|
|
|
Notes to Financial Statements
(Unaudited)
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|
|
1. Organization and Significant Accounting Policies:
BlackRock MuniHoldings Quality Fund II,
Inc. (MUE), BlackRock MuniYield California Quality Fund, Inc. (MCA), BlackRock MuniYield Michigan Quality Fund II, Inc. (MYM), BlackRock MuniYield New York Quality Fund, Inc. (MYN) and BlackRock
MuniYield Quality Fund III, Inc. (MYI), (collectively, the Funds or individually a Fund), are registered under the 1940 Act, as non-diversified, closed-end management investment companies. The Funds are organized
as Maryland corporations. The Funds financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP), which may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those
estimates. The Boards of Directors of the Funds are collectively referred to throughout this report as the Board of Directors or the Board, and the directors thereof are collectively referred to throughout this report as
Directors. The Funds determine, and make available for publication the NAVs of their Common Shares on a daily basis.
The following is
a summary of significant accounting policies followed by the Funds:
Valuation: US GAAP defines fair value as the price the Funds would
receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair value of their financial instruments at market value using independent dealers or
pricing services under policies approved by the Board. The BlackRock Global Valuation Methodologies Committee (the Global Valuation Committee) is the committee formed by management to develop global pricing policies and procedures and to
provide oversight of the pricing function for the Funds for all financial instruments.
Municipal investments (including commitments to purchase
such investments on a when-issued basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to
transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments. Financial futures contracts traded on exchanges are
valued at their last sale price. Investments in open-end registered investment companies are valued at NAV each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair
value.
Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options
trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior days price will be used, unless it is determined that
the prior days price no longer reflects the fair value of the option. Over-the-counter (OTC) options are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such
as the trades and prices of the underlying instruments.
In the event that application of these methods of valuation results in a price for an
investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the
Board as reflecting fair value (Fair Value Assets). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive from
the current sale of that asset in an arms-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deem relevant consistent with the principles of fair value
measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. A market approach generally consists of using comparable market transactions. The income approach generally
is used to discount future cash flows to present value and adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the
investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for
similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default
rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for
calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of each Funds pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition
analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently
reported to the Board or a committee thereof on a quarterly basis.
Zero-Coupon Bonds: The Funds may invest in zero-coupon bonds, which are
normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular
interest payments.
Forward Commitments and When-Issued Delayed Delivery Securities: The Funds may purchase securities on a when-issued basis and
may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Funds may purchase securities under such conditions with the
intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate
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SEMI-ANNUAL REPORT
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JANUARY 31, 2013
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51
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|
Notes to Financial Statements (continued)
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|
prior to settlement, the Funds may be required to pay more at settlement than the security is worth. In addition, the Funds are not entitled to any of the interest earned prior to settlement.
When purchasing a security on a delayed delivery basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Funds maximum
amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in the Schedules of Investments.
Municipal
Bonds Transferred to TOBs: The Funds leverage their assets through the use of TOBs. A TOB is a special purpose entity established by a third party sponsor, into which a fund, or an agent on behalf of a fund, transfers municipal bonds into a trust
(TOB Trust). Other funds managed by the investment advisor may also contribute municipal bonds to a TOB into which a Fund has contributed bonds. A TOB typically issues two classes of beneficial interests: short-term floating rate
certificates (TOB Trust Certificates), which are sold to third party investors, and residual certificates (TOB Residuals), which are generally issued to the participating funds that contributed the municipal bonds to the TOB
Trust. If multiple funds participate in the same TOB, the rights and obligations under the TOB Residual will be shared among the funds ratably in proportion to their participation.
The TOB Residuals held by a Fund include the right of a Fund (1) to cause the holders of a proportional share of the TOB Trust Certificates to tender their certificates at par plus accrued interest upon
the occurrence of certain mandatory tender events defined in the TOB agreements, and (2) to transfer, subject to a specified number of days prior notice, a corresponding share of the municipal bonds from the TOB to a Fund. The TOB may
also be collapsed without the consent of a Fund, as the TOB Residual holder, upon the occurrence of certain termination events as defined in the TOB agreements. Such termination events may include the bankruptcy or default of the municipal bond, a
substantial downgrade in credit quality of the municipal bond, the inability of the TOB to obtain renewal of the liquidity support agreement, a substantial decline in market value of the municipal bond and a judgment or ruling that interest on the
municipal bond is subject to federal income taxation. Upon the occurrence of a Termination Event, the TOB would generally be liquidated in full with the proceeds typically applied first to any accrued fees owed to the trustee, remarketing agent and
liquidity provider, and then to the holders of the TOB Trust Certificates up to par plus accrued interest owed on the TOB Trust Certificates, with the balance paid out to the TOB Residual holder. During the six months ended January 31, 2013, no
TOBs in which the Funds participated were terminated without the consent of the Trusts.
The cash received by the TOB from the sale of the TOB
Trust Certificates, less transaction expenses, is paid to a Fund. The Funds typically invests the cash received in additional municipal bonds. Each Funds transfer of the municipal bonds to a TOB Trust is accounted for as a secured borrowing;
therefore, the municipal bonds deposited into a TOB are presented in the Funds Schedules of Investments and the TOB Trust Certificates are shown in other liabilities in the Statements of Assets and Liabilities. The carrying amount of the
Funds payable to the holder of the TOB Trust Certificates, as reported in Statements of Assets and Liabilities as TOB Trust Certificates, approximates its fair value.
The Funds may invest in TOBs on either a non-recourse or recourse basis. TOB Trusts are typically supported by a liquidity facility provided by a bank or other financial institution (the Liquidity
Provider) that allows the holders of the TOB Trust Certificates to tender their certificates in exchange for payment from the Liquidity Provider of par plus accrued interest on any business day prior to the occurrence of the termination events
described above. When a Fund invests in TOBS on a non-recourse basis, and the Liquidity Provider is required to make a payment under the liquidity facility due to a termination event, the Liquidity Provider will typically liquidate all or a portion
of the municipal securities held in the TOB Trust and then fund, on a net basis, the balance, if any,) of the amount owed under the liquidity facility over the liquidation proceeds (the Liquidation Shortfall). If a Fund invests in a TOB
on a recourse basis, the Fund will typically enter into a reimbursement agreement with the Liquidity Provider where the Fund is required to repay the Liquidity Provider the amount of any Liquidation Shortfall. As a result, a Fund investing in a
recourse TOB will bear the risk of loss with respect to any Liquidation Shortfall. If multiple funds participate in any such TOB, these losses will be shared ratably in proportion to their participation. The recourse TOB Trusts, if any, are
identified in the Schedules of Investments.
Interest income, including amortization and accretion of premiums and discounts, from the underlying
municipal bonds is recorded by the Funds on an accrual basis. Interest expense incurred on the secured borrowing and other expenses related to remarketing, administration and trustee services to a TOB are shown as interest expense, fees and
amortization of offering costs in the Statements of Operations. The TOB Trust Certificates have interest rates that generally reset weekly and their holders have the option to tender such certificates to the TOB for redemption at par at each reset
date. At January 31, 2013, the aggregate value of the underlying municipal bonds transferred to TOBs, the related liability for TOB Trust Certificates and the range of interest rates on the liability for TOB Trust Certificates were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Underlying
Municipal Bonds
Transferred to TOBs
|
|
|
Liability
for TOB Trust
Certificates
|
|
|
Range
of
Interest Rates
|
|
MUE
|
|
$
|
175,412,681
|
|
|
$
|
87,975,110
|
|
|
|
0.09% - 0.34%
|
|
MCA
|
|
$
|
446,310,036
|
|
|
$
|
203,182,546
|
|
|
|
0.09% - 0.20%
|
|
MYM
|
|
$
|
33,988,060
|
|
|
$
|
16,718,184
|
|
|
|
0.11% - 0.35%
|
|
MYN
|
|
$
|
224,379,680
|
|
|
$
|
110,274,961
|
|
|
|
0.09% - 0.22%
|
|
MYI
|
|
$
|
535,392,641
|
|
|
$
|
258,312,052
|
|
|
|
0.10% - 0.18%
|
|
For the six months ended January 31, 2013, the Funds average TOB Trust Certificates outstanding and the daily
weighted average interest rate, including fees, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Average TOB Trust
Certificates
Outstanding
|
|
|
Daily Weighted
Average
Interest Rate
|
|
MUE
|
|
$
|
87,397,013
|
|
|
|
0.71
|
%
|
MCA
|
|
$
|
199,019,215
|
|
|
|
0.68
|
%
|
MYM
|
|
$
|
16,718,184
|
|
|
|
0.68
|
%
|
MYN
|
|
$
|
113,760,930
|
|
|
|
0.81
|
%
|
MYI
|
|
$
|
250,698,411
|
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
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SEMI-ANNUAL REPORT
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|
JANUARY 31, 2013
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|
|
|
Notes to Financial Statements (continued)
|
|
|
Should short-term interest rates rise, the Funds investments in TOBs may adversely affect the Funds net investment income and dividends to Common Shareholders. Also, fluctuations in the market
value of municipal bonds deposited into the TOB Trust may adversely affect the Funds NAVs per share.
Segregation and Collateralization: In
cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (SEC) require that the Funds either deliver collateral or segregate assets in connection with certain investments (e.g., TOBs and
financial futures contracts), the Funds will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on their books and records cash or liquid securities having a market value at least
equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, a Fund engaging in such transactions may have requirements to
deliver/deposit securities to/with an exchange or broker-dealer as collateral for certain investments.
Investment Transactions and Investment
Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis.
Dividend income is recorded on the ex-dividend dates. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Dividends and Distributions: Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. The character and timing of dividends
and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP. Dividends and distributions to Preferred Shareholders are accrued and determined as described in Note 7.
Income Taxes: It is the Funds policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required.
Each Fund files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds US federal tax returns remains open
for each of the four years ended July 31, 2012. The statutes of limitations on each Funds state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any
uncertain tax positions that require recognition of a tax liability.
Recent Accounting Standards: In December 2011, the Financial Accounting
Standards Board (the FASB) issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments
subject to master netting or similar agreements, which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial
statements. In January 2013, the FASB issued guidance that clarifies which investments and transactions are subject to the offsetting disclosure requirements. The scope of the disclosure requirements for offsetting will be limited to derivative
instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and
interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds financial statement disclosures.
Deferred Compensation Plan: Under the Deferred Compensation Plan (the Plan) approved by each Funds Board, the independent Directors
(Independent Directors) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain other BlackRock
Closed-End Funds selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.
The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of each Fund. Deferred
compensation liabilities are included in officers and directors fees payable in the Statements of Assets and Liabilities and will remain as a liability of the Funds until such amounts are distributed in accordance with the Plan.
Other: Expenses directly related to a Fund are charged to that Fund. Other operating expenses shared by several funds are pro rated among those
funds on the basis of relative net assets or other appropriate methods.
The Funds have an arrangement with the custodian whereby fees may be
reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned
or may result in additional custody charges.
2. Derivative Financial Instruments:
The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to economically hedge, or protect, their exposure to certain risks such
as interest rate risk. These contracts may be transacted on an exchange or OTC.
Losses may arise if the value of the contract decreases due to an
unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Funds maximum risk of loss from counterparty credit risk on OTC derivatives is generally the
aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty. For OTC options purchased, the Funds bear the risk of loss in the amount of the premiums paid plus the positive change in market values net of any
collateral received on the options should the counterparty fail to perform under the contracts. Counterparty risk related to exchange-traded financial futures contracts and options is deemed to be minimal due to the protection against defaults
provided by the exchange on which these contracts trade.
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|
|
|
|
|
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|
|
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SEMI-ANNUAL REPORT
|
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JANUARY 31, 2013
|
|
53
|
|
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
The Funds may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives
Association, Inc. master agreement (ISDA Master Agreement) implemented between a Fund and each of its respective counterparties. An ISDA Master Agreement allows each Fund to offset with each separate counterparty certain derivative
financial instruments payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Funds
from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty non-performance. See Note 1 Segregation and Collateralization for information with respect to
collateral practices. In addition, the Funds manage counterparty risk by entering into agreements only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those
counterparties.
Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the
event the Funds net assets decline by a stated percentage or the Funds fail to meet the terms of their ISDA Master Agreements, which would cause the Funds to accelerate payment of any net liability owed to the counterparty.
Financial Futures Contracts: The Funds purchase or sell financial futures contracts and options on financial futures contracts to gain exposure to, or
economically hedge against, changes in interest rates (interest rate risk. Financial futures contracts are agreements between the Funds and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a
specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the
settlement date. Pursuant to the contract, the Funds agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by
the Funds as unrealized appreciation or depreciation. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.
Options: Certain Funds purchase and write call and put options to increase or decrease their exposure to underlying instruments (including interest rate risk) and/or, in the case of options written, to
generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised), the underlying instrument at the
exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a
specified time during the option period. When the Funds purchase (write) an option, an amount equal to the premium paid (received) by the Funds is reflected as an asset (liability). The amount of the asset (liability) is subsequently
marked-to-market to reflect the current market value of the option purchased (written). When an instrument is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the
instrument acquired or deducted from (or added to) the proceeds of the instrument sold. When an option expires (or the Funds enter into a closing transaction), the Funds realize a gain or loss on the option to the extent of the premiums received or
paid (or gain or loss to the extent the cost of the closing transaction exceeds the premiums received or paid). When the Funds write a call option, such option is covered, meaning that the Funds hold the underlying instrument subject to
being called by the option counterparty. When the Funds write a put option, such option is covered by cash in an amount sufficient to cover the obligation.
In purchasing and writing options, the Funds bear the risk of an unfavorable change in the value of the underlying instrument or the risk that the Funds may not be able to enter into a closing transaction
due to an illiquid market. Exercise of a written option could result in the Funds purchasing or selling a security at a price different from the current market value.
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments Categorized by Risk Exposure:
|
|
|
|
|
|
|
|
Fair Values of Derivative Financial Instruments as of January 31, 2013
|
|
Asset Derivatives
|
|
|
|
MCA
|
|
|
|
Statements of Assets
and Liabilites Location
|
|
|
|
Value
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
Net unrealized appreciation
1
|
|
|
|
$
|
171,053
|
|
Liability Derivatives
|
|
|
|
MYN
|
|
|
|
Statements of Assets
and Liabilites Location
|
|
|
|
Value
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
Net unrealized depreciation
1
|
|
|
|
$
|
(19,772
|
)
|
|
1
|
|
Includes cumulative appreciation/depreciation on financial futures contracts as
reported in the Schedules of Investments. Only current days variation margin is reported within the Statements of Assets and Liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
SEMI-ANNUAL REPORT
|
|
JANUARY 31, 2013
|
|
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Financial Instruments in the Statements of
Operations
Six Months Ended January 31, 2013
|
|
|
|
Net Realized Gain (Loss) From
|
|
|
|
MCA
|
|
|
MYM
|
|
|
MYN
|
|
|
MYI
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
|
|
$
|
148,953
|
|
|
$
|
(68,935
|
)
|
|
|
|
|
|
$
|
(401,075
|
)
|
Options
1
|
|
|
|
|
|
|
|
|
|
|
|
|
$(193,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
148,953
|
|
|
$
|
(68,935
|
)
|
|
|
$(193,373
|
)
|
|
$
|
(401,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized
Appreciation/Depreciation on
|
|
|
|
|
|
|
|
|
|
MCA
|
|
|
MYN
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts
|
|
|
|
$171,053
|
|
|
|
$(19,772
|
)
|
1
Options purchased are included in the net realized gain (loss) from investments.
|
|
|
|
|
|
For the six months ended January 31, 2013, the average quarterly balances of outstanding derivative financial instruments were as follows:
|
|
|
|
MCA
|
|
|
MYM
|
|
|
MYN
|
|
|
MYI
|
|
Financial future contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of contracts purchased
|
|
|
|
|
|
|
28
|
2
|
|
|
|
|
|
|
160
|
2
|
Average number of contracts sold
|
|
|
85
|
|
|
|
28
|
2
|
|
|
37
|
|
|
|
160
|
2
|
Average notional value of contracts purchased
|
|
|
|
|
|
$
|
3,692,305
|
2
|
|
|
|
|
|
$
|
21,482,500
|
2
|
Average notional value of contracts sold
|
|
$
|
11,158,906
|
|
|
$
|
3,657,930
|
2
|
|
|
$5,308,344
|
|
|
$
|
21,282,500
|
2
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of option contracts purchased
|
|
|
|
|
|
|
|
|
|
|
1
|
2
|
|
|
|
|
Average notional value of option contracts purchased
|
|
|
|
|
|
|
|
|
|
|
$ 611,500
|
2
|
|
|
|
|
2
Actual contract amount shown due to limited activity.
|
|
|
|
|
|
3. Investment Advisory Agreement and Other
Transactions with Affiliates:
The PNC Financial Services Group, Inc. (PNC) is the largest stockholder and an affiliate, for 1940
Act purposes, of BlackRock, Inc. (BlackRock).
Each Fund entered into an Investment Advisory Agreement with BlackRock Advisors, LLC
(the Manager), the Funds investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of each Funds portfolio
and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of each Fund. For such services, each Fund pays the Manager a monthly fee at an annual rate of each Funds average daily net
assets at the following annual rates:
|
|
|
|
|
MUE
|
|
|
0.55%
|
|
MCA
|
|
|
0.50%
|
|
MYM
|
|
|
0.50%
|
|
MYN
|
|
|
0.50%
|
|
MYI
|
|
|
0.50%
|
|
Average daily net assets are the average daily value of each Funds total assets minus the sum of its accrued
liabilities.
The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the
Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Funds investment in other
affiliated investment companies, if any. These amounts are included in fees waived by Manager in the Statements of Operations.
For the six months
ended January 31, 2013, the amounts waived were as follows:
|
|
|
|
|
MUE
|
|
$
|
2,196
|
|
MCA
|
|
$
|
7,801
|
|
MYM
|
|
$
|
995
|
|
MYN
|
|
$
|
5,796
|
|
MYI
|
|
$
|
4,371
|
|
The Manager, for MUE, voluntarily agreed to waive its investment advisory fee on the proceeds of Preferred Shares and TOBs
that exceed 35% of total assets minus the sum of its accrued liabilities. This amount is included in fees waived by Manager in the Statements of Operations. For the six months ended January 31, 2013 the waiver was $90,771.
The Manager entered into a sub-advisory agreement with BlackRock Investment Management, LLC (BIM), an affiliate of the Manager. The Manager pays
BIM, for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by each Fund to the Manager.
Certain
officers and/Directors of the Funds are officers and/or directors of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Funds Chief Compliance Officer, which is included in officer and
directors in the Statement of Operations.
4. Investments:
Purchases and sales of investments excluding short-term securities for the six months ended January 31, 2013, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
MUE
|
|
$
|
72,225,622
|
|
|
$
|
73,526,741
|
|
MCA
|
|
$
|
96,649,646
|
|
|
$
|
96,525,685
|
|
MYM
|
|
$
|
17,461,231
|
|
|
$
|
17,337,513
|
|
MYN
|
|
$
|
44,345,000
|
|
|
$
|
56,162,824
|
|
MYI
|
|
$
|
79,003,404
|
|
|
$
|
69,662,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEMI-ANNUAL REPORT
|
|
JANUARY 31, 2013
|
|
55
|
|
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
5. Income Tax Information:
As of July 31, 2012, the Funds had capital loss carryforwards
available to offset future realized capital gains through the indicated expiration dates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expires July 31,
|
|
MUE
|
|
|
MCA
|
|
|
MYM
|
|
|
MYN
|
|
|
MYI
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,107,506
|
|
|
$
|
1,213,491
|
|
2015
|
|
|
|
|
|
$
|
1,362,395
|
|
|
|
|
|
|
|
|
|
|
|
5,979,955
|
|
2016
|
|
|
|
|
|
|
|
|
|
$
|
823,067
|
|
|
|
2,330,288
|
|
|
|
25,066,903
|
|
2017
|
|
$
|
8,043,130
|
|
|
|
2,753,866
|
|
|
|
253,932
|
|
|
|
2,295,738
|
|
|
|
21,251,301
|
|
2018
|
|
|
6,013,130
|
|
|
|
5,944,218
|
|
|
|
|
|
|
|
3,370,191
|
|
|
|
26,460,028
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287,746
|
|
|
|
|
|
No expiration date
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,600,902
|
|
|
|
6,528,116
|
|
|
|
|
|
|
Total
|
|
$
|
14,056,260
|
|
|
$
|
10,060,479
|
|
|
$
|
1,076,999
|
|
|
$
|
16,992,371
|
|
|
$
|
86,499,794
|
|
|
|
|
|
|
1
Must be utilized prior to losses subject to expiration.
|
|
As of January 31 2013, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MUE
|
|
|
MCA
|
|
|
MYM
|
|
|
MYN
|
|
|
MYI
|
|
Tax cost
|
|
$
|
421,061,342
|
|
|
$
|
654,835,054
|
|
|
$
|
248,403,952
|
|
|
$
|
756,700,806
|
|
|
$
|
1,225,983,270
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
51,883,100
|
|
|
$
|
84,353,758
|
|
|
$
|
22,695,979
|
|
|
$
|
74,995,303
|
|
|
$
|
171,019,651
|
|
Gross unrealized depreciation
|
|
|
(324,065
|
)
|
|
|
(97,163
|
)
|
|
|
(1,845,971
|
)
|
|
|
(5,255,083
|
)
|
|
|
(2,505,280
|
)
|
|
|
|
|
|
Net unrealized appreciation
|
|
$
|
51,559,035
|
|
|
$
|
84,256,595
|
|
|
$
|
20,850,008
|
|
|
$
|
69,740,220
|
|
|
$
|
168,514,371
|
|
|
|
|
|
|
6. Concentration, Market and Credit Risk:
MCA, MYM and MYN invest a substantial amount of their assets in issuers located in a single state or limited number of states. Please see the
Schedules of Investments for concentrations in specific states.
Many municipalities insure repayment of their bonds, which may reduce the
potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the value of such insurance, and there is no guarantee that the insurer will meet its obligation.
The Funds may hold a significant amount of bonds subject to calls by the issuers at defined dates and prices. When bonds are called by issuers and the Funds
reinvest the proceeds received, such investments may be in securities with lower yields than the bonds originally held, and correspondingly, could adversely impact the yield and total return performance of a fund.
In the normal course of business, the Funds invest in securities and enter into transactions where risks exist due to fluctuations in the market (market
risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers whose securities are
owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the
Funds may be exposed to counterparty credit risk, or the risk that an entity with which the Funds have unsettled or open transactions may fail to or be unable to perform on its commitments. The Funds manage counterparty credit risk by entering into
transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer
and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds exposure to market, issuer and counterparty credit risks with respect to these financial assets is
generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.
As of
January 31, 2013, MUE and MYN invested a significant portion of their assets in securities in the county/city/special district/school district and transportation sectors. MCA invested a significant portion of its assets in securities in the
county/city/special district/school district and utilities sectors. MYM invested a significant portion of its assets in securities in the county/city/special district/school district sector. MYI invested a significant portion of its assets in
securities in the transportation sector. Changes in economic conditions affecting the county/city/special district/school district, transportation and utilities sectors would have a greater impact on the Funds and could affect the value, income
and/or liquidity of positions in such securities.
7. Capital Share Transactions:
Each Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Funds Common Shares is $0.10. The par value for each
Funds Preferred Shares outstanding is $0.10. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without approval of Common Shareholders.
Common Shares
For the periods shown, shares issued and outstanding increased by the following amounts
as a result of dividend reinvestment:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
January 31, 2013
|
|
|
Year
Ended
July 31, 2012
|
|
MUE
|
|
|
27,834
|
|
|
|
30,480
|
|
MCA
|
|
|
35,451
|
|
|
|
|
|
MYM
|
|
|
5,323
|
|
|
|
23,376
|
|
MYN
|
|
|
77,179
|
|
|
|
6,634
|
|
MYI
|
|
|
191,138
|
|
|
|
109,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
SEMI-ANNUAL REPORT
|
|
JANUARY 31, 2013
|
|
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
Preferred Shares
Each Funds Preferred Shares rank prior to the Funds Common Shares as to
the payment of dividends by the Fund and distribution of assets upon dissolution or liquidation of the Fund. The 1940 Act prohibits the declaration of any dividend on the Funds Common Shares or the repurchase of the Funds Common Shares
if the Funds fail to maintain the asset coverage of at least 200% of the liquidation preference of the outstanding Preferred Shares. In addition, pursuant to the Preferred Shares governing instrument, the Funds are restricted from declaring
and paying dividends on classes of shares ranking junior to or on parity with the Preferred Shares or repurchasing such shares if the Funds fail to declare and pay dividends on the Preferred Shares, redeem any Preferred Shares required to be
redeemed under the Preferred Shares governing instrument or comply with the basic maintenance amount requirement of the rating agencies then rating the Preferred Shares.
The holders of Preferred Shares have voting rights equal to the holders of Common Shares (one vote per share) and will vote together with holders of Common Shares (one vote per share) as a single class.
However, the holders of Preferred Shares, voting as a separate class, are also entitled to elect two Directors for each Fund. In addition, the 1940 Act requires that along with approval by shareholders that might otherwise be required, the approval
of the holders of a majority of any outstanding Preferred Shares, voting separately as a class would be required to (a) adopt any plan of reorganization that would adversely affect the Preferred Shares, (b) change a Funds
sub-classification as a closed-end investment company or change its fundamental investment restrictions or (c) change its business so as to cease to be an investment company.
VRDP Shares
MCA, MYM, MYN and MYI (collectively, the VRDP Funds) have issued Series W-7
VRDP Shares, $100,000 liquidation value per share, in a privately negotiated offering. The VRDP Shares were offered to qualified institutional buyers as defined pursuant to Rule 144A under the Securities Act of 1933, as amended, (the
Securities Act) and include a liquidity feature, pursuant to a liquidity agreement, that allows the holders of VRDP Shares to have their shares purchased by the liquidity provider in the event of a failed remarketing. The VRDP Funds are
required to redeem the VRDP Shares owned by the liquidity provider after six months of continuous, unsuccessful remarketing. Upon the occurrence of the first unsuccessful remarketing, the VRDP Funds are required to segregate liquid assets to fund
the redemption. The VRDP Shares are subject to certain restrictions on transfer.
The VRDP Shares outstanding as of January 31, 2013 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Maturity
Date
|
|
MCA
|
|
|
4/21/11
|
|
|
|
1,665
|
|
|
$
|
166,500,000
|
|
|
|
5/01/41
|
|
MYM
|
|
|
5/19/11
|
|
|
|
873
|
|
|
$
|
87,300,000
|
|
|
|
6/01/41
|
|
MYN
|
|
|
4/21/11
|
|
|
|
2,477
|
|
|
$
|
247,700,000
|
|
|
|
5/01/41
|
|
MYI
|
|
|
5/19/11
|
|
|
|
3,564
|
|
|
$
|
356,400,000
|
|
|
|
6/01/41
|
|
Each VRDP Fund entered into a fee agreement with the liquidity provider that required a per annum liquidity fee payable to
the liquidity provider. These fees, if applicable, are shown as liquidity fees in the Statements of Operations.
The fee agreement between each VRDP Fund and the liquidity provider is scheduled to expire on July 9, 2015 unless renewed or terminated in advance.
In the event the fee agreement is not renewed or is terminated in advance, and the VRDP Funds do not enter into a fee agreement with an alternate
liquidity provider, the VRDP Shares will be subject to mandatory purchase by the liquidity provider prior to the termination of the fee agreement. The VRDP Funds are required to redeem any VRDP Shares purchased by the liquidity provider six months
after the purchase date. Immediately after the purchase of any VRDP Shares by the liquidity provider, the VRDP Funds are required to begin to segregate liquid assets with the VRDP Funds custodians to fund the redemption. There is no assurance
the VRDP Funds will replace such redeemed VRDP Shares with any other preferred shares or other form of leverage.
Each VRDP Fund is required to
redeem their VRDP Shares on the maturity date, unless earlier redeemed or repurchased. Six months prior to the maturity date, each VRDP Fund is required to begin to segregate liquid assets with the Funds custodian to fund the redemption. In
addition, VRDP Funds are 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, VRDP Shares may be redeemed, in whole or in part, at any time at the option of VRDP Funds. The redemption price per VRDP Share is equal to the liquidation value per share plus
any outstanding unpaid dividends.
Dividends on the VRDP Shares are payable monthly at a variable rate se 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. At the date of issuance, the VRDP Shares were assigned a long-term rating of Aaa from
Moodys and AAA from Fitch. In May 2012, Moodys completed a review of its methodology for rating securities issued by registered closed-end funds. As of January 31, 2013, the VRDP Shares were assigned a long-term rating of Aa2 for
MCA, MYM and MYN and Aa1 for MYI from Moodys under its new ratings methodology. The VRDP Shares continue to be assigned a long-term rating of AAA from Fitch.
The short-term ratings on the VRDP Shares are directly related to the short-term ratings of the liquidity provider for such VRDP Shares. Changes in the credit quality of the liquidity provider could cause a
change in the short-term credit ratings of the VRDP Shares as rated by Moodys, Fitch and/or S&P. A change in the short-term credit rating of the liquidity provider or the VRDP Shares may adversely affect the dividend rate paid on such
shares, although the dividend rate paid on the VRDP Shares is not directly related based upon either short-term rating. The liquidity provider may be terminated prior to the scheduled termination date if the liquidity provider fails to maintain
short-term debt ratings in one of the two highest rating categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEMI-ANNUAL REPORT
|
|
JANUARY 31, 2013
|
|
57
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
For financial reporting purposes, VRDP Shares are considered debt of the issuer; therefore, the liquidation value, which approximates fair value, of VRDP Shares is recorded as a liability in the Statements
of Assets and Liabilities. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the dividends accrued and paid on the VRDP Shares are included as a component of interest expense, fees
and amortization of offering costs in the Statements of Operations. VRDP Shares are treated as equity for tax purposes. Dividends paid to holders of VRDP Shares are generally classified as tax-exempt income for tax-reporting purposes.
On June 21, 2012, the VRDP Funds announced a special rate period for a three-year term ending June 24, 2015 with respect to their VRDP Shares. The
liquidity and fee agreements remain in effect for the duration of the special rate period and the VRDP shares are still subject to mandatory redemption by the VRDP Funds on maturity date. The VRDP Shares will not be remarketed or subject to optional
or mandatory tender events during such time. During the special rate period, the VRDP Funds are required to maintain the same asset coverage, basic maintenance amount and leverage requirements for the VRDP Shares. The VRDP Funds will not pay any
liquidity and remarketing fees during the special rate period and instead will pay dividends monthly 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 VRDP Shares. The short-term ratings were withdrawn by Moodys, Fitch and/or S&P. Short-term ratings may be re-assigned upon the termination of the special rate period when the VRDP Shares revert back to
remarketable securities.
If the VRDP Funds redeem the VRDP Shares on a date that is one year or more before the end of the special rate period
and the VRDP Shares are rated above A1/A by Moodys and Fitch respectively, then such redemption is subject to a redemption premium payable to the holder of the VRDP Shares based on the time remaining in the special rate period, subject to
certain exceptions for redemptions that are required to maintain minimum asset coverage requirements. After June 24, 2015, the holder of the VRDP Shares and the VRDP Funds may mutually agree to extend the special rate period. If the 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.
The VRDP Funds may incurred remarketing fees of 0.10% on the aggregate principal amount of all VRDP Shares, which, if any, are included in remarketing fees on Preferred Shares in the Statements of
Operations. All of the VRDP Shares successfully remarketed prior to the beginning of the special rate period.
The annualized dividend rates for
the VRDP Shares for the six months ended January 31, 2013 were as follows:
|
|
|
|
|
|
|
Rate
|
|
MCA
|
|
|
1.10%
|
|
MYM
|
|
|
1.10%
|
|
MYN
|
|
|
1.10%
|
|
MYI
|
|
|
1.10%
|
|
VRDP Shares issued and outstanding remained constant for the six months ended January 31, 2013.
VMTP Shares
MUE has issued Series W-7 VMTP Shares,
$100,000 liquidation value per share, in a privately negotiated offering and sale of VMTP Shares exempt from registration under the Securities Act.
The VMTP Shares outstanding as of January 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Term
Date
|
|
MUE
|
|
|
12/16/11
|
|
|
|
1,310
|
|
|
$
|
131,000,000
|
|
|
|
1/02/15
|
|
MUE is required to redeem its VMTP Shares on the term date, unless earlier redeemed or repurchased or unless extended. There
is no assurance that the term of the Funds VMTP Shares will be extended or that the Funds VMTP Shares will be replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the VMTP Shares. Six
months prior to term date, the VMTP Fund is required to begin to segregate liquid assets with the Funds custodian to fund the redemption. In addition, the VMTP Fund is required to redeem certain of its outstanding VMTP Shares if it fails to
maintain certain asset coverage, basic maintenance amount or leverage requirements.
Subject to certain conditions, the Funds VMTP Shares
may be redeemed, in whole or in part, at any time at the option of the Fund. The redemption price per VMTP Share is equal to the liquidation value per share plus any outstanding unpaid dividends and applicable redemption premium. If the Fund redeems
the VMTP Shares on a date that is one year or more prior to the term date and the VMTP Shares are rated above A1/A+ by Moodys and Fitch, respectively, then such redemption is subject to a prescribed redemption premium payable to the holder of
the VMTP Shares based on the time remaining to the term date, subject to certain exceptions for redemptions that are required to maintain minimum asset coverage requirements. The VMTP Shares are subject to certain restrictions on transfer, and the
Fund may also be required to register the VMTP Shares for sale under the Securities Act under certain circumstances. In addition, amendments to the VMTP governing document generally require the consent of the holders of VMTP Shares.
Dividends on the VMTP Shares are declared daily and payable monthly at a variable rate set weekly at a fixed rate spread to the SIFMA Municipal Swap Index.
The fixed spread is determined based on the long-term preferred share rating assigned to the VMTP Shares by Moodys and Fitch. At the date of issuance, the VMTP Shares were assigned long-term ratings of Aaa from Moodys and AAA from Fitch.
In May 2012, Moodys completed a review of its methodology for rating securities issued by registered closed-end funds. As of January 31, 2013, the VMTP Shares were assigned a long-term rating of Aa1 from Moodys under its new rating
methodology. The dividend rate on the VMTP Shares is subject to a step-up spread if the Fund fails to comply with certain provisions, including, among other things, the timely payment of dividends, redemptions or gross-up payments, and maintaining
certain asset coverage and leverage requirements.
The average annualized dividend rate of the VMTP Shares for the six months ended
January 31, 2013 for MUE was 1.15%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
SEMI-ANNUAL REPORT
|
|
JANUARY 31, 2013
|
|
|
|
|
|
Notes to Financial Statements (concluded)
|
|
|
For financial reporting purposes, VMTP Shares are considered debt of the issuer; therefore the liquidation value, which approximates fair value, of VMTP Shares is recorded as a liability in the Statements of
Assets and Liabilities. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the dividends paid on the VMTP Shares are included as a component of interest expense, fees and amortization
of offering costs in the Statements of Operations. VMTP Shares are treated as equity for tax purposes. Dividends paid to holders of VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes.
VMTP Shares issued and outstanding remained constant for the six months ended January 31, 2013.
Offering Costs: The Funds incurred costs in connection with the issuance of VRDP Shares and/or VMTP Shares. For VRDP Shares, these costs were recorded as a deferred charge and will be amortized over the
30-year life of the VRDP Shares with the exception of upfront fees paid to the liquidity provider, which were amortized over the life of the liquidity agreement. For VMTP Shares, these costs were recorded as a deferred charge and will be amortized
over the 3-year life of the VMTP Shares. Amortization of these costs is included in interest expense, fees and amortization of offering costs in the Statements of Operations.
AMPS
The AMPS were redeemable at the option of each Fund, in whole or in part, on any dividend payment
date at their liquidation preference per share plus any accumulated and unpaid dividends whether or not declared. The AMPS were also subject to mandatory redemption at their liquidation preference plus any accumulated and unpaid dividends, whether
or not declared, if certain requirements relating to the composition of the assets and liabilities of a Fund, as set forth in each Funds Articles of Supplementary (the Governing Instrument) were not satisfied.
From February 13, 2008 to the redemption date listed below, the AMPS of the Funds failed to clear any of their auctions. A failed auction was not an
event of default for the Funds, but it had negative impact on the liquidity of AMPS. A failed auction occurs when there are more sellers of a funds AMPS than buyers.
As of January 31, 2013, the Funds did not have any AMPS outstanding.
During the year ended
July 31, 2012, MUE announced the following redemptions of AMPS at a price of $25,000 per share plus any accrued and unpaid dividends through the redemption date:
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Series
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Redemption
Date
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Shares
Redeemed
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Aggregate
Principal
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MUE
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A
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1/06/12
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1,345
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$
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33,625,000
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B
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1/05/12
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1,345
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$
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33,625,000
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C
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1/11/12
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2,550
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$
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63,750,000
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MUE financed the AMPS redemptions with the proceeds received from the issuance of VMTP shares of $131,000,000.
8. Subsequent Events:
Managements
evaluation of the impact of all subsequent events on the Funds financial statements was completed through the date the financial statements were issued and the following items were noted:
Each Fund paid a net investment income dividend on March 1, 2013 to Common Shareholders of record on February 15, 2013:
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Common Dividend Per Share
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MUE
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$
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0.0705
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MCA
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$
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0.0760
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MYM
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$
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0.0690
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MYN
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$
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0.0710
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MYI
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$
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0.0720
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Additionally, the Funds declared a net investment income dividend on March 1, 2013 payable to Common Shareholders of
record on March 15, 2013 for the same amounts noted above.
The dividends declared on VMTP or VRDP Shares for the period February 1,
2013 to February 28, 2013 were as follows:
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Series
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Dividends
Declared
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MUE VMTP Shares
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W-7
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$
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110,830
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MCA VRDP Shares
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W-7
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$
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134,477
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MYM VRDP Shares
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W-7
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$
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70,510
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MYN VRDP Shares
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W-7
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$
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200,060
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MYI VRDP Shares
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W-7
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$
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287,854
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SEMI-ANNUAL REPORT
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JANUARY 31, 2013
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59
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Richard E. Cavanagh, Chairman of the Board and Director
Karen P. Robards, Vice Chairperson of the Board, Chairperson of the Audit Committee and Director
Paul. L. Audet, Director
Michael J. Castellano, Director and Member of the Audit Committee
Frank J. Fabozzi, Director and Member of the Audit Committee
Kathleen F. Feldstein, Director
James T. Flynn, Director and Member of the Audit Committee
Henry
Gabbay, Director
Jerrold B. Harris, Director
R. Glenn Hubbard, Director
W. Carl Kester, Director and Member of the Audit Committee
John M.
Perlowski, President and Chief Executive Officer
Anne Ackerley, Vice President
Brendan Kyne, Vice President
Robert W. Crothers, Vice President
Neal Andrews, Chief Financial
Officer
Jay Fife, Treasurer
Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer
Janey Ahn, Secretary
Investment Advisor
BlackRock Advisors, LLC
Wilmington, DE 19809
Sub-Advisor
BlackRock Investment Management, LLC
Princeton, NJ 08540
Custodians
State Street Bank and Trust Company
1
Boston, MA 02110
The Bank of New York Mellon
2
New York, NY 10286
Transfer Agent
Common Shares:
Computershare Trust Company, N.A.
Canton, MA 02021
VRDP Tender and Paying Agent and
VMTP
Redemption and Paying Agent
The Bank of New York Mellon
New York, NY 10289
VRDP Remarketing Agent
Citigroup Global Markets Inc.
New York, NY 10179
VRDP Liquidity Prorider
Citibank, N.A.
New York, NY 10179
Accounting Agent
State Street Bank and Trust Company
Boston, MA 02110
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, NY 10036
Address of the Funds
100 Bellevue Parkway
Wilmington, DE 19809
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60
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SEMI-ANNUAL REPORT
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JANUARY 31, 2013
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Regulation Regarding Derivatives
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Effective December 31, 2012, the Commodity Futures Trading Commission (CFTC) adopted certain regulatory changes that subject registered investment companies and advisers to registered investment
companies to regulation by the CFTC if a fund invests more than a prescribed level of its net assets in CFTC-regulated futures, options and swaps (CFTC Derivatives), or if the fund markets itself as providing investment exposure to such
instruments. To the extent a Fund uses CFTC-regulated futures, options and swaps, 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,
BlackRock Advisors, LLC 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. BlackRock Advisors, LLC is not, therefore,
subject to registration or regulation as a commodity pool operator under the CEA in respect of each Fund.
Each Funds dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend
distributions, the Funds may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net
investment income earned in that month. As a result, the dividends paid by the Funds for any particular month may be more or less than the amount of net investment income earned by the Funds during such month. The Funds current accumulated but
undistributed net investment income, if any, is disclosed in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.
On August 11, 2010, the Manager announced that a shareholder derivative complaint was filed on August 3, 2010 in the Supreme Court of the State of New York, New York County with respect to MCA and
MYI, which had previously received a demand letter from a law firm on behalf of each funds common shareholders. The complaint was filed against the Manager, BlackRock, Inc., MCA, MYI and certain of the directors, officers and portfolio
managers (collectively, the BlackRock Parties) in connection with the redemption of auction-market preferred shares, auction rate preferred securities, auction preferred shares and auction rate securities (collectively,
AMPS). The complaint alleged, among other things, that the BlackRock Parties breached their fiduciary duties to the common shareholders of MCA and MYI (the Shareholders) by redeeming AMPS at their liquidation preference and
alleges that such redemptions caused losses to the Shareholders. On April 16, 2012, the plaintiffs amended their complaint and filed a consolidated shareholder derivative complaint, which contains similar substantive allegations to the original
complaint. The plaintiffs are seeking monetary damages for the alleged losses suffered and to enjoin MCA and MYI from future redemptions of AMPS at their liquidation preference. On July 20, 2012, the BlackRock Parties filed a motion to dismiss the
Complaint (the Dismissal Motion). Plaintiffs, on September 14, 2012, moved to hold the defendants motion to dismiss in abeyance and allow plaintiffs limited discovery of the Demand Review Committee of the Board of Directors,
including depositions of its members and documents upon which they relied. Argument on that motion occurred on March 14, 2013 and no decision has yet been rendered. The BlackRock Parties believe that the claims asserted in the complaint are without
merit and intend to vigorously defend themselves in the litigation.
The Funds do not make available copies of their Statements of Additional
Information because the Funds shares are not continuously offered, which means that the Statement of Additional Information of each Fund has not been updated after completion of the respective Funds offerings and the information
contained in each Funds Statement of Additional Information may have become outdated.
During the period, there were no material changes in
the Funds investment objectives or policies or to the Funds charters or by-laws that would delay or prevent a change of control of the Funds that were not approved by the shareholders or in the principal risk factors associated with
investment in the Funds. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds portfolios.
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SEMI-ANNUAL REPORT
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JANUARY 31, 2013
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61
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Additional Information (concluded)
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General Information (concluded)
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Quarterly performance, semi-annual and annual reports and other information regarding the Funds may be found on BlackRocks website, which can be accessed at http://www.blackrock.com. This reference to
BlackRocks website is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRocks website in this report.
Electronic Delivery
Electronic copies of most
financial reports are available on the Funds website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports by enrolling in the Funds electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all investment advisors, banks or brokerages may offer this service.
Householding
The Funds will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called householding and 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. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the
Funds at (800) 882-0052.
Availability of Quarterly Schedule of Investments
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the SECs website
at http://www.sec.gov and may also be reviewed and copied at the SECs Public Reference Room in Washington, DC. Information on how to access documents on the SECs website without charge may be obtained by calling (800) SEC-0330. The
Funds Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.
Availability of Proxy Voting Policies
and Procedures
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities
is available
(1) without charge, upon request, by calling (800) 882-0052;
(2) at http://www.blackrock.com; and (3) on the SECs website at http://www.sec.gov.
Availability of Proxy Voting Record
Information about
how the Funds voted proxies relating to securities held in the Funds portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling
(800) 882-0052 and (2) on the SECs website at http://www.sec.gov.
Availability of Fund Updates
BlackRock will update performance and certain other data for the Funds on a monthly basis on its website in the Closed-end Funds section of
http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to periodically check the website for updated performance information and the release of other material
information about the Funds. This reference to BlackRocks website is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRocks website in this report.
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BlackRock Privacy Principles
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BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, Clients) and to safeguarding their non-public personal
information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies
personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents;
(ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a
consumer reporting
agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal
information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you
with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for
the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such
information.
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62
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SEMI-ANNUAL REPORT
|
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JANUARY 31, 2013
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This report is transmitted to shareholders only. It is not a prospectus. Past performance results shown in this
report should not be considered a representation of future performance. The Funds have leveraged their Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of
the Common Shares, and the risk that fluctuations in short-term dividend rates of the Preferred Shares may reduce the Common Shares yield. Statements and other information herein are as dated and are subject to change.
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#MHMYINS5-1/13-SAR
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