For the year ended April 30, 2021, the effect of derivative financial instruments in the Statements of
Operations was as follows:
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the
Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.
The following tables summarize the
Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosed in the Schedule of Investments above.
The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial
statement purposes. As of period end, such assets and/or liabilities are categorized within the fair value hierarchy as follows:
The purpose of these transactions was to combine six funds managed by the Manager with the same or substantially similar
(but not identical) investment objectives, investment policies, strategies, risks and restrictions. Each reorganization was a tax-free event and was effective on April 19, 2021.
Assuming the reorganization had been completed on May 1, 2020, the beginning of the fiscal reporting period of MQY, the pro forma results of
operations for the year ended April 30, 2021, are as follows:
Because the combined investment portfolios have been managed as a single integrated portfolio since the reorganization was completed, it is not
practicable to separate the amounts of revenue and earnings of each Target Fund that have been included in MQY’s Statement of Operations since April 19, 2021.
Reorganization costs incurred by MQY in connection with the reorganization were expensed MQY. The Manager reimbursed the Fund $45,776, which is included
in fees waived and/or reimbursed by the Manager in the Statements of Operations.
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and
reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Distributions to Preferred Shareholders are accrued and determined as described in
Note 10.
The Plan is not funded and obligations
thereunder represent general unsecured claims against the general assets of each Fund, as applicable. Deferred compensation liabilities, if any, are included in the Directors’ and Officer’s fees payable in the Statements of Assets and
Liabilities and will remain as a liability of the Funds until such amounts are distributed in accordance with the Plan.
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
57
|
Notes to Financial Statements (continued)
|
3.
|
INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS
|
Investment Valuation Policies: Each Fund’s investments are valued at fair value (also referred to as “market value” within the
financial statements) each day that the Fund is open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an
orderly transaction between market participants at the measurement date. Each Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board. If a
security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. 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 oversee the pricing function for all financial instruments.
Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Fund’s assets and
liabilities:
|
|
•
|
|
Fixed-income investments for which market quotations are readily available are generally valued using the last available
bid price or current market quotations provided by independent dealers or third party pricing services. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a fund may hold or
transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots. The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values,
including transaction data (e.g., recent representative bids and offers), market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset- backed and
mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on
the unique attributes of the tranche. The amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.
|
|
|
•
|
|
Investments in open-end U.S. mutual funds (including money market funds) are
valued at that day’s published NAV.
|
|
|
•
|
|
Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the
contract is traded.
|
If events (e.g., a market closure, market volatility, company announcement or a natural disaster) occur that
are expected to materially affect the value of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if
a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation
approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation
approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or
pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or
its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
Fair Value Hierarchy: Various inputs are used in determining the fair value of financial instruments. These inputs to valuation techniques are
categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:
|
|
•
|
|
Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each
Fund has the ability to access;
|
|
|
•
|
|
Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or
liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield
curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs); and
|
|
|
•
|
|
Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent
observable inputs are not available (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments).
|
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held
companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is
not necessarily an indication of the risks associated with investing in those securities.
|
4.
|
SECURITIES AND OTHER INVESTMENTS
|
Zero-Coupon Bonds: Zero-coupon bonds are normally issued at a significant discount from face value and do not provide for periodic interest
payments. These bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.
Forward Commitments, When-Issued and 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. A Fund 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
|
|
|
|
|
58
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more at settlement than the security is worth. In addition, a Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed
delivery basis, a Fund assumes 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, a Fund’s maximum amount of loss is the unrealized appreciation of
unsettled when-issued transactions.
Municipal Bonds Transferred to TOB Trusts: Certain Funds leverage their assets through the use of
“TOB Trust” transactions. The funds transfer municipal bonds into a special purpose trust (a “TOB Trust”). A TOB Trust issues two classes of beneficial interests: short-term floating rate interests (“TOB Trust
Certificates”), which are sold to third party investors, and residual inverse floating rate interests (“TOB Residuals”), which are issued to the participating funds that contributed the municipal bonds to the TOB Trust. The TOB Trust
Certificates have interest rates that reset weekly and their holders have the option to tender such certificates to the TOB Trust for redemption at par and any accrued interest at each reset date. The TOB Residuals held by a fund provide the fund
with the right to cause the holders of a proportional share of the TOB Trust Certificates to tender their certificates to the TOB Trust at par plus accrued interest. The funds may withdraw a corresponding share of the municipal bonds from the TOB
Trust. Other funds managed by the investment adviser may also contribute municipal bonds to a TOB Trust into which a fund has contributed bonds. If multiple BlackRock-advised funds participate in the same TOB Trust, the economic rights and
obligations under the TOB Residuals will be shared among the funds ratably in proportion to their participation in the TOB Trust.
TOB Trusts are
supported by a liquidity facility provided by a third party bank or other financial institution (the “Liquidity Provider”) that allows the holders of the TOB Trust Certificates to tender their certificates in exchange for payment of par
plus accrued interest on any business day. The tendered TOB Trust Certificates are remarketed by a Remarketing Agent. In the event of a failed remarketing, the TOB Trust may draw upon a loan from the Liquidity Provider to purchase the tendered TOB
Trust Certificates. Any loans made by the Liquidity Provider will be secured by the purchased TOB Trust Certificates held by the TOB Trust and will be subject to an increased interest rate based on number of days the loan is outstanding.
The TOB Trust may be collapsed without the consent of a fund, upon the occurrence of a termination event as defined in the TOB Trust agreement. Upon the
occurrence of a termination event, a TOB Trust would be liquidated with the proceeds applied first to any accrued fees owed to the trustee of the TOB Trust, the Remarketing Agent and the Liquidity Provider. Upon certain termination events, TOB Trust
Certificates holders will be paid before the TOB Residuals holders (i.e., the Funds) whereas in other termination events, TOB Trust Certificates holders and TOB Residuals holders will be paid pro rata.
While a fund’s investment policies and restrictions expressly permit investments in inverse floating rate securities, such as TOB Residuals, they
restrict the ability of a fund to borrow money for purposes of making investments. The Funds’ management believes that a Fund’s restrictions on borrowings do not apply to the Funds’ TOB Trust transactions. Each fund’s transfer of
the municipal bonds to a TOB Trust is considered a secured borrowing for financial reporting purposes. The cash received by the TOB Trust from the sale of the TOB Trust Certificates, less certain transaction expenses, is paid to a fund. A fund
typically invests the cash received in additional municipal bonds.
Accounting for TOB Trusts: The municipal bonds deposited into a TOB Trust
are presented in a fund’s Schedule of Investments and the TOB Trust Certificates are shown in Other Liabilities in the Statements of Assets and Liabilities. Any loans drawn by the TOB Trust pursuant to the liquidity facility to purchase
tendered TOB Trust Certificates are shown as Loan for TOB Trust Certificates. The carrying amount of a fund’s payable to the holder of the TOB Trust Certificates, as reported in the Statements of Assets and Liabilities as TOB Trust
Certificates, approximates its fair value.
Interest income, including amortization and accretion of premiums and discounts, from the underlying
municipal bonds is recorded by a fund on an accrual basis. Interest expense incurred on the TOB Trust transaction and other expenses related to remarketing, administration, trustee, liquidity and other services to a TOB Trust are shown as interest
expense, fees and amortization of offering costs in the Statements of Operations. Fees paid upon creation of the TOB Trust are recorded as debt issuance costs and are amortized to interest expense, fees and amortization of offering costs in the
Statements of Operations to the expected maturity of the TOB Trust. In connection with the restructurings of the TOB Trusts to non-bank sponsored TOB Trusts, a fund incurred
non-recurring, legal and restructuring fees, which are recorded as interest expense, fees and amortization of offering costs in the Statements of Operations. Amounts recorded within interest expense,
fees and amortization of offering costs in the Statements of Operations are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Interest
Expense
|
|
|
Liquidity
Fees
|
|
|
Other
Expenses
|
|
|
Total
|
|
|
MYD
|
|
$
|
226,070
|
|
|
$
|
593,499
|
|
|
$
|
194,475
|
|
|
$
|
1,014,044
|
|
|
MQY
|
|
|
220,544
|
|
|
|
549,237
|
|
|
|
197,920
|
|
|
|
967,701
|
|
|
MQT
|
|
|
142,350
|
|
|
|
345,447
|
|
|
|
121,026
|
|
|
|
608,823
|
|
For the year ended April 30, 2021, the following table is a summary of each Fund’s TOB Trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Underlying
Municipal Bonds
Transferred to
TOB Trusts(a)
|
|
|
Liability for
TOB Trust
Certificates(b)
|
|
|
Range of
Interest Rates
on TOB Trust
Certificates at
Period End
|
|
|
Average
TOB Trust
Certificates
Outstanding
|
|
|
Daily Weighted
Average Rate
of Interest and
Other Expenses
on TOB Trusts
|
|
|
MYD
|
|
$
|
246,388,566
|
|
|
$
|
145,316,053
|
|
|
|
0.07% — 0.32%
|
|
|
$
|
145,455,170
|
|
|
|
0.69
|
%
|
|
MQY
|
|
|
476,439,911
|
|
|
|
268,074,884
|
|
|
|
0.08 — 0.31
|
|
|
|
133,215,938
|
|
|
|
0.72
|
|
|
MQT
|
|
|
144,424,082
|
|
|
|
80,614,008
|
|
|
|
0.08 — 0.31
|
|
|
|
82,035,253
|
|
|
|
0.74
|
|
|
|
(a)
|
The municipal bonds transferred to a TOB Trust are generally high grade municipal bonds. In certain cases, when
municipal bonds transferred are lower grade municipal bonds, the TOB Trust transaction may include a credit enhancement feature that provides for the timely payment of principal and interest on the bonds to the TOB Trust by a credit enhancement
provider in the event of default of the municipal bond. The TOB Trust would be responsible for the payment of the credit enhancement fee and the funds, as TOB Residuals holders, would be responsible for reimbursement of any payments of principal and
interest made by the credit enhancement provider. The maximum potential amounts owed by the funds, for such reimbursements, as applicable, are included in the maximum potential amounts disclosed for recourse TOB Trusts in the Schedules of
Investments.
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
59
|
Notes to Financial Statements (continued)
|
|
(b)
|
TOB Trusts may be structured on a non-recourse or recourse basis. When a Fund
invests in TOB Trusts on a non-recourse basis, the Liquidity Provider may be required to make a payment under the liquidity facility to allow the TOB Trust to repurchase TOB Trust Certificates. The Liquidity
Provider will be reimbursed from the liquidation of bonds held in the TOB Trust. If a fund invests in a TOB Trust on a recourse basis, a fund enters into a reimbursement agreement with the Liquidity Provider where a fund is required to reimburse the
Liquidity Provider for any shortfall between the amount paid by the Liquidity Provider and proceeds received from liquidation of municipal bonds held in the TOB Trust (the “Liquidation Shortfall”). As a result, if a fund invests in a
recourse TOB Trust, a fund will bear the risk of loss with respect to any Liquidation Shortfall. If multiple funds participate in any such TOB Trust, these losses will be shared ratably, including the maximum potential amounts owed by a fund at
April 30, 2021, in proportion to their participation in the TOB Trust. The recourse TOB Trusts are identified in the Schedules of Investments including the maximum potential amounts owed by a fund at April 30, 2021.
|
|
For the year ended April 30, 2021, the following table is a summary of each Fund’s Loan for TOB Trust
Certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Loans
Outstanding
at Period End
|
|
|
Range of
Interest Rates
on Loans at
Period End
|
|
|
Average
Loans
Outstanding
|
|
|
Daily Weighted
Average Rate
of Interest and
Other Expenses
on Loans
|
|
|
MYD
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
240,585
|
|
|
|
0.71
|
%
|
|
MQY
|
|
|
—
|
|
|
|
—
|
|
|
|
214,726
|
|
|
|
0.71
|
|
|
MQT
|
|
|
—
|
|
|
|
—
|
|
|
|
369,370
|
|
|
|
0.77
|
|
|
5.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to manage their
exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are
included in the Schedules of Investments. These contracts may be transacted on an exchange or over-the-counter (“OTC”).
Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate
risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are
exchange-traded agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical
delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Funds are required to deposit initial margin with the broker in the form of cash or
securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are
included in cash pledged for futures contracts in the Statements of Assets and Liabilities.
Securities deposited as initial margin are designated in
the Schedules of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the Statements of Assets and Liabilities. Pursuant to the contract, the Funds agree to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts
in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statements of Operations equal to the difference between the notional amount of the contract at the time it was opened and the
notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.
|
6.
|
INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
|
Investment Advisory: Each Fund entered into an Investment Advisory Agreement with the Manager, the Funds’ investment adviser and an indirect,
wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory and administrative services. The Manager is responsible for the management of each Fund’s portfolio and provides the personnel, facilities,
equipment and certain other services necessary to the operations of each Fund.
For such services, each Fund pays the Manager a monthly fee at an
annual rate equal to 0.50% of the average daily value of each Fund’s net assets.
For purposes of calculating these fees, “net assets”
mean the total assets of the Fund minus the sum of its accrued liabilities (which does not include liabilities represented by TOB Trusts and the liquidation preference of any outstanding preferred shares). It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated dividends) and TOB Trusts is not considered a liability in determining a Fund’s NAV.
Waivers: With respect to each Fund, the Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory
fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through June 30, 2022. The contractual agreement may be terminated upon 90 days’
notice by a majority of the Independent Directors, or by a vote of a majority of the outstanding voting securities of a Fund. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year
ended April 30, 2021, the amounts waived were as follows:
|
|
|
|
|
|
|
Fund Name
|
|
Amounts Waived
|
|
|
MYD
|
|
$
|
9,678
|
|
|
MQY
|
|
|
1,128
|
|
|
MQT
|
|
|
912
|
|
|
|
|
|
|
60
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
The Manager contractually
agreed to waive its investment advisory fee with respect to any portion of each Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through
June 30, 2022. The agreement can be renewed for annual periods thereafter, and may be terminated on 90 days’ notice, each subject to approval by a majority of the Funds’ Independent Directors. For the year ended April 30, 2021,
there were no fees waived by the Manager pursuant to this arrangement.
Directors and Officers: Certain directors and/or officers of the Funds
are directors and/or officers of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Funds’ Chief Compliance Officer, which is included in Directors and Officer in the Statements of
Operations.
For the year ended April 30, 2021, purchases and sales of investments, excluding short-term investments, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Purchases
|
|
|
Sales
|
|
|
MYD
|
|
$
|
176,573,692
|
|
|
$
|
153,906,176
|
|
|
MQY
|
|
|
73,774,020
|
|
|
|
76,924,366
|
|
|
MQT
|
|
|
42,229,659
|
|
|
|
43,898,180
|
|
|
8.
|
INCOME TAX INFORMATION
|
It is each Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.
Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on
each Fund’s U.S. federal tax returns generally remains open for a period of three fiscal years after they are filed. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending
upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Funds as of April 30, 2021, inclusive of
the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These
reclassifications have no effect on net assets or NAVs per share. As of period end, the following permanent differences attributable to were reclassified to the following accounts:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Paid-in
Capital
|
|
|
Accumulated
Earnings (Loss)
|
|
|
MYD
|
|
$
|
(15,826
|
)
|
|
$
|
15,826
|
|
|
MQY
|
|
|
(258,984
|
)
|
|
|
258,984
|
|
The tax character
of distributions paid was as follows:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Year Ended
04/30/21
|
|
|
Year Ended
04/30/20
|
|
|
MYD
|
|
|
|
|
|
|
|
|
|
Tax-exempt income(a)
|
|
$
|
33,881,990
|
|
|
$
|
37,561,237
|
|
|
Ordinary income(b)
|
|
|
4,080
|
|
|
|
13,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,886,070
|
|
|
$
|
37,575,073
|
|
|
|
|
|
|
|
|
|
|
|
|
MQY
|
|
|
|
|
|
|
|
|
|
Tax-exempt income(a)
|
|
$
|
25,481,686
|
|
|
$
|
23,378,717
|
|
|
Ordinary income(b)
|
|
|
15,439
|
|
|
|
56,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,497,125
|
|
|
$
|
23,435,424
|
|
|
|
|
|
|
|
|
|
|
|
|
MQT
|
|
|
|
|
|
|
|
|
|
Tax-exempt income(a)
|
|
$
|
15,227,259
|
|
|
$
|
14,617,033
|
|
|
Ordinary income(b)
|
|
|
23,314
|
|
|
|
9,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,250,573
|
|
|
$
|
14,626,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Funds designate these amounts paid during the fiscal year ended April 30, 2021, as exempt-interest dividends.
|
|
|
|
(b)
|
Ordinary income consists primarily of taxable income recognized from market discount. Additionally, all ordinary income
distributions are comprised of interest related dividends for non-U.S. residents and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.
|
|
As of period end, the tax components of accumulated earnings (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Undistributed
Tax-Exempt Income
|
|
|
Undistributed
Ordinary Income
|
|
|
Non-Expiring
Capital Loss
Carryforwards(a)
|
|
|
Net Unrealized
Gains (Losses)(b)
|
|
|
Total
|
|
|
MYD
|
|
$
|
—
|
|
|
$
|
3,738
|
|
|
$
|
(15,082,902)
|
|
|
$
|
104,446,645
|
|
|
$
|
89,367,481
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
61
|
Notes to Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Undistributed
Tax-Exempt Income
|
|
|
Undistributed
Ordinary Income
|
|
|
Non-Expiring
Capital Loss
Carryforwards(a)
|
|
|
Net Unrealized
Gains (Losses)(b)
|
|
|
Total
|
|
|
MQY
|
|
$
|
1,911,445
|
|
|
$
|
—
|
|
|
$
|
(26,837,351
|
)
|
|
$
|
193,607,297
|
|
|
$
|
168,681,391
|
|
|
MQT.
|
|
|
1,279,459
|
|
|
|
—
|
|
|
|
(6,966,217
|
)
|
|
|
55,082,813
|
|
|
|
49,396,055
|
|
|
|
(a)
|
Subject to limitation, amounts available to offset future realized capital gains.
|
|
|
|
(b)
|
The differences between book-basis and tax-basis net unrealized gains were
attributable primarily to the tax deferral of losses on wash sales and straddles, amortization and accretion methods of premiums and discounts on fixed income securities, the realization for tax purposes of unrealized losses on certain futures
contracts, the accrual of income on securities in default, the deferral of compensation to Directors and the treatment of residual interests in tender option bond trusts.
|
|
During the year ended April 30, 2021, the Funds listed below utilized the following amounts of their
respective capital loss carryforward:
|
|
|
|
|
|
|
Fund Name
|
|
Amounts
|
|
|
MYD
|
|
$
|
1,930,750
|
|
|
MQY
|
|
|
1,747,996
|
|
|
MQT
|
|
|
964,228
|
|
As of April 30, 2021, gross unrealized appreciation and depreciation based on cost of investments (including short
positions and derivatives, if any) for U.S. federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Tax Cost
|
|
|
Gross Unrealized
Appreciation
|
|
|
Gross Unrealized
Depreciation
|
|
|
Net Unrealized
Appreciation
(Depreciation)
|
|
|
MYD
|
|
$
|
851,044,214
|
|
|
$
|
109,353,282
|
|
|
$
|
(4,074,485
|
)
|
|
$
|
105,278,797
|
|
|
MQY
|
|
|
1,453,598,182
|
|
|
|
194,603,618
|
|
|
|
(593,721
|
)
|
|
|
194,009,897
|
|
|
MQT
|
|
|
385,398,200
|
|
|
|
55,400,213
|
|
|
|
(317,399
|
)
|
|
|
55,082,814
|
|
In the normal course of business, the Funds invest in securities or other instruments and may enter into certain transactions, and such activities subject
each Fund to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including,
without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; or
(iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on
the Funds and their investments.
The Funds may hold a significant amount of bonds subject to calls by the issuers at defined dates and prices. When
bonds are called by issuers and the Funds reinvest the proceeds received, such investments may be in securities with lower yields than the bonds originally held, and correspondingly, could adversely impact the yield and total return performance of a
Fund.
A Fund structures and “sponsors” the TOB Trusts in which it holds TOB Residuals and has certain duties and responsibilities, which
may give rise to certain additional risks including, but not limited to, compliance, securities law and operational risks.
Should short-term interest
rates rise, the Funds’ investments in the TOB Trusts may adversely affect the Funds’ net investment income and dividends to Common Shareholders. Also, fluctuations in the market value of municipal bonds deposited into the TOB Trust may
adversely affect the Funds’ NAVs per share.
The U.S. Securities and Exchange Commission (“SEC”) and various federal banking and
housing agencies have adopted credit risk retention rules for securitizations (the “Risk Retention Rules”). The Risk Retention Rules would require the sponsor of a TOB Trust to retain at least 5% of the credit risk of the underlying assets
supporting the TOB Trust’s municipal bonds. The Risk Retention Rules may adversely affect the Funds’ ability to engage in TOB Trust transactions or increase the costs of such transactions in certain circumstances.
TOB Trusts constitute an important component of the municipal bond market. Any modifications or changes to rules governing TOB Trusts may adversely impact
the municipal market and the Funds, including through reduced demand for and liquidity of municipal bonds and increased financing costs for municipal issuers. The ultimate impact of any potential modifications on the TOB Trust market and the overall
municipal market is not yet certain.
Each Fund may invest without limitation in illiquid or less liquid investments or investments in which no
secondary market is readily available or which are otherwise illiquid, including private placement securities. A Fund may not be able to readily dispose of such investments at prices that approximate those at which a Fund could sell such investments
if they were more widely traded and, as a result of such illiquidity, a Fund may have to sell other investments or engage in borrowing transactions if necessary to raise funds to meet its obligations. Limited liquidity can also affect the market
price of investments, thereby adversely affecting a Fund’s net asset value and ability to make dividend distributions. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the
same risks as investing in below investment grade public debt securities.
Market Risk: Each Fund may be exposed to prepayment risk, which is
the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force each Fund to reinvest in lower yielding securities. Each Fund may also be exposed to
reinvestment risk, which is the risk that income from each Fund’s portfolio will decline if each Fund invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are below each Fund portfolio’s
current earnings rate.
|
|
|
|
|
62
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
Municipal securities are
subject to the risk that litigation, legislation or other political events, local business or economic conditions, credit rating downgrades, or the bankruptcy of the issuer could have a significant effect on an issuer’s ability to make payments
of principal and/or interest or otherwise affect the value of such securities. Municipal securities can be significantly affected by political or economic changes, including changes made in the law after issuance of the securities, as well as
uncertainties in the municipal market related to, taxation, legislative changes or the rights of municipal security holders, including in connection with an issuer insolvency. Municipal securities backed by current or anticipated revenues from a
specific project or specific assets can be negatively affected by the discontinuance of the tax benefits supporting the project or assets or the inability to collect revenues for the project or from the assets. Municipal securities may be less
liquid than taxable bonds, and there may be less publicly available information on the financial condition of municipal security issuers than for issuers of other securities.
An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines,
disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affect the economies of many nations, individual
companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result in substantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. The
duration of this pandemic and its effects cannot be determined with certainty.
Counterparty Credit Risk: The Funds may be exposed to
counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations.
The Funds manage counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.
Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and
counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.
A derivative contract may suffer a mark-to-market loss if the value of the
contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
With exchange-traded futures, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such
instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a
Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and
variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at
that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting
in losses to the Funds.
Concentration Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives,
minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within each Fund’s portfolio are disclosed in its Schedule of Investments.
Certain Funds invest a significant portion of their assets in securities within a single or limited number of market sectors. When a Fund concentrates its
investments in this manner, it assumes the risk that economic, regulatory, political and social conditions affecting such sectors may have a significant impact on the Fund and could affect the income from, or the value or liquidity of, the
Fund’s portfolio. Investment percentages in specific sectors are presented in the Schedules of Investments.
Certain Funds invest a significant
portion of their assets in fixed-income securities and/or use derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the
risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Funds may be subject to a greater risk of rising interest rates due to the current period of historically low
rates.
LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate
(“LIBOR”). Although many LIBOR rates will be phased out by the end of 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Funds may be exposed to
financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the
effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Funds is uncertain.
|
10.
|
CAPITAL SHARE TRANSACTIONS
|
Each Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each
Fund’s Common Shares is $0.10. The par value for each Fund’s Preferred Shares outstanding is $0.10. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Fund Name
|
|
|
04/30/21
|
|
|
|
04/30/20
|
|
|
MYD
|
|
|
—
|
|
|
|
28,844
|
|
|
MQY
|
|
|
44,250
|
|
|
|
—
|
|
For the year ended April 30, 2021 and the year ended April 30, 2020, shares issued and outstanding remained
constant for MQT.
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
63
|
Notes to Financial Statements (continued)
For the year ended
April 30, 2021, Common Shares issued and outstanding increased by 42,415,313 as a result of the reorganization of MQY.
For the year ended
April 30, 2021, Common Shares issued and outstanding decreased by 94 as a result of a redemption of fractional shares from the reorganization of MQY.
The Funds participate in an open market share repurchase program (the “Repurchase Program”). From December 1, 2019 through
November 30, 2020, each Fund may repurchase up to 5% of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of business on November 30, 2019, subject to certain conditions. From
December 1, 2020 through November 30, 2021, each Fund may repurchase up to 5% of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of business on November 30, 2020, subject
to certain conditions. There is no assurance that the Funds will purchase shares in any particular amounts. For the year ended April 30, 2021, the Funds did not repurchase any shares.
Preferred Shares
A Fund’s Preferred Shares rank prior to
its Common Shares as to the payment of dividends by the Fund and distribution of assets upon dissolution or liquidation of the Fund. The 1940 Act prohibits the declaration of any dividend on Common Shares or the repurchase of Common Shares if the
Fund fails to maintain asset coverage of at least 200% of the liquidation preference of the Fund’s outstanding Preferred Shares. In addition, pursuant to the Preferred Shares’ governing instruments, a Fund is restricted from declaring and
paying dividends on classes of shares ranking junior to or on parity with its Preferred Shares or repurchasing such shares if the Fund fails to declare and pay dividends on the Preferred Shares, redeem any Preferred Shares required to be redeemed
under the Preferred Shares’ governing instruments or comply with the basic maintenance amount requirement of the ratings agencies rating the Preferred Shares.
Holders of Preferred Shares have voting rights equal to the voting rights of holders of Common Shares (one vote per share) and vote together with holders
of Common Shares (one vote per share) as a single class on certain matters. Holders of Preferred Shares, voting as a separate class, are also entitled to (i) elect two members of the Board, (ii) elect the full Board if dividends on the
Preferred Shares are not paid for a period of two years and (iii) a separate class vote to amend the Preferred Share governing documents. In addition, the 1940 Act requires the approval of the holders of a majority of any outstanding Preferred
Shares, voting as a separate class, to (a) adopt any plan of reorganization that would adversely affect the Preferred Shares, (b) change a Fund’s sub-classification as a closed-end investment company or change its fundamental investment restrictions or (c) change its business so as to cease to be an investment company.
VRDP Shares
MYD and MQY (for purposes of this section, a
“VRDP Fund”), have issued Series W-7 VRDP Shares, $100,000 liquidation preference per share, in one or more privately negotiated offerings to qualified institutional buyers as defined pursuant to
Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The VRDP Shares include a liquidity feature and may be subject to a special rate period. As of period end, the VRDP Shares outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Maturity
Date
|
|
|
MYD
|
|
|
06/30/11
|
|
|
|
2,514
|
|
|
$
|
251,400,000
|
|
|
|
07/01/41
|
|
|
MQY
|
|
|
09/15/11
|
|
|
|
1,766
|
|
|
|
176,600,000
|
|
|
|
10/01/41
|
|
|
|
|
|
04/19/21
|
|
|
|
2,737
|
|
|
|
273,700,000
|
|
|
|
10/01/41
|
|
Redemption Terms: A VRDP Fund is required to redeem its VRDP Shares on the maturity date, unless earlier redeemed
or repurchased. Six months prior to the maturity date, a VRDP Fund is required to begin to segregate liquid assets with the Fund’s custodian to fund the redemption. In addition, a VRDP Fund is required to redeem certain of its outstanding VRDP
Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.
Subject to certain conditions, the VRDP
Shares may also be redeemed, in whole or in part, at any time at the option of a VRDP Fund. The redemption price per VRDP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends.
Liquidity Feature: VRDP Shares are subject to a fee agreement between the VRDP Fund and the liquidity provider that requires a per annum liquidity
fee and, in some cases, an upfront or initial commitment fee, payable to the liquidity provider. These fees, if applicable, are shown as liquidity fees in the Statements of Operations. As of period end, the fee agreement is set to expire, unless
renewed or terminated in advance, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
MYD
|
|
|
MQY
|
|
|
Expiration date
|
|
|
04/30/22
|
|
|
|
07/06/22
|
|
The VRDP Shares are also subject to a purchase agreement in connection with the liquidity feature. In the event a purchase
agreement is not renewed or is terminated in advance, and the VRDP Shares do not become subject to a purchase 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 purchase agreement. In the event of such mandatory purchase, a VRDP Fund is required to redeem the VRDP Shares six months after the purchase date. Immediately after such mandatory purchase, the VRDP Fund is required to begin
to segregate liquid assets with its custodian to fund the redemption. There is no assurance that a VRDP Fund will replace such redeemed VRDP Shares with any other preferred shares or other form of leverage.
Remarketing: A VRDP Fund may incur remarketing fees on the aggregate principal amount of all its VRDP Shares, which, if any, are included in
remarketing fees on Preferred Shares in the Statements of Operations. During any special rate period (as described below), a VRDP Fund may incur nominal or no remarketing fees.
|
|
|
|
|
64
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Notes to Financial Statements (continued)
Ratings: As of period
end, the VRDP Shares were assigned the following ratings:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Moody’s Investors
Service, Inc.
Long-Term
Ratings
|
|
|
Fitch Ratings, Inc.
Long-Term
Ratings
|
|
|
MYD
|
|
|
Aa1
|
|
|
|
AA
|
|
|
MQY
|
|
|
Aa1
|
|
|
|
AA
|
|
Any short-term ratings on 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 . 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.
Special Rate Period: A VRDP Fund has
commenced a “special rate period” with respect to its VRDP Shares, during which the VRDP Shares will not be subject to any remarketing and the dividend rate will be based on a predetermined methodology. During a special rate period,
short-term ratings on VRDP Shares are withdrawn. As of period end, the following VRDP Funds have commenced or are set to commence a special rate period:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Commencement
Date
|
|
|
Expiration Date as
of Period Ended
04/30/21
|
|
|
MYD
|
|
|
04/17/14
|
|
|
|
04/15/22
|
|
|
MQY
|
|
|
03/31/21
|
|
|
|
06/21/22
|
|
Prior to the expiration date, the VRDP Fund and the VRDP Shares holder may mutually agree to extend the special rate
period. If a 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.
During the special rate period: (i) the liquidity and fee agreements remain in effect, (ii) VRDP Shares remain subject to mandatory redemption
by the VRDP Fund on the maturity date, (iii) VRDP Shares will not be remarketed or subject to optional or mandatory tender events, (iv) the VRDP Fund is required to comply with the same asset coverage, basic maintenance amount and leverage
requirements for the VRDP Shares as is required when the VRDP Shares are not in a special rate period, (v) the VRDP Fund will pay dividends monthly based on the sum of an agreed upon reference rate and a percentage per annum based on the
long-term ratings assigned to the VRDP Shares and (vi) the VRDP Fund will pay nominal or no fees to the liquidity provider and remarketing agent.
Dividends: Except during the Special Rate Period as described above, dividends on the 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. 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 based upon either short-term rating. 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.
For the year ended April 30, 2021, the annualized dividend rate for the VRDP Shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
MYD
|
|
|
MQY
|
|
|
Dividend rates
|
|
|
0.94
|
%
|
|
|
0.92
|
%
|
For the year ended April 30, 2021, VRDP Shares issued and outstanding remained constant for MYD.
For the year ended April 30, 2021, VRDP Shares issued and outstanding for MQY increased by 2,737 due to the reorganizations of BZM, MHE, MZA, MYF and
MEN with and into MQY.
VMTP Shares
MQT (for purposes of
this section, a “VMTP Fund”), has issued Series W-7 VMTP Shares, $100,000 liquidation preference per share, in one or more privately negotiated offerings to qualified institutional buyers as defined
pursuant to Rule 144A under the Securities Act. The VMTP Shares are subject to certain restrictions on transfer, and a VMTP Fund may also be required to register its VMTP Shares for sale under the Securities Act under certain circumstances. As of
period end, the VMTP Shares outstanding and assigned long-term ratings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Issue
Date
|
|
|
Shares
Issued
|
|
|
Aggregate
Principal
|
|
|
Term
Redemption
Date
|
|
|
Moody’s
Rating
|
|
|
Fitch
Rating
|
|
|
MQT
|
|
|
12/16/11
|
|
|
|
1,165
|
|
|
$
|
116,500,000
|
|
|
|
07/02/23
|
|
|
|
Aa1
|
|
|
|
AA
|
|
Redemption Terms: A VMTP Fund is required to redeem its VMTP Shares on the term redemption date, unless earlier
redeemed or repurchased or unless extended. There is no assurance that a term will be extended further or that any VMTP Shares will be replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the
VMTP Shares. Six months prior to the term redemption date, a VMTP Fund is required to begin to segregate liquid assets with its custodian to fund the redemption. In addition, a VMTP Fund is required to redeem certain of its outstanding VMTP Shares
if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.
|
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|
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NOTES TO FINANCIAL STATEMENTS
|
|
65
|
Notes to Financial Statements (continued)
Subject to certain
conditions, VMTP Shares may be redeemed, in whole or in part, at any time at the option of the VMTP Fund. With respect to MQT, the redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends
and applicable redemption premium. If MQT redeems the VMTP Shares prior to the term redemption date and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then rating the VMTP Shares, then such
redemption may be subject to a prescribed redemption premium (up to 2% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining until the term redemption date, subject to certain exceptions for redemptions
that are required to comply with minimum asset coverage requirements.
Dividends: Dividends on the VMTP Shares are declared daily and payable
monthly at a variable rate set weekly at a fixed rate spread to the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index or to a percentage of the one-month LIBOR
rate, as set forth in the VMTP Shares governing instrument. The fixed spread is determined based on the long-term preferred share rating assigned to the VMTP Shares by the ratings agencies then rating the VMTP Shares.
The dividend rate on VMTP Shares is subject to a step-up spread if the VMTP Fund fails to comply with certain
provisions, including, among other things, the timely payment of dividends, redemptions or gross-up payments, and complying with certain asset coverage and leverage requirements.
For the year ended April 30, 2021, the average annualized dividend rate for the VMTP Shares was 1.03%.
For the year ended April 30, 2021, VMTP Shares issued and outstanding of MQT remained constant.
Offering Costs: The Funds incurred costs in connection with the issuance of VRDP and VMTP Shares, which were recorded as a direct deduction from
the carrying value of the related debt liability and will be amortized over the life of the VRDP and VMTP Shares with the exception of any upfront fees paid by a VRDP Fund to the liquidity provider which, if any, were amortized over the life of the
liquidity agreement. Amortization of these costs is included in interest expense, fees and amortization of offering costs in the Statements of Operations.
Financial Reporting: The VRDP and VMTP Shares are considered debt of the issuer; therefore, the liquidation preference, which approximates fair
value of the VRDP and VMTP Shares, is recorded as a liability in the Statements of Assets and Liabilities net of deferred offering costs. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities,
and the dividends accrued and paid on the VRDP and VMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the Statements of Operations. The VRDP and VMTP Shares are treated as equity for tax purposes.
Dividends paid to holders of the VRDP and VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes. Dividends and amortization of deferred
offering costs on VRDP and VMTP Shares are included in interest expense, fees and amortization of offering costs in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Dividends
Accrued
|
|
|
Deferred Offering
Costs Amortization
|
|
|
MYD
|
|
$
|
2,356,036
|
|
|
$
|
16,748
|
|
|
MQY
|
|
|
1,714,782
|
|
|
|
13,125
|
|
|
MQT
|
|
|
1,198,964
|
|
|
|
—
|
|
Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial
statements were issued and the following items were noted:
The Funds declared and paid or will pay distributions to Common Shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Declaration
Date
|
|
|
Record
Date
|
|
|
Payable/
Paid Date
|
|
|
Dividend Per
Common Share
|
|
|
MYD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/03/21
|
|
|
|
05/14/21
|
|
|
|
06/01/21
|
|
|
$
|
0.056000
|
|
|
|
|
|
06/01/21
|
|
|
|
06/15/21
|
|
|
|
07/01/21
|
|
|
|
0.056000
|
|
|
MQY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/03/21
|
|
|
|
05/14/21
|
|
|
|
06/01/21
|
|
|
|
0.063000
|
|
|
|
|
|
06/01/21
|
|
|
|
06/15/21
|
|
|
|
07/01/21
|
|
|
|
0.063000
|
|
|
MQT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/03/21
|
|
|
|
05/14/21
|
|
|
|
06/01/21
|
|
|
|
0.054000
|
|
|
|
|
|
06/01/21
|
|
|
|
06/15/21
|
|
|
|
07/01/21
|
|
|
|
0.054000
|
|
The Funds declared distributions to Preferred Shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares(a)
|
|
|
Fund Name
|
|
|
Shares
|
|
|
|
Series
|
|
|
|
Declared
|
|
|
MYD
|
|
|
VRDP
|
|
|
|
W-7
|
|
|
$
|
181,903
|
|
|
MQY
|
|
|
VRDP
|
|
|
|
W-7
|
|
|
|
290,043
|
|
|
MQT
|
|
|
VMTP
|
|
|
|
W-7
|
|
|
|
101,445
|
|
|
|
(a)
|
Dividends declared for period May 1, 2021 to May 31, 2021.
|
|
|
|
|
|
|
66
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock MuniYield Fund, Inc., BlackRock MuniYield Quality Fund, Inc., and BlackRock MuniYield Quality Fund
II, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of BlackRock MuniYield Fund, Inc., BlackRock MuniYield Quality Fund, Inc., and
BlackRock MuniYield Quality Fund II, Inc. (the “Funds”), including the schedules of investments, as of April 30, 2021, the related statements of operations and cash flows for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all
material respects, the financial position of the Funds as of April 30, 2021, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial
highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements and financial highlights. Our procedures included confirmation of securities owned as of April 30, 2021, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
June 22, 2021
We have served as the auditor of one or more BlackRock investment companies since 1992.
|
|
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|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
|
67
|
Important Tax
Information (unaudited)
For the fiscal period ended April 19, 2021, the Funds designate the following amounts paid as exempt-interest dividends:
|
|
|
|
|
|
|
Fund Name
|
|
Exempt-Interest
Dividends
|
|
|
BZM
|
|
$
|
1,018,009
|
|
|
MHE
|
|
|
968,437
|
|
|
MZA
|
|
|
2,616,503
|
|
|
MYF
|
|
|
6,231,279
|
|
|
MEN
|
|
|
18,623,655
|
|
|
|
|
|
|
68
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Investment Objectives, Policies and Risks
Recent Changes
The following information is a summary of certain changes since April 30, 2020. This information may not reflect all of the changes that have occurred since you
purchased the relevant Fund.
During each Fund’s most recent fiscal year, there were no material changes in the Fund’s investment
objectives or policies that have not been approved by shareholders or in the principal risk factors associated with investment in the Fund.
Investment Objectives
and Policies
BlackRock MuniYield Quality Fund, Inc. (MQY)
The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from federal income taxes as is consistent
with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing, as a fundamental policy, at least 80% of an aggregate of the Fund’s 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 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 federal income tax purposes (except that the interest may be includable in taxable income for purposes
of the federal alternative minimum tax) (“Municipal Bonds”). The Fund may invest directly in such securities or synthetically through the use of derivatives. The Fund’s investment objective and its policy of investing at least 80% of
an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in Municipal Bonds are fundamental policies that may not be changed without the
approval of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940, as amended). There can be no assurance that the Fund’s investment objective will be realized.
The Fund may invest in certain tax-exempt securities classified as “private activity bonds” (or
industrial development bonds, under pre-1986 law) (“PABs”) (in general, bonds that benefit non- governmental entities) that may subject certain investors in
the Fund to an alternative minimum tax. The percentage of the Fund’s total assets invested in PABs will vary from time to time. The Fund also will not invest more than 25% of its total assets (taken at market value at the time of each
investment) in Municipal Bonds whose issuers are located in the same state.
The 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 Fund’s other investment policies. Bonds of below investment grade quality are regarded as having predominantly
speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. 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 a greater volatility of price than securities in higher rating categories. Below investment grade securities and comparable unrated
securities involve substantial risk of loss, are considered speculative with respect to the issuer’s ability to pay interest and any required redemption or principal payments and are susceptible to default or decline in market value due to
adverse economic and business developments.
All percentage and ratings limitations on securities in which the Fund 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 the Fund’s initial investment in such security. In
the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The average maturity of the Fund’s portfolio securities varies from time to time based upon an assessment of economic and market conditions by
BlackRock Advisors, LLC (the “Manager”). The Fund’s portfolio at any given time may include both long-term and intermediate-term municipal bonds.
For temporary periods or to provide liquidity, the Fund 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, the Fund 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 Manager, prevailing market or financial conditions warrant. Taxable money market obligations will yield
taxable income. The Fund also 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. The Fund’s hedging strategies are not fundamental policies and may be modified by the Board of Directors of the Fund without the approval of the Fund’s stockholders. The Fund is also authorized
to invest in indexed and inverse floating rate obligations for hedging purposes and to seek to enhance return.
The Fund may invest in securities not
issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund receives an opinion of counsel to the issuer that such securities pay interest that is excludable from gross income for federal income tax
purposes (“Non-Municipal Tax-Exempt Securities”). Non-Municipal Tax-Exempt
Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term Municipal Bonds. Non-Municipal
Tax-Exempt Securities also may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are permitted by the Fund’s investment restrictions
and applicable law. Non-Municipal Tax-Exempt Securities are subject to the same risks associated with an investment in 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.
The Fund ordinarily does not intend to realize significant investment income not exempt from
federal income tax. From time to time, the Fund may realize taxable capital gains.
Federal tax legislation may limit the types and volume of bonds
the interest on which qualifies for a federal income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for
investment by the Fund.
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|
|
INVESTMENT OBJECTIVES, POLICIES AND RISKS
|
|
69
|
Investment Objectives, Policies and Risks (continued)
Investment Objectives
and Policies (continued)
Leverage: The Fund 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. The Fund currently leverages its assets through the use of variable rate demand preferred shares (“VRDP Shares”) and residual interest municipal tender option
bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the 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. The Fund currently does not intend to borrow money or issue debt securities. Although it has no present intention to do so, the 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.
The Fund may enter into derivative transactions that have economic leverage embedded in them.
The 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 Fund securities.
BlackRock MuniYield Fund, Inc. (MYD)
The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from federal income taxes as is consistent
with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of an aggregate of the Fund’s 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 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 federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative
minimum tax) (“Municipal Bonds”). The Fund may invest directly in such securities or synthetically through the use of derivatives. The Fund’s investment objective and its policy of investing at least 80% of an aggregate of the
Fund’s net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in Municipal Bonds are fundamental policies that may not be changed without the approval of a majority
of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940, as amended). There can be no assurance that the Fund’s investment objective will be realized.
The Fund may invest in certain tax-exempt securities classified as “private activity bonds” (or
industrial development bonds, under pre-1986 law) (“PABs”) (in general, bonds that benefit nongovernmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The
percentage of the Fund’s total assets invested in PABs will vary from time to time. The Fund also will not invest more than 25% of its total assets (taken at market value at the time of each investment) in Municipal Bonds whose issuers are
located in the same state.
Under normal market conditions, the Fund expects to invest at least 75% of its total assets in a portfolio of long-term
Municipal Bonds that are commonly referred to as “investment grade” securities, which are obligations rated at the time of purchase within the four highest-quality ratings as determined by either Moody’s Investors Service, Inc.
(“Moody’s”) (currently Aaa, Aa, A and Baa), Standard & Poor’s (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings (“Fitch”) (currently AAA, AA, A and BBB). 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 Moody’s 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 Moody’s 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 Moody’s; 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 Municipal Bonds with respect to the foregoing requirements, BlackRock Advisors, LLC (the “Manager”) takes into account the nature of any letters of credit
or similar credit enhancement to which particular Municipal Bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement. If unrated, such securities will possess creditworthiness comparable, in the
opinion of the Manager, to other obligations in which the Fund may invest.
The Fund also may invest up to 25% of its total assets in Municipal Bonds
that are rated below Baa by Moody’s or below BBB by S&P or Fitch or, if unrated, are considered by the Manager to possess similar credit characteristics. 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 a greater volatility of price than securities in higher rating categories. The
Fund does not intend to purchase Municipal Bonds that are in default or which the Manager believes will soon be in default. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered
speculative with respect to the issuer’s ability to pay interest and any required redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments.
All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered
violated if an investment rating is subsequently downgraded to a rating that would have precluded the Fund’s initial investment in such security. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded,
the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The Fund intends to invest primarily in
long-term Municipal Bonds with maturities of more than ten years. However, the Fund also may invest in intermediate term Municipal Bonds with maturities of between three years and ten years. The Fund also may invest from time to time in short-term
Municipal Bonds with maturities of less than three years. The average maturity of the Fund’s portfolio securities will vary based upon the Manager’s assessment of economic and market conditions.
For temporary periods or to provide liquidity, the Fund 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, the Fund 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 Manager, prevailing market or financial conditions warrant. Taxable money market obligations will yield
taxable income. The Fund also 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. The Fund’s hedging strategies are not fundamental policies and may be
|
|
|
|
|
70
|
|
2021 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
|
Investment Objectives, Policies and Risks (continued)
Investment Objectives and
Policies (continued)
modified by the Board of Directors of the Fund without the approval of the Fund’s stockholders. The Fund is also
authorized to invest in indexed and inverse floating rate obligations for hedging purposes and to seek to enhance return.
The Fund may invest in
securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund receives an opinion of counsel to the issuer that such securities pay interest that is excludable from gross income for federal
income tax purposes (“Non-Municipal Tax-Exempt Securities”). Non-Municipal
Tax-Exempt Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term Municipal Bonds.
Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in Municipal Bonds, to the extent such investments are
permitted by the Fund’s investment restrictions and applicable law. Non-Municipal Tax-Exempt Securities are subject to the same risks associated with an investment
in Municipal Bonds as well as many of the risks associated with investments in derivatives.
The Fund ordinarily does not intend to realize
significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital gains.
Federal tax
legislation has limited the types and volume of bonds the interest on which qualifies for a federal income tax-exemption. As a result, this legislation and legislation that may be enacted in the future may
affect the availability of Municipal Bonds for investment by the Fund.
Leverage: The Fund 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. The Fund currently leverages its assets through the use of variable rate demand preferred shares (“VRDP Shares”),
reverse repurchase agreements and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds. The TOB Residuals in which the 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.
The Fund may hedge all or a portion of its
portfolio of investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon.
The Fund may invest in securities pursuant to repurchase agreements.
The Fund is authorized to borrow money in amounts of up to 5% of the value of its assets at the time of such borrowings
BlackRock MuniYield Quality Fund II, Inc. (MQT)
The
Fund’s investment objective is to provide stockholders with as high a level of current income exempt from federal income taxes as is consistent with its investment policies and prudent investment management. The Fund’s investment policies
provide that it seeks to achieve its investment objective by investing, as a fundamental policy, at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of preferred stock), and the proceeds of any borrowings
for investment purposes, in a portfolio of 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 federal income tax purposes (except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax) (“Municipal
Bonds”). There can be no assurance that the Fund’s investment objective will be realized.
The Fund may invest up to 20% of its managed
assets in securities that are rated below investment grade, or are considered by the Manager to be of comparable quality, at the time of purchase, subject to the Fund’s other investment policies. Bonds of below investment grade quality are
regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. 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 a greater volatility of price than securities in higher rating categories. Below investment
grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuer’s ability to pay interest and any required redemption or principal payments and are susceptible to
default or decline in market value due to adverse economic and business developments.
The Fund’s investment objective and its policy of
investing at least 80% of an aggregate of the Fund’s net assets (including proceeds from the issuance of any preferred stock) and the proceeds of any borrowings for investment purposes, in Municipal Bonds are fundamental policies that may not
be changed without the approval of the holders of a majority of the outstanding common stock and the outstanding preferred shares, including the Fund’s variable rate muni term preferred shares (“VMTP Shares”), voting together as a
single class, and of the holders of a majority of the outstanding preferred shares, including the VMTP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the stock present at a meeting, if the holders of more
than 50% of the outstanding stock are present or represented by proxy, or (2) more than 50% of the outstanding stock, whichever is less.
The
Fund’s credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security if a rating agency downgrades its assessment of the credit characteristics of a particular issue. In
determining whether to retain or sell a security that a rating agency has downgraded, the Manager may consider such factors as the Manager’s assessment of the credit quality of the issuer of the security, the price at which the security could
be sold and the rating, if any, assigned to the security by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security
had been sold prior to such downgrade.
The Fund may also purchase Municipal Bonds that are additionally secured by insurance, bank credit agreements
or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce the Fund’s income. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common stock. The Fund may purchase insured bonds and may
purchase insurance for bonds in its portfolio.
The Fund may invest in certain tax exempt securities classified as “private activity bonds”
(or industrial development bonds, under pre-1986 law) (“PABs”) (in general, bonds that benefit non-governmental entities) that may subject certain investors in
the Fund to an alternative minimum tax. The percentage of the Fund’s total assets invested in PABs
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Investment Objectives, Policies and Risks (continued)
Investment Objectives and
Policies (continued)
will vary from time to time. The Fund has not established any limit on the percentage of its portfolio that may be invested
in Municipal Bonds subject to the federal alternative minimum tax provisions of federal tax law, and the Fund expects that a portion of the income it produces will be includable in alternative minimum taxable income.
The Fund also may not invest more than 25% of its total assets (taken at market value at the time of each investment) in Municipal Bonds whose issuers are
located in the same state.
The average maturity of the Fund’s portfolio securities varies from time to time based upon an assessment of economic
and market conditions by the Manager. The Fund’s portfolio at any given time may include both long-term, intermediate-term and short-term Municipal Bonds.
The Fund’s stated expectation is that it will invest in Municipal Bonds that, in the Manager’s opinion, are underrated or undervalued.
Underrated Municipal Bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness. Undervalued Municipal Bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned
to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The
Manager may purchase those bonds for the Fund’s portfolio because they represent a market sector or issuer that the Manager considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar
bonds. Municipal Bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that market
sector, or because of a general decline in the market price of Municipal Bonds of the market sector for reasons that do not apply to the particular Municipal Bonds that are considered undervalued. The Fund’s investment in underrated or
undervalued Municipal Bonds will be based on the Manager’s belief that their yield is higher than that available on bonds bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their prices will
ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally result in capital gain distributions subject to federal capital gains taxation.
The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize
taxable capital gains.
Federal tax legislation has limited the types and volume of bonds the interest on which qualifies for a federal income tax
exemption. As a result, this legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund.
Leverage: The Fund 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. The Fund currently leverages its assets through the use of VMTP Shares and residual interest municipal tender option bonds (“TOB Residuals”), which are derivative interests in municipal bonds.
The TOB Residuals in which the 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.
The Fund may purchase and sell futures contracts, enter into various interest rate transactions and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts.
The Fund may enter into interest rate swaps and the purchase or sale of interest rate caps and floors. The Fund may enter into credit default swap
agreements for hedging purposes or to seek to increase its return.
As temporary investments, the Fund may invest in repurchase agreements. The Fund
may enter into reverse repurchase agreements with respect to its portfolio investments subject to its investment restrictions.
The Fund is permitted
to authorized to borrow money in amounts up to 5% of the value of its total assets at the time of such borrowings.
Risk Factors
This section contains a discussion of the general risks of investing in each Fund. The net asset value and market price of, and dividends paid on, the
common shares will fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee that a Fund will meet its investment objective or that the Fund’s performance will be
positive for any period of time. Each risk noted below is applicable to each Fund unless the specific Fund or Funds are noted in a parenthetical.
Investment and Market Discount Risk: An investment in the Fund’s 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 Fund’s 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. Common
shares are designed for long-term investors and the Fund should not be treated as a trading vehicle. Shares of closed-end management investment companies frequently trade at a discount from their net asset
value. This risk is separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities. At any point in time an investment in the Fund’s common shares may be worth less than the
original amount invested, even after taking into account distributions paid by the Fund. During periods in which the Fund may use leverage, the Fund’s investment, market discount and certain other risks will be magnified.
Debt Securities Risk: Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, and prepayment risk, among other
things.
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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.
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The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. For example, if
interest rates increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Fund’s investments would be expected to decrease by 10%. 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.
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Investment Objectives, Policies and Risks (continued)
Risk Factors (continued)
Fluctuations in the market price of the Fund’s investments will not affect interest income derived from instruments already owned by
the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fund management.
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 net asset value of the 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.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large
scale, which may increase redemptions from funds that hold large amounts of fixed-income securities. Heavy redemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and could hurt the Fund’s
performance.
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Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will not
be able to make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. The
degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
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Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly than
anticipated, causing the value of these obligations to fall.
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Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly than
originally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
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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 value of municipal securities. These risks include:
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General Obligation Bonds Risks — Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base.
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Revenue Bonds Risks — These payments depend on the money earned by the particular facility or class of facilities,
or the amount of revenues derived from another source.
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Private Activity Bonds Risks — Municipalities and other public authorities issue private activity bonds to finance
development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment. The Fund’s investments
may consist of private activity bonds that may subject certain shareholders to an alternative minimum tax.
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Moral Obligation Bonds Risks — Moral obligation bonds are generally issued by special purpose public authorities of
a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
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Municipal Notes Risks — Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the
anticipated proceeds, the notes may not be fully repaid and the Fund may lose money.
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Municipal Lease Obligations Risks — In a municipal lease obligation, the issuer agrees to make payments when due on
the lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
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Tax-Exempt Status Risk — The Fund and its investment manager will rely on
the opinion of issuers’ bond counsel and, in the case of certain derivative securities, sponsors’ counsel, on the tax-exempt status of interest on municipal bonds and payments under derivative
securities. Neither the Fund nor its investment manager will independently review the bases for those tax opinions, which may ultimately be determined to be incorrect and subject the Fund and its shareholders to substantial tax liabilities.
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Taxability Risk: The 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 Fund’s acquisition of the securities. In that event, the Internal Revenue Service may demand that the Fund pay U.S. federal
income taxes on the affected interest income, and, if the Fund agrees to do so, the Fund’s yield could be adversely affected. In addition, the treatment of dividends previously paid or to be paid by the Fund as “exempt interest
dividends” could be adversely affected, subjecting the Fund’s shareholders to increased U.S. federal income tax liabilities. Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a federal
income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund. 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 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 Fund.
Insurance
Risk: Insurance guarantees that interest payments on a municipal security will be made on time and that the principal will be repaid when the security matures. However, insurance does not protect against losses caused by declines in a municipal
security’s value. The Fund cannot be certain that any insurance company will make the payments it guarantees. If a municipal security’s insurer fails to fulfill its obligations or loses its credit rating, the value of the security could
drop.
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
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Investment Objectives, Policies and Risks (continued)
Risk Factors
(continued)
Junk Bonds Risk: Although junk bonds generally pay higher rates of interest than investment grade bonds, junk bonds are high
risk investments that are considered speculative and may cause income and principal losses for the Fund.
Variable Rate Demand Obligations Risk
(MQY, MYD): Variable rate demand obligations 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 Fund may lose money.
When-Issued and Delayed Delivery Securities and Forward Commitments Risk (MQT):
When-issued and delayed delivery securities and forward commitments involve the risk that the security the Fund buys will lose value prior to its delivery. There also is the risk that the security will not be issued or that the other party to
the transaction will not meet its obligation. If this occurs, the Fund may lose both the investment opportunity for the assets it set aside to pay for the security and any gain in the security’s price.
Defensive Investing Risk: For defensive purposes, the Fund may, as part of its proprietary volatility control process, allocate assets into cash or
short-term fixed-income securities without limitation. In doing so, the 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 Fund holds cash uninvested it will be subject to the credit risk of the depositary institution holding the cash.
Repurchase Agreements and Purchase and Sale Contracts (MYD, MQT): If the other party to a repurchase agreement or purchase and sale contract
defaults on its obligation under the agreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to repurchase the security in either situation and the market value of the
security declines, the Fund may lose money.
Reverse Repurchase Agreements Risk (MYD, MQT): Reverse repurchase agreements involve the sale of
securities held by the Fund with an agreement to repurchase the securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party may fail to return the securities in a timely manner
or at all. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund, including the value of the investments made with cash collateral, is less than the value of the securities. These events
could also trigger adverse tax consequences for the Fund. In addition, reverse repurchase agreements involve the risk that the interest income earned in the investment of the proceeds will be less than the interest expense.
Leverage Risk: With respect to MQY and MYD, the Fund uses leverage for investment purposes through the issuance of VRDP Shares. With respect to
MQT, the Fund uses leverage for investment purposes through the issuance of VMTP Shares. The Fund also utilizes leverage for investment purposes by entering into derivative instruments with leverage embedded in them, such as TOB Residuals, and, with
respect to MYD, by entering into reverse repurchase agreements. The Fund’s use of leverage may increase or decrease from time to time in its discretion and the Fund may, in the future, determine not to use leverage.
The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks for the holders of common
shares. The Fund cannot assure you that the use of leverage will result in a higher yield on the common shares. Any leveraging strategy the Trust 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 net asset value, 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 Trust 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 net asset value of the
common shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the common shares;
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leverage may increase operating costs, which may reduce total return.
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Any decline in the net asset value of the Fund’s investments will be borne entirely by the holders of common shares. Therefore, if the market value
of the Fund’s portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline
in the market price for the common shares.
Derivatives Risk: The Fund’s use of derivatives may increase its costs, reduce the Fund’s
returns and/or increase volatility. Derivatives involve significant risks, including:
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Volatility Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate
significantly in price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.
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Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party in the
transaction will not fulfill its contractual obligation.
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Market and Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting
inability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value accurately.
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Valuation Risk — Valuation may be more difficult in times of market turmoil since many investors and market makers
may be reluctant to purchase complex instruments or quote prices for them.
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Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlying
security, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.
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Investment Objectives, Policies and Risks (continued)
Risk Factors
(continued)
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Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements and
commodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an
underlying asset and may adversely affect the timing, character and amount of income the Fund realizes from its investments.
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Regulatory Risk — Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverable forwards, are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States and under comparable regimes in Europe,
Asia and other non-U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collect margin from 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 will be
phased-in through at least 2021. 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 certain financial contracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict
transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. The implementation of these requirements with respect to derivatives, as well as regulations
under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
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On October 28, 2020, the Securities and Exchange Commission 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 Investment Company Act
of 1940, as amended, 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.
Indexed and Inverse Securities Risk (MQY, MYD): Indexed and inverse securities provide a potential return based on a
particular index of value or interest rates. The Fund’s return on these securities will be subject to risk with respect to the value of the particular index. These securities are subject to leverage risk and correlation risk. Certain indexed
and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way
Fund management does not anticipate.
Tender Option Bonds Risk: The Fund’s participation in tender option bond transactions may reduce the
Fund’s returns and/or increase volatility. Investments in tender option bond transactions expose the Fund to counterparty risk and leverage risk. An investment in a tender option bond transaction typically will involve greater risk than an
investment in a municipal fixed rate security, including the risk of loss of principal. Distributions on TOB Residuals will bear an inverse relationship to short-term municipal security interest rates. Distributions on TOB Residuals paid to the 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. TOB Residuals generally will underperform the market for fixed rate municipal securities in a
rising interest rate environment. The Fund may invest in TOB Trusts on either a non-recourse or recourse basis. If the Fund invests in a TOB Trust on a recourse basis, it could suffer losses in excess of the
value of its TOB Residuals.
Illiquid Investments Risk: The Fund may invest without limitation in illiquid or less liquid investments or
investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Fund may not be able to readily dispose of such investments at prices that approximate those at which the Fund
could sell such investments if they were more widely traded and, as a result of such illiquidity, the 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 Fund’s net asset value and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage-related 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 investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities are often of below investment
grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.
Market
Risk and Selection Risk: Market risk is the risk that one or more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset
may decline due to changes in general market conditions, economic trends or events that are not specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of
countries, region, market, industry, group of industries, sector or asset class. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues like pandemics or epidemics, recessions,
or other events could have a significant impact on the Fund and its investments. Selection risk is the risk that the securities selected by Fund management will underperform the markets, the relevant indices or the securities selected by other funds
with similar investment objectives and investment strategies. This means you may lose money.
A recent outbreak of an infectious coronavirus has
developed into a global pandemic that has resulted in numerous disruptions in the market and has had significant economic impact leaving general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may
arise in the future, could affect the economies of many nations, individual companies and the market in general ways that cannot necessarily be foreseen at the present time.
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Automatic Dividend Reinvestment Plan
Pursuant to MYD, MQY and MQT’s Dividend Reinvestment Plan (the
“Reinvestment Plan”), Common Shareholders are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A. (the “Reinvestment Plan Agent”)
in the respective Fund’s Common Shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if
the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After MYD, MQY and MQT declare a dividend or determine to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares for
the participants’ accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Funds (“newly issued shares”) or (ii) by purchase of outstanding shares on the
open market or on the Fund’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset value per share (“NAV”) is equal to or less than the market price per share plus estimated brokerage
commissions (such condition often referred to as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be
credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. 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 brokerage commissions (such condition often
referred to as a “market discount”), the Reinvestment Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. 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 will invest any un-invested portion in newly issued
shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares will substitute for the dividend payment date.
You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting the 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
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 or other distribution.
The Reinvestment Plan Agent’s fees for the handling of the reinvestment of distributions will be paid by each Fund. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agent’s open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not
relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.
Each Fund reserves the
right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the
participants. Participants in MQY that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission fee. Participants in MYD and MQT that request a sale of shares are subject to a $0.02 per share sold
brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at computershare.com/blackrock, or in writing to Computershare, P.O. Box 505000, Louisville, KY
40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.
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