6 million were refunding bonds, that were issued in order to defease $395.3 million of existing debt. The
liability on these refunded bonds has been removed from the States long-term obligations. Total debt service payments over the next 13 years will decreased by $14.9 million and result in a net present value savings of $12.2 million.
The States installment obligations outstanding as of June 30, 2020 total $17.4 billion. Total authorized but unissued installment obligations equal $1.8 billion as of June 30, 2020.
Certificates of Participation. These obligations represent two separate contracts several lines of credit that were drawn on to
finance State equipment needs through the States master lease program, as well as an energy master lease program.
Short-Term
Debt. The State issues short-term debt instruments in the form of Tax and Revenue Anticipation Notes (TRAN) in advance of income tax and corporation business tax collections, depositing the proceeds in the General Fund. These
notes are used to provide effective cash management to fund the imbalances that occur between the collection of revenues and the disbursement of appropriations of the General Fund and Property Tax Relief Fund. For Fiscal Year 2020, the State, under
a resolution executed by the Treasurer on July 31, 2019, authorized the issuance of a $2.0 billion TRAN. On December 3, 2019, the State issued $1.5 billion of TRAN through a private placement. These notes bear interest from their
date of issuance through maturity or earlier redemption by the State at an adjustable rate per annum equal to the adjusted Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index rate plus 37 basis points. Due
to the State extending the Budget Fiscal Year end to September 30, 2020, an amendment to the notes was negotiated. This amendment changed the maturity of the notes to September 25, 2020, and the interest rate from April 15, 2020 to
maturity or earlier redemption by the State to 4.0%.
Tobacco Settlement Financing Corporation, Inc. In November 1998, the
State entered into a master settlement agreement (the MSA) with participating cigarette manufacturers, forty-six states, and six other U.S. jurisdictions in the settlement of certain
smoking-related litigation. During fiscal year 2003, the State sold to the newly established Tobacco Settlement Financing Corporation, Inc. (TSFC) the States right, title and beneficial ownership interest in the States right
to receive tobacco settlement payments under the MSA and decree of final judgment. In return, in 2002 and 2003, TSFC issued $3.5 billion of bonds to pay for the tobacco settlement rights. Proceeds of the two bond issuances were used to fund
General Fund expenditures during fiscal year 2003 and fiscal year 2004. During fiscal year 2007, $4.7 billion of refunding bonds were issued, of which $1.1 billion were capital appreciation bonds. The State retains 23.74% of the tobacco
settlement receipts.
During fiscal year 2003, the TSFC was presented as a discreet component unit of the State. Since then, the State
adopted GASB Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and Financial Reporting Entity Issues. As a result, the TSFC is required to be shown as a blended component unit
of the State. Bonds issued by the TSFC are the sole obligation of the TSFC. The State is not liable for any debt issued by the TSFC nor is the debt dependent on any dedicated stream of revenue generated by the State.
On March 7, 2014, the TSFC entered into a credit enhancement transaction. Pursuant to the
Series 2007-1B Pledge Agreement, the TSFC will pledge 15.99% of the Tobacco Settlement Revenues (TSRs) received on and after July 1, 2016 to be applied to the optional redemption of
the Series 2007-1B Bonds. Pursuant to the Series 2007-1C Pledge Agreement, the TSFC additionally pledged 7.75% of the TSRs received on and after July 1,
2016 to be applied to the optional redemption of the 2007-1C Bonds. All 2007 unpledged TSRs received prior to July 1, 2020 will continue to be paid to the State. As a result of these Pledge
Agreements, a bond enhancement premium of $96.5 million was received by the TSFC in Fiscal Year 2014, of which $91.6 million was paid to the State of New
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Jersey, in accordance with the Pledge Agreements, and the remaining $4.9 million was paid to the various professionals as a transaction fee to the State and the remaining $4.9 million
was paid to various professionals as a transaction fee.
On April 11, 2018, the TSFC issued Series 2018 A Senior Bonds in the amount
of $2.1 billion and Series 2018 B Subordinate Bonds in the amount of $1.0 billion. These bonds were issued to refund the balances of the Series 2007 Bonds. The liability on these refunded bonds has been removed from the TSFCs
long-term obligations. Total debt service payments over the next 27 years were decreased by $131.7 million and resulted in a net present value savings of $162.2 million. The MSA revenue received totaling $265.6 million in April 2018,
was transferred to the General Fund of the State of New Jersey. Master Settlement Revenues received subsequent to 2018 will remain in the TSFC. The proceeds of the Series 2018 Bonds are secured by TSFCs right, title, and interest in the
pledged TSRs, consisting of 100 percent of the tobacco assets received by the Corporation on or after December 1, 2018.
State Pension and Other Postemployment Benefits (OPEB) Obligations. Previously, the
State had not fully funded its various pension plans for several years, and its post-retirement medical program is primarily funded on
a pay-as-you-go basis. This continued underfunding on an actuarial basis has led to the States current Net
Pension Liability of $90.8 billion and a net OPEB obligation of $65.5 billion based on the current actuarial valuations which are as of June 30, 2020.
Ratings. New Jerseys various outstanding general obligation bonds were rated A with a negative outlook by
Fitch as of September 5, 2014, A3 by Moodys as of March 27, 2017, and A- by S&P as of November 14, 2016. Kroll Bond Rating Agency has also assigned an
A rating to New Jerseys general obligation debt. Ratings reflect only the respective views of such organizations, and an explanation of the significance of such ratings may be obtained from the rating agency that furnished the
rating. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely, if in the judgment of the agency originally establishing the rating,
circumstances so warrant. Any such downward revision or withdrawal could have an adverse effect on the market prices of the State general obligation bonds.
Litigation. At any given time, there can be various numbers of claims and cases pending against the State, State agencies
and employees, seeking recovery of monetary damages that are primarily paid out of the fund created pursuant to the New Jersey Tort Claims Act. At any given time there are also various numbers of claims seeking monetary damages or other relief,
which, if granted, would require the expenditure of funds. Additional cases pending or threatened in which the State has the potential for either a significant loss of revenue or a significant unanticipated expenditure can be found in the
States Official Statement concerning the general obligation bonds it issues.
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APPENDIX B
RATINGS OF INVESTMENTS
A Description
of Moodys Investors Service, Inc.s (Moodys) Global Rating Scales
Ratings assigned on Moodys global long-term and
short-term rating scales are forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project
finance vehicles, and public sector entities. Moodys defines credit risk as the risk that an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default or impairment. The
contractual financial obligations addressed by Moodys ratings are those that call for, without regard to enforceability, the payment of an ascertainable amount, which may vary based upon standard sources of variation (e.g., floating interest
rates), by an ascertainable date. Moodys rating addresses the issuers ability to obtain cash sufficient to service the obligation, and its willingness to pay. Moodys ratings do not address
non-standard sources of variation in the amount of the principal obligation (e.g., equity indexed), absent an express statement to the contrary in a press release accompanying an initial rating. Long-term
ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of
default or impairment. Short-term ratings are assigned for obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial
loss suffered in the event of default or impairment. Moodys issues ratings at the issuer level and instrument level on both the long-term scale and the short-term scale. Typically, ratings are made publicly available although private and
unpublished ratings may also be assigned.
Moodys differentiates structured finance ratings from fundamental ratings (i.e., ratings on nonfinancial
corporate, financial institution, and public sector entities) on the global long-term scale by adding (sf) to all structured finance ratings. The addition of (sf) to structured finance ratings should eliminate any presumption that such ratings and
fundamental ratings at the same letter grade level will behave the same. The (sf) indicator for structured finance security ratings indicates that otherwise similarly rated structured finance and fundamental securities may have different risk
characteristics. Through its current methodologies, however, Moodys aspires to achieve broad expected equivalence in structured finance and fundamental rating performance when measured over a long period of time.
Description of Moodys Global Long-Term Rating Scale
Aaa
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Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
|
Aa
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Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
|
A
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Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
|
Baa
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Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess
certain speculative characteristics.
|
Ba
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Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
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B
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Obligations rated B are considered speculative and are subject to high credit risk.
|
Caa
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Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
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Ca
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Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of
recovery of principal and interest.
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C
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Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of
principal or interest.
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B-1
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa
through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category. Additionally, a (hyb) indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms.
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment
if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security
is an expression of the relative credit risk associated with that security.
Description of Moodys Global Short-Term Rating Scale
P-1
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Ratings of Prime-1 reflect a superior ability to repay short-term
obligations.
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P-2
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Ratings of Prime-2 reflect a strong ability to repay short-term
obligations.
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P-3
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Ratings of Prime-3 reflect an acceptable ability to repay short-term
obligations.
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NP
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Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
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Description of Moodys U.S. Municipal Short-Term Debt and Demand Obligation Ratings
Description of Moodys Short-Term Obligation Ratings
Moodys uses the global short-term Prime rating scale for commercial paper issued by U.S. municipalities and nonprofits. These commercial paper programs
may be backed by external letters of credit or liquidity facilities, or by an issuers self-liquidity.
For other short-term municipal obligations,
Moodys uses one of two other short-term rating scales, the Municipal Investment Grade (MIG) and Variable Municipal Investment Grade (VMIG) scales discussed below.
Moodys uses the MIG scale for U.S. municipal cash flow notes, bond anticipation notes and certain other short-term obligations, which typically mature
in three years or less. Under certain circumstances, Moodys uses the MIG scale for bond anticipation notes with maturities of up to five years.
MIG Scale
MIG 1
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This designation denotes superior credit quality. Excellent protection is afforded by established cash flows,
highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
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MIG 2
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This designation denotes strong credit quality. Margins of protection are ample, although not as large as in
the preceding group.
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MIG 3
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This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and
market access for refinancing is likely to be less well-established.
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SG
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This designation denotes speculative-grade credit quality. Debt instruments in this category may lack
sufficient margins of protection.
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Description of Moodys Demand Obligation Ratings
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The components
are a long-term rating and a short-term demand obligation rating. The long-term rating addresses the issuers ability
B-2
to meet scheduled principal and interest payments. The short-term demand obligation rating addresses the ability of the issuer or the liquidity provider to make payments associated with the
purchase-price-upon-demand feature (demand feature) of the VRDO. The short-term demand obligation rating uses the VMIG scale. VMIG ratings with liquidity support use as an input the short-term Counterparty Risk Assessment of the support
provider, or the long-term rating of the underlying obligor in the absence of third party liquidity support. Transitions of VMIG ratings of demand obligations with conditional liquidity support differ from transitions on the Prime scale to reflect
the risk that external liquidity support will terminate if the issuers long-term rating drops below investment grade.
Moodys typically
assigns the VMIG short-term demand obligation rating if the frequency of the demand feature is less than every three years. If the frequency of the demand feature is less than three years but the purchase price is payable only with remarketing
proceeds, the short-term demand obligation rating is NR.
VMIG Scale
VMIG 1
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This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term
credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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VMIG 2
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This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit
strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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VMIG 3
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This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory
short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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SG
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This designation denotes speculative-grade credit quality. Demand features rated in this category may be
supported by a liquidity provider that does not have a sufficiently strong short-term rating or may lack the structural or legal protections necessary to ensure the timely payment of purchase price upon demand.
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Description of S&P Global Ratings (S&P), a Division of S&P Global Inc., Issue Credit Ratings
An S&P issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a
specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects S&Ps view of the obligors capacity and willingness to meet its financial commitments as they come
due, and this opinion may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue
credit ratings can be either long-term or short-term. Short-term issue credit ratings are generally assigned to those obligations considered short-term in the relevant market, typically with an original maturity of no more than 365 days. Short-term
issue credit ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. S&P would typically assign a long-term issue credit rating to an obligation with an original maturity of
greater than 365 days. However, the ratings S&P assigns to certain instruments may diverge from these guidelines based on market practices. Medium-term notes are assigned long-term ratings.
Issue credit ratings are based, in varying degrees, on S&Ps analysis of the following considerations:
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The likelihood of paymentthe capacity and willingness of the obligor to meet its financial commitments on
an obligation in accordance with the terms of the obligation;
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The nature and provisions of the financial obligation, and the promise S&P imputes; and
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The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights.
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B-3
An issue rating is an assessment of default risk but may incorporate an assessment of relative seniority or
ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated
obligations, secured and unsecured obligations, or operating company and holding company obligations.)
Long-Term Issue Credit Ratings*
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AAA
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An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial commitments on the obligation is extremely strong.
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AA
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An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitments on the obligation is very strong.
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A
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An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet its
financial commitments on the obligation is still strong.
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BBB
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An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligors capacity to meet its financial commitments on
the obligation.
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BB,
B,
CCC,
CC,
and C
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Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.
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BB
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An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to
the obligors inadequate capacity to meet its financial commitments on the obligation.
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B
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An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitments on the obligation. Adverse business, financial,
or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitments on the obligation.
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CCC
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An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation. In the event
of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
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CC
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An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred but S&P expects default to be a virtual certainty, regardless of the
anticipated time to default.
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C
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An obligation rated C is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated higher.
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D
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An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation
are not made on the date due, unless S&P believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The D rating
also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to D
if it is subject to a distressed debt restructuring.
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B-4
*
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Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the rating categories.
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Short-Term Issue Credit Ratings
A-1
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A short-term obligation rated A-1 is rated in the highest
category by S&P. The obligors capacity to meet its financial commitments on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet
its financial commitments on these obligations is extremely strong.
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A-2
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A short-term obligation rated A-2 is somewhat more
susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitments on the obligation is satisfactory.
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A-3
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A short-term obligation rated A-3 exhibits adequate
protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an obligors capacity to meet its financial commitments on the obligation.
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B
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A short-term obligation rated B is regarded as vulnerable and has significant speculative
characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties that could lead to the obligors inadequate capacity to meet its financial commitments.
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C
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A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation.
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D
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A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to D if it is subject to a distressed debt restructuring.
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Description of S&Ps Municipal Short-Term Note Ratings
An S&P U.S. municipal note rating reflects S&Ps opinion about the liquidity factors and market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&Ps analysis will
review the following considerations:
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Amortization schedulethe larger the final maturity relative to other maturities, the more likely it will be
treated as a note; and
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Source of paymentthe more dependent the issue is on the market for its refinancing, the more likely it will
be treated as a note.
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S&Ps municipal short-term note rating symbols are as follows:
SP-1
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Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay
debt service is given a plus (+) designation.
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SP-2
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Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic
changes over the term of the notes.
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B-5
SP-3
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Speculative capacity to pay principal and interest.
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D
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D is assigned upon failure to pay the note when due, completion of a distressed debt restructuring,
or the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions.
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Description of Fitch Ratings (Fitchs) Credit Ratings Scales
Fitch Ratings publishes opinions on a variety of scales. The most common of these are credit ratings, but the agency also publishes ratings, scores and other
relative opinions relating to financial or operational strength. For example, Fitch also provides specialized ratings of servicers of residential and commercial mortgages, asset managers and funds. In each case, users should refer to the definitions
of each individual scale for guidance on the dimensions of risk covered in each assessment.
Fitchs credit ratings relating to issuers are an
opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings relating to securities and obligations of an
issuer can include a recovery expectation. Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agencys credit ratings cover the
global spectrum of corporate, sovereign financial, bank, insurance, and public finance entities (including supranational and sub-national entities) and the securities or other obligations they issue, as well
as structured finance securities backed by receivables or other financial assets.
The terms investment grade and speculative
grade have established themselves over time as shorthand to describe the categories AAA to BBB (investment grade) and BB to D (speculative grade). The terms investment grade and speculative grade
are market conventions and do not imply any recommendation or endorsement of a specific security for investment purposes. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories either
signal a higher level of credit risk or that a default has already occurred.
For the convenience of investors, Fitch may also include issues relating to
a rated issuer that are not and have not been rated on its web page. Such issues are also denoted as NR.
Credit ratings express risk in
relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. For information about the historical performance of ratings please refer to Fitchs Ratings
Transition and Default studies which detail the historical default rates and their meaning. The European Securities and Markets Authority also maintains a central repository of historical default rates.
Fitchs credit ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss
on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer
to pay upon a commitment.
Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the
obligation to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of ratings assigned to individual
obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instruments documentation. In limited cases, Fitch may include
additional considerations (i.e. rate to a higher or lower standard than that implied in the obligations documentation).
The primary credit rating
scales can be used to provide a rating of privately issued obligations or certain note issuance programs or for private ratings. In this case the rating is not published, but only provided to the issuer or its agents in the form of a rating letter.
B-6
The primary credit rating scales may also be used to provide ratings for a more narrow scope, including interest
strips and return of principal or in other forms of opinions such as credit opinions or rating assessment services. Credit opinions are either a notch- or category-specific view using the primary rating scale and omit one or more characteristics of
a full rating or meet them to a different standard. Credit opinions will be indicated using a lower case letter symbol combined with either an * (e.g. bbb+*) or (cat) suffix to denote the opinion status. Credit opinions will
be point-in-time typically but may be monitored if the analytical group believes information will be sufficiently available. Rating assessment services are a
notch-specific view using the primary rating scale of how an existing or potential rating may be changed by a given set of hypothetical circumstances. While credit opinions and rating assessment services are point-in-time and are not monitored, they may have a directional watch or outlook assigned, which can signify the trajectory of the credit profile.
Description of Fitchs Long-Term Corporate Finance Obligations Rating Scales
Ratings of individual securities or financial obligations of a corporate issuer address relative vulnerability to default on an ordinal scale. In addition, for
financial obligations in corporate finance, a measure of recovery given default on that liability is also included in the rating assessment. This notably applies to covered bonds ratings, which incorporate both an indication of the probability of
default and of the recovery given a default of this debt instrument. On the contrary, Ratings of debtor-in-possession (DIP) obligations incorporate the
expectation of full repayment.
The relationship between the issuer scale and obligation scale assumes a generic historical average recovery. Individual
obligations can be assigned ratings higher, lower, or the same as that entitys issuer rating or issuer default rating (IDR), based on their relative ranking, relative vulnerability to default or based on explicit Recovery Ratings.
As a result, individual obligations of entities, such as corporations, are assigned ratings higher, lower, or the same as that entitys issuer
rating or IDR, except DIP obligation ratings that are not based off an IDR. At the lower end of the ratings scale, Fitch publishes explicit Recovery Ratings in many cases to complement issuer and obligation ratings.
Fitch long-term obligations rating scales are as follows:
AAA
|
Highest Credit Quality. AAA ratings denote the lowest expectation of credit risk. They are assigned
only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
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AA
|
Very High Credit Quality. AA ratings denote expectations of very low credit risk. They indicate
very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
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A
|
High Credit Quality. A ratings denote expectations of low credit risk. The capacity for payment of
financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
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BBB
|
Good Credit Quality. BBB ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.
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BB
|
Speculative. BB ratings indicate an elevated vulnerability to credit risk, particularly in the
event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
|
B
|
Highly Speculative. B ratings indicate that material credit risk is present.
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CCC
|
Substantial Credit Risk. CCC ratings indicate that substantial credit risk is present.
|
B-7
CC
|
Very High Levels of Credit Risk. CC ratings indicate very high levels of credit risk.
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C
|
Exceptionally High Levels of Credit Risk. C indicates exceptionally high levels of credit risk.
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Within rating categories, Fitch may use modifiers. The modifiers + or - may be appended to a rating to denote
relative status within major rating categories.
For example, the rating category AA has three notch-specific rating levels (AA+;
AA; AA; each a rating level). Such suffixes are not added to AAA ratings and ratings below the CCC category. For the short-term rating category of F1, a + may be appended.
Description of Fitchs Short-Term Ratings Assigned to Issuers and Obligations
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to the capacity to
meet financial obligations in accordance with the documentation governing the relevant obligation. Short-term deposit ratings may be adjusted for loss severity. Short-term ratings are assigned to obligations whose initial maturity is viewed as
short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations and up to 36 months for obligations in U.S. public finance markets.
Fitch short-term ratings are as follows:
F1
|
Highest Short-Term Credit Quality. Indicates the strongest intrinsic capacity for timely payment of financial
commitments; may have an added + to denote any exceptionally strong credit feature.
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F2
|
Good Short-Term Credit Quality. Good intrinsic capacity for timely payment of financial commitments.
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F3
|
Fair Short-Term Credit Quality. The intrinsic capacity for timely payment of financial commitments is
adequate.
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B
|
Speculative Short-Term Credit Quality. Minimal capacity for timely payment of financial commitments, plus
heightened vulnerability to near term adverse changes in financial and economic conditions.
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C
|
High Short-Term Default Risk. Default is a real possibility.
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RD
|
Restricted Default. Indicates an entity that has defaulted on one or more of its financial commitments,
although it continues to meet other financial obligations. Typically applicable to entity ratings only.
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D
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Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
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B-8
APPENDIX C
PROXY VOTING POLICIES BLACKROCK U.S. REGISTERED FUNDS
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Closed-End Fund Proxy Voting Policy
Procedures Governing Delegation of Proxy Voting to Fund
Adviser
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Effective Date: August 1, 2021
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Applies to the following
types of Funds registered under the 1940 Act:
☐ Open-End Mutual Funds (including money market
funds)
☐ Money Market Funds Only
☒ iShares
and BlackRock ETFs
☒ Closed-End Funds
☐ Other
|
Objective and Scope
Set forth below is the Closed-End Fund Proxy Voting Policy.
Policy / Document Requirements and Statements
The Boards of Trustees/Directors (the Directors) of the closed-end funds advised by BlackRock Advisors,
LLC (BlackRock) (the Funds) have the responsibility for the oversight of voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders
to delegate that responsibility to BlackRock as part of BlackRocks authority to manage, acquire and dispose of account assets, all as contemplated by the Funds respective investment management agreements.
BlackRock has adopted guidelines and procedures (together and as from time to time amended, the BlackRock Proxy Voting Guidelines) governing proxy
voting by accounts managed by BlackRock.
BlackRock will cast votes on behalf of each of the Funds on specific proxy issues in respect of securities held
by each such Fund in accordance with the BlackRock Proxy Voting Guidelines; provided, however, that in the case of underlying closed-end funds (including business development companies and other
similarly-situated asset pools) held by the Funds that have, or are proposing to adopt, a classified board structure, BlackRock will typically (a) vote in favor of proposals to adopt classification and against proposals to eliminate
classification, and (b) not vote against directors as a result of their adoption of a classified board structure.
BlackRock will report on an annual
basis to the Directors on (1) a summary of all proxy votes that BlackRock has made on behalf of the Funds in the preceding year together with a representation that all votes were in accordance with the BlackRock Proxy Voting Guidelines (as
modified pursuant to the immediately preceding paragraph), and (2) any changes to the BlackRock Proxy Voting Guidelines that have not previously been reported.
C-1
BlackRock
Investment
Stewardship
Global Principles
Effective as of January 2021
BlackRock
C-2
Contents
The purpose of this document is to provide an overarching explanation of BlackRocks approach globally to our
responsibilities as a shareholder on behalf of our clients, our expectations of companies, and our commitments to clients in terms of our own governance and transparency.
If you would like additional information, please contact:
ContactStewardship@blackrock.com
C-3
Introduction to BlackRock
BlackRocks purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual clients,
across a full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as individuals around
the world. As part of our fiduciary duty to our clients, we have determined that it is generally in the best long-term interest of our clients to promote sound corporate governance through voting as an informed, engaged shareholder. This is the
responsibility of the Investment Stewardship Team.
Philosophy on investment stewardship
Companies are responsible for ensuring they have appropriate governance structures to serve the interests of shareholders and other key stakeholders. We
believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders best
interests to create sustainable value. Shareholders should have the right to vote to elect, remove, and nominate directors, approve the appointment of the auditor, and amend the corporate charter or by-laws.
Shareholders should be able to vote on matters that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and pre-emptive
rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information. In addition, shareholder voting rights should be proportionate to
their economic ownershipthe principle of one share, one vote helps achieve this balance.
Consistent with these shareholder rights, we
believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients investments. BlackRock Investment Stewardship (BIS) does this through engagement with management teams
and/or board members on material business issues including environmental, social, and governance (ESG) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of our
clients. We also participate in the public debate to shape global norms and industry standards with the goal of a policy framework consistent with our clients interests as long-term shareholders.
BlackRock looks to companies to provide timely, accurate, and comprehensive reporting on all material governance and business matters, including ESG issues.
This allows shareholders to appropriately understand and assess how relevant risks and opportunities are being effectively identified and managed. Where company reporting and disclosure is inadequate or the approach taken is inconsistent with our
view of what supports sustainable long-term value creation, we will engage with a company and/or use our vote to encourage a change in practice.
BlackRock views engagement as an important activity; engagement provides us with the opportunity to improve our understanding of the business and ESG risks
and opportunities that are material to the companies in which our clients invest. As long-term investors on behalf of clients, we seek to have regular and continuing dialogue with executives and board directors to advance sound governance and
sustainable business practices, as well as to understand the effectiveness of the companys management and oversight of material issues. Engagement is an important mechanism for providing feedback on company practices and disclosures,
particularly where we believe they could be enhanced. We primarily engage through direct dialogue but may use other tools such as written correspondence to share our perspectives. Engagement also informs our voting decisions.
We vote in support of management and boards where and to the extent they demonstrate an approach consistent with creating sustainable long-term value. If we
have concerns about a companys approach, we may choose to engage to explain our expectations. Where we consider that a company has failed to address one or more material issues within an appropriate timeframe, we may hold directors accountable
or take other voting actions to signal our concerns. We apply our voting guidelines to achieve the outcome we believe is most aligned with our clients long-term economic interests.
C-4
Key themes
We recognize that accepted standards and norms of corporate governance differ between markets; however, there are sufficient common threads globally to
identify this overarching set of principles (the Principles) which are anchored in transparency and accountability. At a minimum, we expect companies to observe the accepted corporate governance standards in their domestic market or to
explain why not doing so supports sustainable long-term value creation.
Our regional and market-specific voting guidelines explain how these Principles
inform our voting decisions in relation to specific ballot items for shareholder meetings.
These Principles cover seven key themes:
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Auditors and audit-related issues
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Capital structure, mergers, asset sales, and other special transactions
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Compensation and benefits
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Environmental and social issues
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General corporate governance matters and shareholder protections
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Boards and directors
The
performance of the board is critical to the economic success of the company and the protection of shareholders interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic
direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most important responsibilities in the proxy voting context.
We support boards whose approach is consistent with creating sustainable long-term value. This includes the effective management of strategic, operational,
and material ESG factors and the consideration of key stakeholder interests. Our primary focus is on the performance of the board of directors. The board should establish and maintain a framework of robust and effective governance mechanisms to
support its oversight of the companys strategic aims. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the companys purpose.
Disclosure of material issues that affect the companys long-term strategy and value creation, including material ESG factors, is essential for shareholders to be able to appropriately understand and assess how the board is effectively
identifying, managing, and mitigating risks.
Where a company has not adequately disclosed and demonstrated these responsibilities, we will consider
withholding our support for the re-election of directors whom we hold accountable. We assess director performance on a
case-by-case basis and in light of each companys particular circumstances, taking into consideration our assessment of their governance, sustainable business
practices, and performance. In serving the interests of shareholders, the responsibility of the board of directors includes, but is not limited to, the following:
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Establishing an appropriate corporate governance structure
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Supporting and overseeing management in setting long-term strategic goals, applicable measures of value-creation
and milestones that will demonstrate progress, and steps taken if any obstacles are anticipated or incurred
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Providing oversight on the identification and management of material, business operational and
sustainability-related risks
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Overseeing the financial resilience of the company, the integrity of financial statements, and the robustness of
a companys Enterprise Risk Management1 frameworks
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Making decisions on matters that require independent evaluation which may include mergers, acquisitions and
disposals, activist situations or other similar cases
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Establishing appropriate executive compensation structures
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Addressing business issues, including environmental and social issues, when they have the potential to materially
impact the companys long-term value
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There should be clear definitions of the role of the board, the committees of the board and
senior management. We set out below ways in which boards and directors can demonstrate a commitment to acting in the best interests of long-term shareholders. We will seek to engage with the appropriate directors where we have concerns about the
performance of the company, board, or individual directors. As noted above, we believe that when a company is not effectively addressing a material issue, its directors should be held accountable.
Regular accountability
BlackRock believes that
directors should stand for re-election on a regular basis, ideally annually. In our experience, annual re-elections allow shareholders to reaffirm their support for
board members or hold them accountable for their decisions in a timely manner. When board members are not re-elected annually, we believe it is good practice for boards to have a rotation policy to ensure
that, through a board cycle, all directors have had their appointment re-confirmed, with a proportion of directors being put forward for re-election at each annual
general meeting.
Effective board composition
Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect the evolution of the companys
strategy and the market environment. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the groups thinking and in a manner that supports both continuity and appropriate succession
planning. We expect companies to keep under regular review the effectiveness of its board (including its size), and assess directors nominated for election or re-election in the context of the composition of
the board as a whole. This assessment should consider a number of factors, including the potential need to address gaps in skills or experience, the diversity of the board, and the balance of independent and
non-independent directors. We also consider the average tenure of the overall board, where we are seeking a balance between the knowledge and experience of longer-serving members and the fresh perspectives of
newer members.
When nominating new directors to the board, there should be detailed information on the individual candidates in order for shareholders to
assess the suitability of an individual nominee and the overall board composition. These disclosures should give a clear sense of how the collective experience and expertise of the board aligns with the companys long-term strategy and business
model. We also expect disclosures to demonstrate how diversity is accounted for within the proposed board composition, including demographic factors such as gender, ethnicity, and age; as well as professional characteristics, such as a
directors industry experience, specialist areas of expertise, and geographic location.
We expect there to be a sufficient number of independent
directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management. Common impediments to independence may include but are not limited
to:
1 Enterprise risk management is a process, effected by the entitys board of directors, management,
and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement
of objectives. (Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management Integrated Framework, September 2004, New York, NY).
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Current or recent employment at the company or a subsidiary
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Being, or representing, a shareholder with a substantial shareholding in the company
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Interlocking directorships
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Having any other interest, business, or other relationship which could, or could reasonably be perceived to,
materially interfere with a directors ability to act in the best interests of the company
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BlackRock believes that the board is
able to fulfill its fiduciary duty when there is a clearly independent, senior non-executive director to chair it or, where the chairman is also the CEO (or is otherwise not independent), a lead independent
director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board and encouraging independent participation in board
deliberations. The lead independent director or another appropriate director should be available to shareholders in those situations where an independent director is best placed to explain and justify a companys approach.
There are matters for which the board has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock
believes that objective oversight of such matters is best achieved when the board forms committees comprised entirely of independent directors. In many markets, these committees of the board specialize in audit, director nominations and compensation
matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one involving a related party, or to investigate a significant adverse event.
Sufficient capacity
As the role of a director is
demanding, directors must be able to commit an appropriate amount of time to board and committee matters. It is important that every director has the capacity to meet all of his/her responsibilities including when there are unforeseen events
and therefore, he/she should not take on an excessive number of roles that would impair his/her ability to fulfill his/her duties.
Auditors and audit-related issues
BlackRock recognizes the critical importance of financial statements, which should provide a true and fair
picture of a companys financial condition. Accordingly, the assumptions made by management and reviewed by the auditor in preparing the financial statements should be reasonable and justified.
The accuracy of financial statements, inclusive of financial and non-financial information, is clearly of paramount
importance to BlackRock. Investors views on financial materiality are developing to encompass a broader range of risks. Over time, we expect increased scrutiny of the assumptions underlying financial reports.
In this context, audit committees, or equivalent, play a vital role in a companys financial reporting system by providing independent oversight of the
accounts, material financial and non-financial information, internal control frameworks, and Enterprise Risk Management systems. BlackRock believes that effective audit and risk committee oversight strengthens
the quality and reliability of a companys financial statements and provides an important level of reassurance to shareholders.
We hold the members
of the audit committee or equivalent responsible for overseeing the management of the audit function. Audit committees or equivalent should have clearly articulated charters that set out the committees responsibilities and have a rotation plan
in place that allows for a periodic refreshment of the committee memberships.
We take particular note of critical accounting matters, cases involving
significant financial restatements or ad hoc notifications of material financial weakness. In this respect, audit committees should provide timely disclosure on the remediation of Key and Critical Audit Matters identified either by the external
auditor or Internal Audit function.
The integrity of financial statements depends on the auditor being free of any impediments to being an effective
check on management. To that end, we believe it is important that auditors are, and are seen to be, independent. Where the audit firm provides services to the company in addition to the audit, the fees earned should be disclosed and explained. Audit
committees should have in place a procedure for assessing annually the independence of the auditor and the quality of the external audit process.
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Comprehensive disclosure provides investors with a sense of the companys long-term operational risk
management practices and, more broadly, the quality of the boards oversight. The audit committee or equivalent should periodically review the companys risk assessment and risk management policies and significant risks and exposures
identified by management, the internal auditors or the independent accountants, and managements steps to address them. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.
Capital structure, mergers, asset sales and other special transactions
The capital structure of a company is critical to shareholders as it impacts the value of their investment and the priority of their interest in the company
relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests.
Effective voting rights are basic rights of share ownership and we believe strongly in one vote for one share as a guiding principle that supports effective
corporate governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting power should match economic exposure.
In principle, we disagree with the creation of a share class with equivalent economic exposure and preferential, differentiated voting rights as it violates
the fundamental corporate governance principle of proportionality, and results in a concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying any potential conflicts of interest. However, we
recognize that in certain markets, at least for a period of time, companies may have a valid argument for dual-class listings. We believe that such companies should review these share class structures on a regular basis or as company circumstances
change. Additionally, they should receive shareholder approval of their capital structure on a periodic basis via a management proposal at the companys shareholder meeting. The proposal should give unaffiliated shareholders the opportunity to
affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.
In assessing mergers, asset sales, or other special transactions, BlackRocks primary consideration is the long-term economic interests of our clients as
shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it enhances long-term shareholder value. We would prefer that
proposed transactions have the unanimous support of the board and have been negotiated at arms length. We may seek reassurance from the board that executives and/or board members financial interests in a given transaction have not
adversely affected their ability to place shareholders interests before their own. Where the transaction involves related parties, we would expect the recommendation to support it to come from the independent directors, and ideally, the terms
have been assessed through an independent appraisal process. In addition, it is good practice that it be approved by a separate vote of the non-conflicted shareholders.
BlackRock believes that shareholders have a right to dispose of company shares in the open market without unnecessary restriction. In our view, corporate
mechanisms designed to limit shareholders ability to sell their shares are contrary to basic property rights. Such mechanisms can serve to protect and entrench interests other than those of the shareholders. We believe that shareholders are
broadly capable of making decisions in their own best interests. We expect any so-called shareholder rights plans proposed by a board to be subject to shareholder approval upon introduction and
periodically thereafter for continuation.
Compensation and benefits
BlackRock expects a companys board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately and is
linked with performance that aligns with shareholder interests, particularly the generation of sustainable long-term value. We would expect the compensation committee to carefully consider the specific circumstances of the company and the key
individuals the board is trying to incentivize. We encourage
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companies to ensure that their compensation plans incorporate appropriate and rigorous performance metrics consistent with corporate strategy and market practice. We use third party research, in
addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee or equivalent board members accountable for poor compensation practices or structures.
BlackRock believes that there should be a clear link between variable pay and company performance that drives value creation. We are not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee, we expect disclosure relating to how and why the discretion was used, and
further, how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when the rationale for
increases in total compensation at a company is solely based on peer benchmarking rather than a rigorous measure of outperformance.
We support incentive
plans that foster the sustainable achievement of results consistent with the companys long-term strategic initiatives. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. We believe
consideration should be given to building claw back provisions into incentive plans such that executives would be required to forgo rewards when they are not justified by actual performance and/or when compensation was based on faulty financial
reporting or deceptive business practices. We also favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal investigation, even if
such actions did not ultimately result in a material restatement of past results. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract.
Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.
Non-executive directors should be compensated in a manner that is commensurate with the time and effort expended in fulfilling their professional responsibilities. Additionally, these compensation arrangements
should not risk compromising their independence or aligning their interests too closely with those of the management, whom they are charged with overseeing.
Environmental and social issues
We believe that well-managed companies will deal effectively with material ESG factors relevant to their businesses. As stated throughout this document,
governance is the core structure by which boards can oversee the creation of sustainable long-term value appropriate risk oversight of environmental and social (E&S) considerations stems from this construct.
Robust disclosure is essential for investors to effectively gauge companies business practices and strategic planning related to E&S risks and
opportunities. When a companys reporting is inadequate, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk. Given the increased understanding of material sustainability risks and
opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies reporting and will hold management and/or directors accountable where disclosures or the business practices
underlying them are inadequate.
BlackRock views the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards
put forward by the Sustainability Accounting Standards Board (SASB) as appropriate and complementary frameworks for companies to adopt for the disclosure of financially material sustainability information. While the TCFD framework was crafted with
the aim of climate-related risk disclosure, the four pillars of the TCFD Governance, Strategy, Risk Management, and Metrics and Targets are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of
sustainability-related risks and opportunities. SASBs industry-specific guidance (as identified in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability
that are considered to be financially material and decision-useful within their industry,
Accordingly, we ask companies to:
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Disclose the identification, assessment, management, and oversight of sustainability-related risks in accordance
with the four pillars of TCFD; and
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Publish SASB-aligned reporting with industry-specific, material metrics and rigorous targets2.
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Companies may also adopt or refer to guidance on sustainable and responsible
business conduct issued by supranational organizations such as the United Nations or the Organization for Economic Cooperation and Development. Further, industry specific initiatives on managing specific operational risks may be useful. Companies
should disclose any global standards adopted, the industry initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business
practices.
Climate risk
BlackRock believes that
climate change has become a defining factor in companies long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risk and opportunities, and how they are considered
within strategy. Specifically, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2°C and is consistent with a global aspiration to reach net zero GHG emissions by 20503.
The public and private sectors have roles to play in aligning greenhouse gas reduction efforts with
targets based on science, where available, to curb the worst effects of climate change and reach the global goal of carbon neutrality by the mid-century. Companies have an opportunity to utilize and contribute
to the development of current and future low-carbon transition technologies, which are an important consideration for the rate at which emissions can be reduced. We expect companies to disclose how they are
considering these challenges, alongside opportunities for innovation, within their strategy and emissions reduction efforts.
Key stakeholder interests
Given our expectation that companies operate in long-term shareholders interests to create sustainable value and fulfill their purpose,
BlackRock believes that companies should take due account of their key stakeholders interests. It is for each company to determine its key stakeholders based on what is material to its business, but they are likely to include employees,
business partners (such as suppliers and distributors), clients and consumers, government and regulators, and the communities in which they operate, as well as investors.
Having regard to the interests of key stakeholders recognizes the collective nature of long-term value creation, and the extent to which each companys
prospects for growth are tied to its ability to foster strong sustainable relationships with those stakeholders. Companies should articulate how they address adverse impacts that could arise from their business practices and affect critical business
relationships with their stakeholders. We expect companies to implement, to the extent appropriate, monitoring processes (often referred to as due diligence) to identify and mitigate potential adverse impacts, and grievance mechanisms to remediate
any actual adverse impacts. The maintenance of trust within these relationships is often equated with a companys social license to operate.
To
ensure transparency and accountability, companies should report on how they have identified their key stakeholders and considered their interests in business decision-making, demonstrating the applicable governance, strategy, risk management, and
metrics and targets. This approach should be overseen by the board, whose job it is to ensure that the approach taken is informed by and aligns with the companys purpose.
General corporate governance matters and shareholder protections
BlackRock believes that shareholders have a right to material and timely information on the financial performance and viability of the companies in which they
invest. In addition, companies should also publish information on the
2 See our commentary on our approach to engagement on TCFD and SASB aligned reporting for greater detail of
our expectations.
3 The global aspiration is reflective of aggregated efforts; companies in developed
and emerging markets are not equally equipped to transition their business and reduce emissions at the same ratethose in developed markets with the largest market capitalization are better positioned to adapt their business models at an
accelerated pace. Government policy and regional targets may be reflective of these realities.
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governance structures in place and the rights of shareholders to influence these structures. The reporting and disclosure provided by companies help shareholders assess whether their economic
interests have been protected and the quality of the boards oversight of management. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms, to submit proposals to
the shareholders meeting, and to call special meetings of shareholders.
Shareholder proposals
In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be voted on by shareholders at a
companys annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance reforms, capital management, and
improvements in the management or disclosure of environmental and social risks.
When assessing shareholder proposals, we evaluate each proposal on its
merit, with a singular focus on its implications for long-term value creation. We consider the business and economic relevance of the issue raised, as well as its materiality and the urgency with which we believe it should be addressed. We take into
consideration the legal effect of the proposal, as shareholder proposals may be advisory or legally binding depending on the jurisdiction. We would not support proposals that we believe would result in over-reaching into the basic business decisions
of the issuer.
Where a proposal is focused on an issue that we agree needs to be addressed and the intended outcome is consistent with long-term value
creation, we will look to the board and management to demonstrate that the company has met the intent of the request made in the shareholder proposal. Where our analysis and/or engagement indicate a need for improvement in the companys
approach to the issue, we will support shareholder proposals that are reasonable and not unduly constraining on management. Alternatively, or in addition, we may vote against the re-election of one of more
directors if, in our assessment, the board has not responded sufficiently or with an appropriate sense of urgency.
BlackRocks oversight of its investment stewardship activities
Oversight
We hold
ourselves to a very high standard in our investment stewardship activities, including proxy voting. To meet this standard, BIS is comprised of BlackRock employees who do not have other responsibilities other than their roles in BIS. BIS is
considered an investment function.
BlackRock maintains three regional advisory committees (Stewardship Advisory Committees) for (a) the
Americas; (b) Europe, the Middle East and Africa (EMEA); and (c) Asia-Pacific, generally consisting of senior BlackRock investment professionals and/or senior employees with practical boardroom experience. The regional
Stewardship Advisory Committees review and advise on amendments to BIS proxy voting guidelines covering markets within each respective region (Guidelines).
In addition to the regional Stewardship Advisory Committees, the Investment Stewardship Global Oversight Committee (Global Committee) is a
risk-focused committee, comprised of senior representatives from various BlackRock investment teams, a senior legal representative, the Global Head of Investment Stewardship (Global Head), and other senior executives with relevant
experience and team oversight.
The Global Head has primary oversight of the activities of BIS, including voting in accordance with the Guidelines, which
require the application of professional judgment and consideration of each companys unique circumstances. The Global Committee reviews and approves amendments to these Principles. The Global Committee also reviews and approves amendments to
the regional Guidelines, as proposed by the regional Stewardship Advisory Committees.
In addition, the Global Committee receives and reviews periodic
reports regarding the votes cast by BIS, as well as updates on material process issues, procedural changes, and other risk oversight considerations. The Global Committee reviews these reports in an oversight capacity as informed by the BIS corporate
governance engagement program and the Guidelines.
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BIS carries out engagement with companies, monitors and executes proxy votes, and conducts vote operations
(including maintaining records of votes cast) in a manner consistent with the relevant Guidelines. BIS also conducts research on corporate governance issues and participates in industry discussions to contribute to and keep abreast of important
developments in the corporate governance field. BIS may utilize third parties for certain of the foregoing activities and performs oversight of those third parties. BIS may raise complicated or particularly controversial matters for internal
discussion with the relevant investment teams and/or refer such matters to the appropriate regional Stewardship Advisory Committees for review, discussion and guidance prior to making a voting decision.
Vote execution
We
carefully consider proxies submitted to funds and other fiduciary account(s) (Fund or Funds) for which we have voting authority. BlackRock votes (or refrains from voting) proxies for each Fund for which we have voting
authority based on our evaluation of the best long-term economic interests of our clients as shareholders, in the exercise of our independent business judgment, and without regard to the relationship of the issuer of the proxy (or any shareholder
proponent or dissident shareholder) to the Fund, the Funds affiliates (if any), BlackRock or BlackRocks affiliates, or BlackRock employees (see Conflicts management policies and procedures, below).
When exercising voting rights, BlackRock will normally vote on specific proxy issues in accordance with the Guidelines for the relevant market. The Guidelines
are reviewed regularly and are amended consistent with changes in the local market practice, as developments in corporate governance occur, or as otherwise deemed advisable by the applicable Stewardship Advisory Committees. BIS analysts may, in the
exercise of their professional judgment, conclude that the Guidelines do not cover the specific matter upon which a proxy vote is required or that an exception to the Guidelines would be in the best long-term economic interests of BlackRocks
clients.
In the uncommon circumstance of there being a vote with respect to fixed income securities or the securities of privately held issuers, the
decision generally will be made by a Funds portfolio managers and/or BIS based on their assessment of the particular transactions or other matters at issue.
In certain markets, proxy voting involves logistical issues which can affect BlackRocks ability to vote such proxies, as well as the desirability of
voting such proxies. These issues include, but are not limited to: (i) untimely notice of shareholder meetings; (ii) restrictions on a foreigners ability to exercise votes; (iii) requirements to vote proxies in person; (iv)
share-blocking (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); (v) potential difficulties in translating
the proxy; (vi) regulatory constraints; and (vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as
share-blocking or overly burdensome administrative requirements.
As a consequence, BlackRock votes proxies on a best-efforts basis. In
addition, BIS may determine that it is generally in the best interests of BlackRocks clients not to vote proxies if the costs (including but not limited to opportunity costs associated with share-blocking constraints) associated with
exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal.
Portfolio managers have full discretion to vote
the shares in the Funds they manage based on their analysis of the economic impact of a particular ballot item. Portfolio managers may from time to time reach differing views on how best to maximize economic value with respect to a particular
investment. Therefore, portfolio managers may, and sometimes do, vote shares in the Funds under their management differently from one another. However, because BlackRocks clients are mostly long-term investors with long-term economic goals,
ballots are frequently cast in a uniform manner.
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Conflicts management policies and procedures
BIS maintains policies and procedures that seek to prevent undue influence on BlackRocks proxy voting activity. Such influence might stem from any
relationship between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRocks affiliates, a Fund or a Funds affiliates, or BlackRock employees. The following are examples of sources of
perceived or potential conflicts of interest:
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BlackRock clients who may be issuers of securities or proponents of shareholder resolutions
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BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder
resolutions
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BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock
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Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock
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Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock
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BlackRock, Inc. board members who serve as senior executives of public companies held in Funds managed by
BlackRock
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BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to, the following:
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Adopted the Guidelines which are designed to advance our clients interests in the companies in which
BlackRock invests on behalf of clients.
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Established a reporting structure that separates BIS from employees with sales, vendor management, or business
partnership roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRocks relationship with such parties.
Clients or business partners are not given special treatment or differentiated access to BIS. BIS prioritizes engagements based on factors including, but not limited to, our need for additional information to make a voting decision or our view on
the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BIS may engage directly with BlackRock clients, business partners and/or third parties, and/or
with employees with sales, vendor management, or business partnership roles, in discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to otherwise ensure that proxy-related client
service levels are met.
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Determined to engage, in certain instances, an independent fiduciary to vote proxies as a further safeguard to
avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent fiduciary provides BlackRocks proxy voting agent with instructions,
in accordance with the Guidelines, as to how to vote such proxies, and BlackRocks proxy voting agent votes the proxy in accordance with the independent fiduciarys determination. BlackRock uses an independent fiduciary to vote proxies of
BlackRock, Inc. and companies affiliated with BlackRock, Inc. BlackRock may also use an independent fiduciary to vote proxies of:
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public companies that include BlackRock employees on their boards of directors,
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public companies of which a BlackRock, Inc. board member serves as a senior executive,
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public companies that are the subject of certain transactions involving BlackRock Funds,
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public companies that are joint venture partners with BlackRock, and
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public companies when legal or regulatory requirements compel BlackRock to use an independent fiduciary.
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In selecting an independent fiduciary, we assess several characteristics, including but not limited to: independence, an ability to
analyze proxy issues and vote in the best economic interest of our clients, reputation for reliability and
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integrity, and operational capacity to accurately deliver the assigned votes in a timely manner. We may engage more than one independent fiduciary, in part in order to mitigate potential or
perceived conflicts of interest at an independent fiduciary. The Global Committee appoints and reviews the performance of the independent fiduciaries, generally on an annual basis.
When so authorized, BlackRock acts as a securities lending agent on behalf of Funds. With regard to the relationship between securities lending and proxy
voting, BlackRocks approach is driven by our clients economic interests. The decision whether to recall securities on loan to vote is based on a formal analysis of the revenue producing value to clients of loans, against the assessed
economic value of casting votes. Generally, we expect that the likely economic value to clients of casting votes would be less than the securities lending income, either because, in our assessment, the resolutions being voted on will not have
significant economic consequences or because the outcome would not be affected by BlackRock voting the loaned securities that were recalled in order to vote. BlackRock also may, in our discretion, determine that the value of voting outweighs the
cost of recalling shares, and thus recall shares to vote in that instance.
Periodically, BlackRock reviews our process for determining whether to recall
securities on loan in order to vote and may modify it as necessary.
Voting guidelines
The issue-specific Guidelines published for each region/country in which we vote are intended to summarize BlackRocks general philosophy and approach to
issues that may commonly arise in the proxy voting context in each market where we invest. The Guidelines are not intended to be exhaustive. BIS applies the Guidelines on a
case-by-case basis, in the context of the individual circumstances of each company and the specific issue under review. As such, the Guidelines do not indicate how BIS
will vote in every instance. Rather, they reflect our view about corporate governance issues generally, and provide insight into how we typically approach issues that commonly arise on corporate ballots.
Reporting and vote transparency
Investment stewardship is how we use our voice as an investor to promote sound corporate governance and business practices to help maximize long-term
shareholder value for our clients, the vast majority of whom are investing for long-term goals such as retirement. We are committed to transparency in the stewardship work we do on behalf of clients. We inform clients about our engagement and voting
policies and activities through direct communication and through disclosure on our website. Each year we publish an annual report as well as quarterly stewardship reports which provide a global overview of our investment stewardship engagement and
voting activities during the quarter, including market developments, speaking engagements, and engagement, and voting statistics. Additionally, we make public our market-specific voting guidelines for the benefit of clients and companies with whom
we engage. We also publish commentaries to share our perspective on market developments and emerging key themes.
At a more granular level, we publish
quarterly our vote record for each company that held a shareholder meeting during the period, showing how we voted on each proposal and explaining any votes against management proposals or on shareholder proposals. For shareholder meetings where a
vote might be high profile or of significant interest to clients, we publish a voting bulletin shortly after the meeting, disclosing and explaining our vote on key proposals. We also publish a quarterly list of all companies we engaged and the key
topics addressed in the engagement meeting.
In this way, we help inform our clients about the work we do on their behalf in promoting the governance and
business practices that support long-term sustainable value creation.
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This document is provided for information purposes only and is subject to change. Reliance upon this
information is at the sole discretion of the reader.
Prepared by BlackRock, Inc.
©2020 BlackRock, Inc. All rights reserved.
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BlackRock
Investment
Stewardship
Proxy voting guidelines for U.S. securities
Effective as of January 2021
BlackRock
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Contents
If you would like additional information, please contact:
ContactStewardship@blackrock.com
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These guidelines should be read in conjunction with the BlackRock Investment Stewardship Global Principles.
Introduction
We believe
BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients investments. BlackRock Investment Stewardship (BIS) does this through engagement with management teams and/or board
members on material business issues, including environmental, social, and governance (ESG) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of our clients.
The following issue-specific proxy voting guidelines (the Guidelines) are intended to summarize BIS general philosophy and approach to ESG
factors, as well as our expectations of directors, that most commonly arise in proxy voting for U.S. securities. These Guidelines are not intended to limit the analysis of individual issues at specific companies or provide a guide to how BlackRock
will vote in every instance. They are applied with discretion, taking into consideration the range of issues and facts specific to the company, as well as individual ballot items.
Voting guidelines
These
guidelines are divided into eight key themes, which group together the issues that frequently appear on the agenda of annual and extraordinary meetings of shareholders:
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Auditors and audit-related issues
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Mergers, acquisitions, asset sales, and other special transactions
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Environmental and social issues
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General corporate governance matters
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Shareholder protections
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Boards and directors
The
effective performance of the board is critical to the economic success of the company and the protection of shareholders interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the
strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most critical responsibilities.
C-18
Disclosure of material issues that affect the companys long-term strategy and value creation, including
material ESG factors, is essential for shareholders to be able to appropriately understand and assess how effectively the board is identifying, managing, and mitigating risks.
Where we conclude that a board has failed to address or disclose one or more material issues within a specified timeframe, we may hold directors accountable
or take other appropriate action in the context of our voting decisions.
Director elections
Where a board has not adequately demonstrated, through company disclosures and actions, how material issues are appropriately identified, managed, and
overseen, we will consider withholding our support for the re-election of directors whom we hold accountable.
In
addition, we may withhold votes from directors or members of particular board committees in certain situations, as indicated below.
Independence
We expect a majority of the directors on the board to be independent. In addition, all members of key committees, including audit, compensation, and
nominating/governance committees, should be independent. Our view of independence may vary from listing standards.
Common impediments to independence may
include:
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Employment as a senior executive by the company or a subsidiary within the past five years
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An equity ownership in the company in excess of 20%
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Having any other interest, business, or relationship (professional or personal) which could, or could reasonably
be perceived to, materially interfere with the directors ability to act in the best interests of the company
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When evaluating controlled companies, as defined by the U.S. stock exchanges, we may vote against insiders or
affiliates who sit on the audit committee, but not other key committees
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We may vote against directors serving on key committees who we
do not consider to be independent.
Oversight
We
expect the board to exercise appropriate oversight over management and business activities of the company. We will consider voting against committee members and/or individual directors in the following circumstances:
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Where the board has failed to exercise sufficient oversight with regard to material ESG risk factors, or the
company has failed to provide shareholders with adequate disclosure to conclude appropriate strategic consideration is given to these factors by the board
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Where the board has failed to exercise oversight with regard to accounting practices or audit oversight, we will
consider voting against the current audit committee, and any other members of the board who may be responsible. For example, we may vote against members of the audit committee during a period when the board failed to facilitate quality, independent
auditing if substantial accounting irregularities suggest insufficient oversight by that committee
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Members of the compensation committee during a period in which executive compensation appears excessive relative
to performance and peers, and where we believe the compensation committee has not already substantially addressed this issue
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The chair of the nominating/governance committee, or where no chair exists, the nominating/governance committee
member with the longest tenure, where the board is not comprised of a majority of independent directors. This may not apply in the case of a controlled company
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Where it appears the director has acted (at the company or at other companies) in a manner that compromises
his/her ability to represent the best long-term economic interests of shareholders
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Where a director has a multi-year pattern of poor attendance at combined board and applicable committee meetings,
or a director has poor attendance in a single year with no disclosed rationale. Excluding exigent circumstances, BlackRock generally considers attendance at less than 75% of the combined board and applicable committee meetings to be poor attendance
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Where a director serves on an excessive number of boards, which may limit his/her capacity to focus on each
boards requirements. The following identifies the maximum number of boards on which a director may serve, before he/she is considered to be over-committed:
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Public Company
Executive
or Fund
Manager4
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# Outside Public Boards5
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Total # of Public Boards
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Director A
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✓
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1
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2
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Director B
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3
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4
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Responsiveness to shareholders
We expect a board to be engaged and responsive to its shareholders, including acknowledging voting outcomes for shareholder proposals, director elections,
compensation, and other ballot items. Where we believe a board has not substantially addressed shareholder concerns, we may vote against the responsible committees and/or individual directors. The following illustrates common circumstances:
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The independent chair or lead independent director, members of the nominating/governance committee, and/or the
longest tenured director(s), where we observe a lack of board responsiveness to shareholders, evidence of board entrenchment, and/or failure to plan for adequate board member succession
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The chair of the nominating/governance committee, or where no chair exists, the nominating/governance committee
member with the longest tenure, where board member(s) at the most recent election of directors have received against votes from more than 25% of shares voted, and the board has not taken appropriate action to respond to shareholder concerns. This
may not apply in cases where BlackRock did not support the initial against vote
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The independent chair or lead independent director and/or members of the nominating/governance committee, where a
board fails to consider shareholder proposals that receive substantial support, and the proposals, in our view, have a material impact on the business, shareholder rights, or the potential for long-term value creation
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4 In this instance, fund manager refers to individuals whose full-time employment involves responsibility for the investment and oversight of fund vehicles, and those who have employment as
professional investors and provide oversight for those holdings.
5 In addition to the company under
review
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Shareholder rights
We expect a board to act with integrity and to uphold governance best practices. Where we believe a board has not acted in the best interests of its
shareholders, we may vote against the appropriate committees and/or individual directors. The following illustrates common circumstances:
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The independent chair or lead independent director and members of the nominating/governance committee, where a
board implements or renews a poison pill without shareholder approval
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The independent chair or lead independent director and members of the nominating/governance committee, where a
board amends the charter/articles/bylaws such that the effect may be to entrench directors or to significantly reduce shareholder rights
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Members of the compensation committee where the company has repriced options without shareholder approval
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If a board maintains a classified structure, it is possible that the director(s) with whom we have a particular
concern may not be subject to election in the year that the concern arises. In such situations, if we have a concern regarding the actions of a committee and the responsible member(s) or committee chair are not up for
re-election, we will generally register our concern by voting against all available members of the relevant committee
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Board composition and effectiveness
We encourage boards
to periodically renew their membership to ensure relevant skills and experience within the boardroom. To this end, regular performance reviews and skills assessments should be conducted by the nominating/governance committee or the lead independent
director.
Furthermore, we expect boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to
bear in order to create a constructive debate of a variety of views and opinions in the boardroom. We recognize that diversity has multiple dimensions. In identifying potential candidates, boards should take into consideration the full breadth of
diversity, including personal factors, such as gender, ethnicity, race, and age, as well as professional characteristics, such as a directors industry, area of expertise, and geographic location. In addition to other elements of diversity, we
encourage companies to have at least two women directors on their board. Our publicly available commentary explains our approach to engaging on board diversity.
We encourage boards to disclose:
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The mix of competencies, experience, and other qualities required to effectively oversee and guide management in
light of the stated long-term strategy of the company
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The process by which candidates are identified and selected, including whether professional firms or other
sources outside of incumbent directors networks have been engaged to identify and/or assess candidates
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The process by which boards evaluate themselves and any significant outcomes of the evaluation process, without
divulging inappropriate and/or sensitive details
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C-21
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Demographics related to board diversity, including, but not limited to, gender, ethnicity, race, age, and
geographic location, in addition to measurable milestones to achieve a boardroom reflective of multi-faceted racial, ethnic, and gender representation
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Our primary concern is that board members are able to contribute effectively as corporate strategy evolves and business conditions change. We acknowledge that
no single person can be expected to bring all relevant skill sets to a board; at the same time, we generally do not believe it is necessary or appropriate to have any particular director on the board solely by virtue of a singular background or
specific area of expertise.
Where boards find that age limits or term limits are the most efficient and objective mechanism for ensuring periodic board
refreshment, we generally defer to the boards determination in setting such limits. BlackRock will also consider the average board tenure to evaluate processes for board renewal. We may oppose boards that appear to have an insufficient mix of
short-, medium-, and long-tenured directors.
To the extent that a company has not adequately accounted for diversity in its board composition within a
reasonable timeframe, based on our assessment, we may vote against members of the nominating/governance committee for an apparent lack of commitment to board effectiveness.
Board size
We typically defer to the board in setting
the appropriate size and believe directors are generally in the best position to assess the optimal board size to ensure effectiveness. However, we may oppose boards that appear too small to allow for the necessary range of skills and experience or
too large to function efficiently.
CEO and management succession planning
There should be a robust CEO and senior management succession plan in place at the board level that is reviewed and updated on a regular basis. We expect
succession planning to cover both long-term planning consistent with the strategic direction of the company and identified leadership needs over time, as well as short-term planning in the event of an unanticipated executive departure. We encourage
the company to explain its executive succession planning process, including where accountability lies within the boardroom for this task, without prematurely divulging sensitive information commonly associated with this exercise.
Classified board of directors/staggered terms
We
believe that directors should be re-elected annually; classification of the board generally limits shareholders rights to regularly evaluate a boards performance and select directors. While we will
typically support proposals requesting board de-classification, we may make exceptions, should the board articulate an appropriate strategic rationale for a classified board structure, such as when a company
needs consistency and stability during a time of transition, e.g. newly public companies or companies undergoing a strategic restructuring. A classified board structure may also be justified at non-operating
companies, e.g. closed-end funds or business development companies (BDC)6, in certain circumstances. We would, however, expect boards with a classified
structure to periodically review the rationale for such structure and consider when annual elections might be more appropriate.
Without a voting
mechanism to immediately address concerns about a specific director, we may choose to vote against the available slate of directors (see Shareholder rights for additional detail).
6 A BDC is a special investment vehicle under the Investment Company Act of 1940 that is designed to
facilitate capital formation for small and middle-market companies.
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Contested director elections
The details of contested elections, or proxy contests, are assessed on a
case-by-case basis. We evaluate a number of factors, which may include: the qualifications of the dissident and management candidates; the validity of the concerns
identified by the dissident; the viability of both the dissidents and managements plans; the ownership stake and holding period of the dissident; the likelihood that the dissidents solutions will produce the desired change; and
whether the dissident represents the best option for enhancing long-term shareholder value.
Cumulative voting
We believe that a majority vote standard is in the best long-term interests of shareholders. It ensures director accountability through the requirement to be
elected by more than half of the votes cast. As such, we will generally oppose proposals requesting the adoption of cumulative voting, which may disproportionately aggregate votes on certain issues or director candidates.
Director compensation and equity programs
We believe
that compensation for directors should be structured to attract and retain directors, while also aligning their interests with those of shareholders. We believe director compensation packages that are based on the companys long-term value
creation and include some form of long-term equity compensation are more likely to meet this goal. In addition, we expect directors to build meaningful share ownership over time.
Majority vote requirements
BlackRock believes that
directors should generally be elected by a majority of the shares voted and will normally support proposals seeking to introduce bylaws requiring a majority vote standard for director elections. Majority vote standards assist in ensuring that
directors who are not broadly supported by shareholders are not elected to serve as their representatives. Some companies with a plurality voting standard have adopted a resignation policy for directors who do not receive support from at least a
majority of votes cast. Where we believe that the company already has a sufficiently robust majority voting process in place, we may not support a shareholder proposal seeking an alternative mechanism.
We note that majority voting may not be appropriate in all circumstances, for example, in the context of a contested election, or for majority-controlled
companies.
Risk oversight
Companies should have an
established process for identifying, monitoring, and managing business and material ESG risks. Independent directors should have access to relevant management information and outside advice, as appropriate, to ensure they can properly oversee risk.
We encourage companies to provide transparency around risk management, mitigation, and reporting to the board. We are particularly interested in understanding how risk oversight processes evolve in response to changes in corporate strategy and/or
shifts in the business and related risk environment. Comprehensive disclosure provides investors with a sense of the companys long-term operational risk management practices and, more broadly, the quality of the boards oversight. In the
absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.
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Separation of chairman and CEO
We believe that independent leadership is important in the boardroom. There are two commonly accepted structures for independent board leadership: 1) an
independent chairman; or 2) a lead independent director when the roles of chairman and CEO are combined.
In the absence of a significant governance
concern, we defer to boards to designate the most appropriate leadership structure to ensure adequate balance and independence.
In the event that the
board chooses a combined chair/CEO model, we generally support the designation of a lead independent director if they have the power to: 1) provide formal input into board meeting agendas; 2) call meetings of the independent directors; and 3)
preside at meetings of independent directors. Furthermore, while we anticipate that most directors will be elected annually, we believe an element of continuity is important for this role to provide appropriate leadership balance to the chair/CEO.
The following table illustrates examples of responsibilities under each board leadership model:
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Combined Chair/CEO Model
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Separate Chair Model
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Chair/CEO
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Lead Independent Director
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Chair
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Board Meetings
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Authority to call full meetings of the board of directors
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Attends full meetings of the board of directors
Authority to call meetings of independent directors
Briefs CEO on issues arising from executive sessions
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Authority to call full meetings of the board of directors
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Agenda
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Primary responsibility for shaping board agendas, consulting with the lead independent director
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Collaborates with chair/CEO to set board agenda and board information
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Primary responsibility for shaping board agendas, in conjunction with CEO
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Board Communications
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Communicates with all directors on key issues and concerns outside of full board meetings
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Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO
and management succession planning
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Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO
and management succession planning
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Auditors and audit-related issues
BlackRock recognizes the critical importance of financial statements to provide a complete and accurate portrayal of a companys financial condition.
Consistent with our approach to voting on boards of directors, we seek to hold the audit committee of the board responsible for overseeing the management of the audit function at a company, and may vote against the audit committee members where the
board has failed to facilitate quality, independent auditing. We look to the audit committee report for insight into the scope of the audit committee responsibilities, including an overview of audit committee processes, issues on the audit committee
agenda, and key decisions taken by the audit committee. We take particular note of cases involving significant financial restatements or material weakness disclosures, and we expect timely disclosure and remediation of accounting irregularities.
The integrity of financial statements depends on the auditor effectively fulfilling its role. To that end, we favor an independent auditor. In addition,
to the extent that an auditor fails to reasonably identify and address issues that eventually lead to a significant financial restatement, or the audit firm has violated standards of practice that protect the interests of shareholders, we may also
vote against ratification.
From time to time, shareholder proposals may be presented to promote auditor independence or the rotation of audit firms. We
may support these proposals when they are consistent with our views as described above.
Capital structure proposals
Equal voting rights
BlackRock believes that
shareholders should be entitled to voting rights in proportion to their economic interests. We believe that companies that look to add or already have dual or multiple class share structures should review these structures on a regular basis, or as
company circumstances change. Companies with multiple share classes should receive shareholder approval of their capital structure on a periodic basis via a management proposal on the companys proxy. The proposal should give unaffiliated
shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.
Blank check preferred stock
We frequently oppose
proposals requesting authorization of a class of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (blank check preferred stock) because they may serve as a transfer of authority from
shareholders to the board and as a possible entrenchment device. We generally view the boards discretion to establish voting rights on a when-issued basis as a potential anti-takeover device, as it affords the board the ability to place a
block of stock with an investor sympathetic to management, thereby foiling a takeover bid without a shareholder vote.
Nonetheless, we may support the
proposal where the company:
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Appears to have a legitimate financing motive for requesting blank check authority
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Has committed publicly that blank check preferred shares will not be used for anti-takeover purposes
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Has a history of using blank check preferred stock for financings
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Has blank check preferred stock previously outstanding such that an increase would not necessarily provide
further anti-takeover protection but may provide greater financing flexibility
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Increase in authorized common shares
BlackRock will evaluate requests to increase authorized shares on a
case-by-case basis, in conjunction with industry-specific norms and potential dilution, as well as a companys history with respect to the use of its common shares.
Increase or issuance of preferred stock
We
generally support proposals to increase or issue preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and where the terms of the preferred stock appear reasonable.
Stock splits
We generally support stock splits that are
not likely to negatively affect the ability to trade shares or the economic value of a share. We generally support reverse stock splits that are designed to avoid delisting or to facilitate trading in the stock, where the reverse split will not have
a negative impact on share value (e.g. one class is reduced while others remain at pre-split levels). In the event of a proposal for a reverse split that would not proportionately reduce the companys
authorized stock, we apply the same analysis we would use for a proposal to increase authorized stock.
Mergers,
acquisitions, asset sales, and other special transactions
In assessing mergers, acquisitions, asset sales, or other special transactions,
BlackRocks primary consideration is the long-term economic interests of our clients as shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction
to determine the degree to which it enhances long-term shareholder value. While mergers, acquisitions, asset sales, and other special transaction proposals vary widely in scope and substance, we closely examine certain salient features in our
analyses, such as:
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The degree to which the proposed transaction represents a premium to the companys trading price. We
consider the share price over multiple time periods prior to the date of the merger announcement. We may consider comparable transaction analyses provided by the parties financial advisors and our own valuation assessments. For companies
facing insolvency or bankruptcy, a premium may not apply
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There should be clear strategic, operational, and/or financial rationale for the combination
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Unanimous board approval and arms-length negotiations are
preferred. We will consider whether the transaction involves a dissenting board or does not appear to be the result of an arms-length bidding process. We may also consider whether executive and/or board
members financial interests appear likely to affect their ability to place shareholders interests before their own
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We prefer transaction proposals that include the fairness opinion of a reputable financial advisor assessing the
value of the transaction to shareholders in comparison to recent similar transactions
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Poison pill plans
Where a poison pill is put to a shareholder vote by management, our policy is to examine these plans individually. Although we oppose most plans, we may
support plans that include a reasonable qualifying offer clause. Such clauses typically require shareholder ratification of the pill and stipulate a sunset provision whereby the pill expires unless it is renewed. These clauses also tend
to specify that an all-cash bid for all shares that includes a fairness opinion and evidence of financing does not trigger the pill, but forces either a
C-26
special meeting at which the offer is put to a shareholder vote, or requires the board to seek the written consent of shareholders, where shareholders could rescind the pill at their discretion.
We may also support a pill where it is the only effective method for protecting tax or other economic benefits that may be associated with limiting the ownership changes of individual shareholders.
We generally vote in favor of shareholder proposals to rescind poison pills.
Reimbursement of expenses for successful shareholder campaigns
We generally do not support shareholder proposals seeking the reimbursement of proxy contest expenses, even in situations where we support the shareholder
campaign. We believe that introducing the possibility of such reimbursement may incentivize disruptive and unnecessary shareholder campaigns.
Executive compensation
BlackRock expects a companys board of directors to put in place a compensation structure that incentivizes and
rewards executives appropriately and is aligned with shareholder interests, particularly the generation of sustainable long-term value.
We expect the
compensation committee to carefully consider the specific circumstances of the company and the key individuals the board is focused on incentivizing. We encourage companies to ensure that their compensation plans incorporate appropriate and rigorous
performance metrics consistent with corporate strategy and market practice. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee, or
equivalent board members, accountable for poor compensation practices or structures.
BlackRock believes that there should be a clear link between
variable pay and company performance that drives value creation. We are generally not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by
the compensation committee, we expect disclosure relating to how and why the discretion was used and further, how the adjusted outcome is aligned with the interests of shareholders.
We acknowledge that the use of peer group evaluation by compensation committees can help calibrate competitive pay; however, we are concerned when the
rationale for increases in total compensation is solely based on peer benchmarking, rather than absolute outperformance.
We support incentive plans that
foster the sustainable achievement of results consistent with the companys long-term strategic initiatives. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. Compensation committees
should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light
of market practice.
Say on Pay advisory resolutions
In cases where there is a Say on Pay vote, BlackRock will respond to the proposal as informed by our evaluation of compensation practices at that
particular company and in a manner that appropriately addresses the specific question posed to shareholders. In a commentary on our website, entitled BlackRock Investment Stewardships approach to executive compensation, we explain
our expectations related to executive compensation practices, our Say on Pay analysis framework, and our typical approach to engagement and voting on Say on Pay.
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Where we conclude that a company has failed to align pay with performance, we will vote against the management
compensation proposal and consider voting against the compensation committee members.
Frequency of Say on Pay advisory resolutions
BlackRock will generally support annual advisory votes on executive compensation, and will consider biennial and triennial timeframes, absent
compensation concerns. In evaluating pay, we believe that the compensation committee is responsible for constructing a plan that appropriately incentivizes executives for long-term value creation, utilizing relevant metrics and structure to promote
overall pay and performance alignment.
Clawback proposals
We generally favor recoupment from any senior executive whose compensation was based on faulty financial reporting or deceptive business practices. We also
favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal proceeding, even if such actions did not ultimately result in a material
restatement of past results. This includes, but is not limited to, settlement agreements arising from such behavior and paid for directly by the company. We typically support shareholder proposals on these matters unless the company already has a
robust claw back policy that sufficiently addresses our concerns.
Employee stock purchase plans
We believe employee stock purchase plans (ESPP) are an important part of a companys overall human capital management strategy and can
provide performance incentives to help align employees interests with those of shareholders. The most common form of ESPP qualifies for favorable tax treatment under Section 423 of the Internal Revenue Code. We will typically support
qualified ESPP proposals.
Equity compensation plans
BlackRock supports equity plans that align the economic interests of directors, managers, and other employees with those of shareholders. We believe that
boards should establish policies prohibiting the use of equity awards in a manner that could disrupt the intended alignment with shareholder interests (e.g. the use of stock as collateral for a loan; the use of stock in a margin account; the use of
stock in hedging or derivative transactions). We may support shareholder proposals requesting the establishment of such policies.
Our evaluation of
equity compensation plans is based on a companys executive pay and performance relative to peers and whether the plan plays a significant role in a
pay-for-performance disconnect. We generally oppose plans that contain evergreen provisions, which allow for the unlimited increase of shares reserved
without requiring further shareholder approval after a reasonable time period. We also generally oppose plans that allow for repricing without shareholder approval. We may also oppose plans that provide for the acceleration of vesting of equity
awards even in situations where an actual change of control may not occur. We encourage companies to structure their change of control provisions to require the termination of the covered employee before acceleration or special payments are
triggered (commonly referred to as double trigger change of control provisions).
Golden parachutes
We generally view golden parachutes as encouragement to management to consider transactions that might be beneficial to shareholders. However, a large
potential pay-out under a golden parachute arrangement also presents the risk of motivating a management team to support a sub-optimal sale price for a company.
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When determining whether to support or oppose an advisory vote on a golden parachute plan, BlackRock may consider
several factors, including:
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Whether we believe that the triggering event is in the best interests of shareholders
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Whether management attempted to maximize shareholder value in the triggering event
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The percentage of total premium or transaction value that will be transferred to the management team, rather than
shareholders, as a result of the golden parachute payment
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Whether excessively large excise tax gross-up payments are part of the pay-out
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Whether the pay package that serves as the basis for calculating the golden parachute payment was reasonable in
light of performance and peers
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Whether the golden parachute payment will have the effect of rewarding a management team that has failed to
effectively manage the company
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It may be difficult to anticipate the results of a plan until after it has been triggered; as a result,
BlackRock may vote against a golden parachute proposal even if the golden parachute plan under review was approved by shareholders when it was implemented.
We may support shareholder proposals requesting that implementation of such arrangements require shareholder approval. We generally support proposals
requiring shareholder approval of plans that exceed 2.99 times an executives current salary and bonus, including equity compensation.
Option
exchanges
We believe that there may be legitimate instances where underwater options create an overhang on a companys capital structure and a
repricing or option exchange may be warranted. We will evaluate these instances on a case-by-case basis. BlackRock may support a request to reprice or exchange
underwater options under the following circumstances:
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The company has experienced significant stock price decline as a result of macroeconomic trends, not individual
company performance
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Directors and executive officers are excluded; the exchange is value neutral or value creative to shareholders;
tax, accounting, and other technical considerations have been fully contemplated
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There is clear evidence that absent repricing, the company will suffer serious employee incentive or retention
and recruiting problems
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BlackRock may also support a request to exchange underwater options in other circumstances, if we determine
that the exchange is in the best interests of shareholders.
Supplemental executive retirement plans
BlackRock may support shareholder proposals requesting to put extraordinary benefits contained in supplemental executive retirement plans (SERP)
to a shareholder vote unless the companys executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans.
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Environmental and social issues
We believe that well-managed companies deal effectively with material ESG factors relevant to their businesses. As stated throughout this document, governance
is the core structure by which boards can oversee the creation of sustainable long-term valueappropriate risk oversight of environmental and social (E&S) considerations stems from this construct.
Robust disclosure is essential for investors to effectively gauge companies business practices and strategic planning related to E&S risks and
opportunities. When a companys reporting is inadequate, investors, including BlackRock, will increasingly conclude that the company is not adequately managing risk. Given the increased understanding of material sustainability risks and
opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies reporting and will hold management and/or directors accountable where disclosures or the business practices
underlying them are inadequate.
BlackRock views the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards
put forth by the Sustainability Accounting Standards Board (SASB) as appropriate and complementary frameworks for companies to disclose financially material sustainability information. While the TCFD framework was crafted with the aim of
climate-related risk disclosure, the four pillars of the TCFDGovernance, Strategy, Risk Management, and Metrics and Targetsare a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of
sustainability-related risks and opportunities. SASBs industry-specific guidance (as identified in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability
that are considered to be financially material and decision-useful within their industry.
Accordingly, we ask companies to:
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Disclose the identification, assessment, management, and oversight of sustainability-related risks in accordance
with the four pillars of TCFD
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Publish SASB-aligned reporting with industry-specific, material metrics and rigorous targets
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See our commentary on our approach to engagement on TCFD- and SASB-aligned reporting for greater detail of our expectations.
Climate risk
BlackRock believes that climate change has
become a defining factor in companies long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risks and opportunities, and how they are considered within the
companys strategy.
Specifically, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well
below 2° C and is consistent with a global aspiration to reach net zero GHG emissions by 2050.7 In order to assess companies progress, BIS expects carbon-intensive companies to disclose
explicit GHG emissions reduction targets.
The public and private sectors have roles to play in aligning greenhouse gas reduction efforts with targets
based on science, where available to curb the worst effects of climate change and reach the global goal of carbon neutrality by mid-century. Companies have an opportunity to utilize and contribute to the
development
7 The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets
are not equally equipped to transition their business and reduce emissions at the same ratethose in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace.
Government policy and regional targets may be reflective of these realities.
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of current and future low-carbon transition technologies, which are an important consideration for the rate at which emissions can be reduced. We expect
companies to disclose how they are considering these challenges, alongside opportunities for innovation, within their strategy and emissions reduction efforts.
We may support shareholder proposals that ask companies to disclose climate plans aligned with our expectations.
Key stakeholder interests
As a long-term investor, we
believe that in order to deliver value for shareholders, companies should also consider their stakeholders. While stakeholder groups may vary across industries, they are likely to include employees; business partners (such as suppliers and
distributors); clients and consumers; government and regulators; and the communities in which companies operate. Companies that build strong relationships with their stakeholders are more likely to meet their own strategic objectives, while poor
relationships may create adverse impacts that expose a company to legal, regulatory, operational, and reputational risks and jeopardize their social license to operate. We expect companies to effectively oversee and mitigate these risks with
appropriate due diligence processes and board oversight.
Human capital management
A companys approach to human capital management is a critical factor in fostering an inclusive, diverse, and engaged workforce, which contributes to
business continuity, innovation, and long-term value creation. As an important component of strategy, we expect boards to oversee human capital management.
We believe that clear and consistent reporting on these matters is critical for investors to understand the composition of a companys workforce. We
expect companies to disclose workforce demographics, such as gender, race, and ethnicity in line with the US Equal Employment Opportunity Commissions EEO-1 Survey, alongside the steps they are taking to
advance diversity, equity, and inclusion. Where we believe a companys disclosures or practices fall short relative to the market or peers, or we are unable to ascertain the board and managements effectiveness in overseeing related risks
and opportunities, we may vote against members of the appropriate committee or support relevant shareholder proposals. Our commentary on human capital management provides more information on our expectations.
Corporate political activities
Companies may engage in
certain political activities, within legal and regulatory limits, in order to influence public policy consistent with the companies values and strategies. These activities can also create risks, including: the potential for allegations of
corruption; reputational risk associated with a candidate, party, or issue; and risks that arise from the complex legal, regulatory, and compliance considerations associated with corporate political spending and lobbying activity. Companies that
engage in political activities should develop and maintain robust processes to guide these activities and mitigate risks, including board oversight.
When
presented with shareholder proposals requesting increased disclosure on corporate political activities, BlackRock will evaluate publicly available information to consider how a companys lobbying may impact the company. We will also evaluate
whether there is alignment between a companys stated positions on policy matters material to its strategy and the positions taken by industry groups of which it is a member. We may decide to support a shareholder proposal requesting additional
disclosure if we identify a material misalignment. Additional detail can be found in our commentary on political contributions and lobbying disclosures.
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General corporate governance matters
Adjourn meeting to solicit additional votes
We
generally support such proposals unless the agenda contains items that we judge to be detrimental to shareholders best long-term economic interests.
Bundled proposals
We believe that shareholders should
have the opportunity to review substantial governance changes individually without having to accept bundled proposals. Where several measures are grouped into one proposal, BlackRock may reject certain positive changes when linked with proposals
that generally contradict or impede the rights and economic interests of shareholders.
Exclusive forum provisions
BlackRock generally supports proposals to seek exclusive forum for certain shareholder litigation. In cases where a board unilaterally adopts exclusive forum
provisions that we consider unfavorable to the interests of shareholders, we will vote against the independent chair or lead independent director and members of the nominating/governance committee.
Multi-jurisdictional companies
Where a company is
listed on multiple exchanges or incorporated in a country different from its primary listing, we will seek to apply the most relevant market guideline(s) to our analysis of the companys governance structure and specific proposals on the
shareholder meeting agenda. In doing so, we typically consider the governance standards of the companys primary listing, the market standards by which the company governs itself, and the market context of each specific proposal on the agenda.
If the relevant standards are silent on the issue under consideration, we will use our professional judgment as to what voting outcome would best protect the long-term economic interests of investors. We expect companies to disclose the rationale
for their selection of primary listing, country of incorporation, and choice of governance structures, particularly where there is conflict between relevant market governance practices.
Other business
We oppose giving companies our proxy to
vote on matters where we are not given the opportunity to review and understand those measures and carry out an appropriate level of shareholder oversight.
Reincorporation
Proposals to reincorporate from one
state or country to another are most frequently motivated by considerations of anti-takeover protections, legal advantages, and/or cost savings. We will evaluate, on a
case-by-case basis, the economic and strategic rationale behind the companys proposal to reincorporate. In all instances, we will evaluate the changes to
shareholder protections under the new charter/articles/bylaws to assess whether the move increases or decreases shareholder protections. Where we find that shareholder protections are diminished, we may support reincorporation if we determine that
the overall benefits outweigh the diminished rights.
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IPO governance
We expect boards to consider and disclose how the corporate governance structures adopted upon initial public offering (IPO) are in
shareholders best long-term interests. We also expect boards to conduct a regular review of corporate governance and control structures, such that boards might evolve foundational corporate governance structures as company circumstances
change, without undue costs and disruption to shareholders. In our letter on unequal voting structures, we articulate our view that one vote for one share is the preferred structure for publicly-traded companies. We also recognize the
potential benefits of dual class shares to newly public companies as they establish themselves; however, we believe that these structures should have a specific and limited duration. We will generally engage new companies on topics such as
classified boards and supermajority vote provisions to amend bylaws, as we believe that such arrangements may not be in the best interest of shareholders in the long-term.
We will typically apply a one-year grace period for the application of certain director-related guidelines (including,
but not limited to, responsibilities on other public company boards and board composition concerns), during which we expect boards to take steps to bring corporate governance standards in line with our expectations.
Further, if a company qualifies as an emerging growth company (an EGC) under the Jumpstart Our Business Startups Act of 2012 (the JOBS
Act), we will give consideration to the NYSE and NASDAQ governance exemptions granted under the JOBS Act for the duration such a company is categorized as an EGC. We expect an EGC to have a totally independent audit committee by the first
anniversary of its IPO, with our standard approach to voting on auditors and audit-related issues applicable in full for an EGC on the first anniversary of its IPO.
Shareholder protections
Amendment to charter/articles/bylaws
We believe that
shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms and amendments to the charter/articles/bylaws. We may vote against certain directors where changes to governing documents are
not put to a shareholder vote within a reasonable period of time, particularly if those changes have the potential to impact shareholder rights (see Director elections). In cases where a boards unilateral adoption of changes to the
charter/articles/bylaws promotes cost and operational efficiency benefits for the company and its shareholders, we may support such action if it does not have a negative effect on shareholder rights or the companys corporate governance
structure.
When voting on a management or shareholder proposal to make changes to the charter/articles/bylaws, we will consider in part the
companys and/or proponents publicly stated rationale for the changes; the companys governance profile and history; relevant jurisdictional laws; and situational or contextual circumstances which may have motivated the proposed
changes, among other factors. We will typically support amendments to the charter/articles/bylaws where the benefits to shareholders outweigh the costs of failing to make such changes.
Proxy access
We believe that long-term shareholders
should have the opportunity, when necessary and under reasonable conditions, to nominate directors on the companys proxy card.
In our view,
securing the right of shareholders to nominate directors without engaging in a control contest can enhance shareholders ability to meaningfully participate in the director election process, encourage board attention to shareholder interests,
and provide shareholders an effective means of directing that attention where it is lacking. Proxy access mechanisms should provide shareholders with a reasonable opportunity to use this
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right without stipulating overly restrictive or onerous parameters for use, and also provide assurances that the mechanism will not be subject to abuse by short-term investors, investors without
a substantial investment in the company, or investors seeking to take control of the board.
In general, we support market-standardized proxy access
proposals, which allow a shareholder (or group of up to 20 shareholders) holding three percent of a companys outstanding shares for at least three years the right to nominate the greater of up to two directors or 20% of the board. Where a
standardized proxy access provision exists, we will generally oppose shareholder proposals requesting outlier thresholds.
Right to act by written
consent
In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial
importance without having to wait for management to schedule a meeting. We therefore believe that shareholders should have the right to solicit votes by written consent provided that: 1) there are reasonable requirements to initiate the consent
solicitation process (in order to avoid the waste of corporate resources in addressing narrowly supported interests); and 2) shareholders receive a minimum of 50% of outstanding shares to effectuate the action by written consent. We may oppose
shareholder proposals requesting the right to act by written consent in cases where the proposal is structured for the benefit of a dominant shareholder to the exclusion of others, or if the proposal is written to discourage the board from
incorporating appropriate mechanisms to avoid the waste of corporate resources when establishing a right to act by written consent. Additionally, we may oppose shareholder proposals requesting the right to act by written consent if the company
already provides a shareholder right to call a special meeting that we believe offers shareholders a reasonable opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting.
Right to call a special meeting
In exceptional
circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. Accordingly, shareholders should have the right to
call a special meeting in cases where a reasonably high proportion of shareholders (typically a minimum of 15% but no higher than 25%) are required to agree to such a meeting before it is called. However, we may oppose this right in cases where the
proposal is structured for the benefit of a dominant shareholder, or where a lower threshold may lead to an ineffective use of corporate resources. We generally believe that a right to act via written consent is not a sufficient alternative to the
right to call a special meeting.
Simple majority voting
We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting
requirements to the extent that we determine shareholders ability to protect their economic interests is improved. Nonetheless, in situations where there is a substantial or dominant shareholder, supermajority voting may be protective of
minority shareholder interests and we may support supermajority voting requirements in those situations.
Virtual meetings
Shareholders should have the opportunity to participate in the annual and special meetings for the companies in which they are invested, as these meetings
facilitate an opportunity for shareholders to provide feedback and hear from the board and management. While these meetings have traditionally been conducted in-person, virtual meetings are an increasingly
viable way for companies to utilize technology to facilitate shareholder accessibility, inclusiveness, and cost efficiencies. We expect shareholders to have a meaningful opportunity to participate in the meeting and interact with the board and
management in these virtual settings; companies should facilitate open dialogue and allow shareholders to voice concerns and provide feedback without undue censorship.
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This document is provided for information purposes only and is subject to change. Reliance upon this
information is at the sole discretion of the reader.
Prepared by BlackRock, Inc.
©2020 BlackRock, Inc. All rights reserved.
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PART C: OTHER INFORMATION
Article V of the Registrants Articles of Incorporation, a copy of which was filed as an exhibit to the Registrants
N-2 on January 30, 1998, and Article IV of the Registrants Amended and Restated Bylaws, a copy of which was filed as an exhibit to the Registrants 8-K
filed on November 2, 2021, provides for indemnification, as set forth below:
Article V (Provisions for Defining, Limiting
and Regulating Certain Powers of the Corporation and of the Directors and Stockholders) of the Registrants Articles of Incorporation provides as follows:
5.4. Each director and each officer of the Corporation shall be indemnified and advanced expenses by the Corporation to the full extent permitted by the
General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law subject to the requirements of the 1940 Act. The foregoing rights of indemnification
shall not be exclusive of any other rights to which those seeking indemnification may be entitled. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal..
5.5. To the fullest extent
permitted by the General Laws of the State of Maryland or decisional law, as amended or interpreted, subject to the requirements of the 1940 Act, no director or officer of the Corporation shall be personally liable to the Corporation or its security
holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
Article IV of the Registrants Amended and Restated Bylaws provides as follows:
Section 1. No Personal Liability of Directors or Officers. No Director, advisory board member or officer of the Fund shall be subject in such
capacity to any personal liability whatsoever to any Person, save only liability to the Fund or its shareholders arising from bad faith, willful misfeasance, gross negligence or reckless disregard for his or her duty to such Person; and, subject to
the foregoing exception, all such Persons shall look solely to the assets of the Fund for satisfaction of claims of any nature arising in connection with the affairs of the Fund. If any Director, advisory board member or officer, as such, of the
Fund, is made a party to any suit or proceeding to enforce any such liability, subject to the foregoing exception, such person shall not, on account thereof, be held to any personal liability. Any repeal or modification of the Charter or this
Article IV Section 1 shall not adversely affect any right or protection of a Director, advisory board member or officer of the Fund existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such
repeal or modification.
Section 2. Mandatory Indemnification.
(a) The Fund hereby agrees to indemnify each person who is or was a Director, advisory board member or officer of the Fund
(each such person being an Indemnitee) to the full extent permitted under the Charter. In addition, the Fund may provide greater but not lesser rights to indemnification pursuant to a contract approved by at least a majority of
Directors between the Fund and any Indemnitee. Notwithstanding the foregoing, no Indemnitee shall be indemnified hereunder against any liability to any person or any expense of such Indemnitee arising by reason of (i) willful misfeasance,
(ii) bad faith, (iii) gross negligence, or (iv) reckless disregard of the duties involved in the conduct of the Indemnitees position (the conduct referred to in such clauses (i) through (iv) being sometimes referred to
herein as Disabling Conduct). Furthermore, with respect to any action, suit or other proceeding voluntarily prosecuted by any Indemnitee as plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit
or other proceeding by such Indemnitee (A) was authorized by a majority of the Directors or (B) was instituted by the Indemnitee to enforce his or her rights to indemnification hereunder in a case in which the Indemnitee is found to be
entitled to such indemnification.
(b) Notwithstanding the foregoing, unless otherwise provided in any agreement relating
to indemnification between an Indemnitee and the Fund, no indemnification shall be made hereunder unless there has been a determination (i) by a final decision on the merits by a court or other body of competent jurisdiction before whom the
issue of entitlement to indemnification hereunder was brought that such
A-1
Indemnitee is entitled to indemnification hereunder or, (ii) in the absence of such a decision, by (A) a majority vote of a quorum of those Directors who are both Independent Directors
and not parties to the proceeding (Independent Non-Party Directors), that the Indemnitee is entitled to indemnification hereunder, or (B) if such quorum is not obtainable or even if
obtainable, if such majority so directs, a Special Counsel in a written opinion concludes that the Indemnitee should be entitled to indemnification hereunder.
(c) Subject to any limitations provided by the 1940 Act and the Charter, the Fund shall have the power and authority to
indemnify and provide for the advance payment of expenses to employees, agents and other Persons providing services to the Fund or serving in any capacity at the request of the Fund to the full extent permitted for corporations organized under the
corporations laws of the state in which the Fund was formed, provided that such indemnification has been approved by a majority of the Directors.
(d) Any repeal or modification of the Charter or Section 2 of this Article IV shall not adversely affect any right or
protection of a Director, advisory board member or officer of the Fund existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
Section 3. Good Faith Defined; Reliance on Experts. For purposes of any determination under this Article IV, a person shall be deemed to have
acted in good faith and in a manner such person reasonably believed to be in the best interests of the Fund, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such persons conduct was unlawful,
if such persons action is based on the records or books of account of the Fund, or on information supplied to such person by the officers of the Fund in the course of their duties, or on the advice of legal counsel for the Fund or on
information or records given or reports made to the Fund by an independent certified public accountant or by an appraiser or other expert or agent selected with reasonable care by the Fund. The provisions of this Article IV Section 3 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in this Article IV. Each Director and officer or employee of the Fund shall, in the
performance of his or her duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Fund, upon an opinion of counsel
selected by the Board of Directors or a committee of the Directors, or upon reports made to the Fund by any of the Funds officers or employees or by any advisor, administrator, manager, distributor, dealer, accountant, appraiser or other
expert or consultant selected with reasonable care by the Board of Directors or a committee of the Directors, officers or employees of the Fund, regardless of whether such counsel or expert may also be a Director.
Section 4. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article IV shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 5. Insurance. The Directors may maintain insurance for the protection of the Funds property, the shareholders, Directors,
officers, employees and agents in such amount as the Directors shall deem adequate to cover possible tort liability, and such other insurance as the Directors in their sole judgment shall deem advisable or is required by the 1940 Act.
Section 6. Subrogation. In the event of payment by the Fund to an Indemnitee under the Charter or these Bylaws, the Fund shall be subrogated to
the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute such documents and do such acts as the Fund may reasonably request to secure such rights and to enable the Fund effectively to bring suit to enforce
such rights.
Registrant has also entered into an agreement with directors and officers of the Registrant entitled to indemnification under the charter of
the Registrant pursuant to which the Registrant has agreed to advance expenses and costs incurred by the indemnitee in connection with any matter in respect of which indemnification might be sought pursuant to the charter of the Registrant to the
maximum extent permitted by law.
Reference is also made to Sections 10 and 11 of the Registrants Investment Management Agreement.
2
Additionally, the Registrant and the other funds in the BlackRock Fixed-Income Fund Complex jointly maintain, at
their own expense, E&O/D&O insurance policies for the benefit of its Directors, officers and certain affiliated persons. The Registrant pays a pro rata portion of the premium on such insurance policies.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant,
pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The agreements included or incorporated by reference as exhibits to this registration statement contain representations and warranties by each of the parties
to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable
agreement; (iii) may apply contract standards of materiality that are different from materiality under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other
date or dates as may be specified in the agreement. The Registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material
information regarding material contractual provisions are required to make the statements in this registration statement not misleading.
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Exhibit No.
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Description of Exhibit
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(1)(a)
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Articles of Incorporation of the Registrant are incorporated herein by reference to Exhibit (a)
to the Registrants Registration Statement on Form N-2 (File No. 811-08621) filed on January 30, 1998.
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(b)
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Articles of Amendment dated September
14, 2006 are incorporated herein by reference to Exhibit 1(b) to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(c)
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Articles Supplementary dated September
17, 2010 are incorporated herein by reference to Exhibit 1(c) to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(d)
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Articles of Amendment dated October
13, 2010 are incorporated herein by reference to Exhibit 1(d) to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(e)
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Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated June
28, 2011, are incorporated herein by reference to Exhibit 1(e) to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(f)
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Articles of Amendment to the Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated
April 17, 2014 are incorporated herein by reference to Exhibit 77Q1(a) to the Registrants Annual Report on Form N-SAR filed on September 26, 2014.
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(g)
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Articles of Amendment to the Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated
April 10, 2015 are incorporated herein by reference to Exhibit 77Q1(a) to the Registrants Annual Report on Form N-SAR filed on September 28, 2015.
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(h)
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Articles of Amendment to the Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated February
28, 2020 are filed herewith.
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(i)
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Articles of Amendment to the Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated December 31, 2020 are filed herewith.
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(j)
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Articles of Amendment to the Articles Supplementary Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares dated March 2, 2021 are filed herewith.
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(k)
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Articles Supplementary dated November 4, 2021 are filed herewith.
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(2)(a)
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Amended and Restated Bylaws of the Registrant are incorporated herein by reference to Exhibit 3.1 to Registrants Form 8-K, filed on November 2, 2021.
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(3)
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Voting Trust Agreement of VRDP Holder is incorporated herein by reference to Exhibit 3 to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(4)
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Form of Agreement and Plan of Reorganization is incorporated by reference to Appendix A of the Joint Proxy Statement/Prospectus.
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(5)
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Selected Provisions of the Articles of Incorporation
and the Amended and Restated Bylaws of the Registrant Defining the Rights of Shareholders are incorporated by reference to Exhibit 1(a) and Exhibit
2(a) above.
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(6)(a)
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Investment Management Agreement between the Registrant and BlackRock Advisors, LLC dated September
29, 2006 incorporated herein by reference to Exhibit 6 to the Registrants Registration Statement on Form N-14 filed on December 11, 2014.
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(b)
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Amended and Restated Master Advisory Fee Waiver Agreement is incorporated herein by reference to Exhibit 6(b) to the Registrants Registration
Statement on Form N-14 (File No. 333-260148) filed on October 8, 2021.
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(c)
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Amendment No.
1 to Amended and Restated Master Advisory Fee Waiver Agreement is incorporated herein by reference to Exhibit 6(c) to the Registrants Registration Statement on Form N-14 (File No. 333-260148) filed on October 8, 2021.
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(d)
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Amendment No.
2 to Amended and Restated Master Advisory Fee Waiver Agreement is incorporated herein by reference to Exhibit 6(d) to the Registrants Registration Statement on Form N-14 (File No. 333-260148) filed on October 8, 2021.
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(e)
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Amendment No.
3 to Amended and Restated Master Advisory Fee Waiver Agreement is incorporated herein by reference to Exhibit 6(e) to the Registrants Registration Statement on Form N-14 (File No. 333-260148) filed on October 8, 2021.
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(f)
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Amendment No.
4 to Amended and Restated Master Advisory Fee Waiver Agreement is incorporated herein by reference to Exhibit 6(f) to the Registrants Registration Statement on Form N-14 (File No. 333-260148) filed on October 8, 2021.
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4
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this
Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the
applicable registration form for the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.
5
(3) The undersigned Registrant agrees to file, by post-effective amendment, opinions of counsel supporting the
tax consequences of the Reorganization within a reasonably prompt time after receipt of such opinions.
6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and the State of New York on the 15th day of December, 2021.
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BLACKROCK MUNIHOLDINGS NEW JERSEY QUALITY FUND, INC.
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BY:
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/s/ JOHN M. PERLOWSKI
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Name:
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John M. Perlowski
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Title:
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President and Chief Executive Officer
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities indicated and on the 15th day of December, 2021.
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Signature
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Title
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/s/ JOHN M. PERLOWSKI
John M. Perlowski
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Director, President and Chief Executive Officer
(Principal Executive Officer)
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/s/ TRENT WALKER
Trent Walker
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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MICHAEL J. CASTELLANO*
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Director
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Michael J. Castellano
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RICHARD E. CAVANAGH*
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Director
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Richard E. Cavanagh
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CYNTHIA L. EGAN*
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Director
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Cynthia L. Egan
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FRANK J. FABOZZI*
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Director
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Frank J. Fabozzi
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LORENZO A. FLORES*
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Director
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Lorenzo A. Flores
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STAYCE D. HARRIS*
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Director
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Stayce D. Harris
|
|
|
|
|
J. PHILLIP HOLLOMAN*
|
|
Director
|
J. Phillip Holloman
|
|
|
|
|
R. GLENN HUBBARD*
|
|
Director
|
R. Glenn Hubbard
|
|
|
|
|
W. CARL KESTER*
|
|
Director
|
W. Carl Kester
|
|
|
|
|
CATHERINE A. LYNCH*
|
|
Director
|
Catherine A. Lynch
|
|
|
|
|
KAREN P. ROBARDS*
|
|
Director
|
Karen P. Robards
|
|
|
7
|
|
|
|
|
ROBERT FAIRBAIRN*
|
|
Director
|
Robert Fairbairn
|
|
|
|
|
|
*By:
|
|
/s/ JANEY AHN
|
|
|
|
|
(Janey Ahn, Attorney-In-Fact)
|
|
|
8
EXHIBIT INDEX
BlackRock MuniHoldings N... (NYSE:MUJ)
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