UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-07083

Name of Fund: BlackRock MuniYield Arizona Fund, Inc. (MZA)

Fund Address:    100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service:  John M. Perlowski, Chief Executive Officer, BlackRock MuniYield

            Arizona Fund, Inc., 55 East 52nd Street, New York, NY 10055

Registrant’s telephone number, including area code: (800) 882-0052, Option 4

Date of fiscal year end: 07/31/2020

Date of reporting period: 07/31/2020


Item 1 – Report to Stockholders

 


 

LOGO   JULY 31, 2020

 

  

2020 Annual Report

 

BlackRock MuniYield Arizona Fund, Inc. (MZA)

BlackRock MuniYield California Fund, Inc. (MYC)

BlackRock MuniYield Investment Fund (MYF)

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

 

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of each Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from BlackRock or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

You may elect to receive all future reports in paper free of charge. If you hold accounts directly with BlackRock, you can call Computershare at (800) 699-1236 to request that you continue receiving paper copies of your shareholder reports. If you hold accounts through a financial intermediary, you can follow the instructions included with this disclosure, if applicable, or contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Please note that not all financial intermediaries may offer this service. Your election to receive reports in paper will apply to all funds advised by BlackRock Advisors, LLC or its affiliates, or all funds held with your financial intermediary, as applicable.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive electronic delivery of shareholder reports and other communications by contacting your financial intermediary, if you hold accounts through a financial intermediary. Please note that not all financial intermediaries may offer this service.

 

Not FDIC Insured • May Lose Value • No Bank Guarantee


Section 19(a) Notices

 

The amounts and sources of distributions reported are estimates and are being provided pursuant to regulatory requirements and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will depend upon each Fund’s investment experience during the year and may be subject to changes based on tax regulations. Shareholders will receive a Form 1099-DIV each calendar year that will inform them how to report these distributions for federal income tax purposes.

 

     Total Fiscal Year to Date
Cumulative Distributions by Character
    Percentage of Fiscal Year to Date
Cumulative Distributions by Character
 
     Net
Investment
Income
    Net Realized
Capital Gains
Short Term
    Net Realized
Capital Gains
Long Term
    Return of
Capital
 (a)
    Total Per
Common
Share
    Net
Investment
Income
    Net Realized
Capital Gains
Short Term
    Net Realized
Capital Gains
Long Term
    Return of
Capital
    Total Per
Common
Share
 

MYC

  $ 0.516240     $ 0.020959     $ 0.043550     $     $ 0.580749       89     4     7     0     100

MYF

    0.642931                   0.030960       0.673891       95       0       0       5       100  

 

  (a) 

The Fund estimates that it has distributed more than its net investment income and net realized capital gains; therefore, a portion of the distribution may be a return of capital. A return of capital may occur, for example, when some or all of the shareholder’s investment in the Fund is returned to the shareholder. A return of capital does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” When distributions exceed total return performance, the difference will reduce the Fund’s net asset value per share.

 

Section 19(a) notices for the Funds, as applicable, are available on the BlackRock website at blackrock.com.

 

 

2  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


The Markets in Review

Dear Shareholder,

The last 12 months have been a time of sudden change in global financial markets, as a long period of growth and positive returns was interrupted in early 2020 by the emergence and spread of the coronavirus. For the first half of the reporting period, U.S. equities and bonds both delivered impressive returns, despite fears and doubts about the economy that were ultimately laid to rest with unprecedented monetary stimulus and a sluggish yet resolute performance from the U.S. economy. But as the threat from the coronavirus (or “COVID-19”) became more apparent throughout February and March 2020, countries around the world took economically disruptive countermeasures, causing a global recession and a sharp fall in equity prices. While markets have since recovered most of these losses as countries around the world adapt to life with the virus, lingering uncertainty about the depth and duration of the pandemic and an uptick in global infection rates tempered optimism late in the reporting period.

Returns for most securities were robust for the first half of the reporting period, as investors began to realize that the U.S. economy was maintaining the modest yet steady growth that had characterized this economic cycle. However, once stay-at-home orders and closures of non-essential businesses became widespread, many workers were laid off and unemployment claims spiked. The subsequent rapid decline in equity prices was followed by a slow recovery, and some economic indicators began to improve. U.S. large-capitalization stocks, which are often considered more resilient than smaller companies during market turbulence, advanced significantly. International equities from developed economies ended the 12-month reporting period with negative performance, while emerging market stocks posted a positive return.

The performance of different types of fixed-income securities diverged substantially due to a reduced investor appetite for risk. Treasuries benefited from the risk-off environment, and posted healthy returns, as the 10-year U.S. Treasury yield (which is inversely related to bond prices) fell to an all-time low. Investment-grade corporate bonds also delivered solid returns, while high-yield corporate returns were more modest due to credit concerns.

The U.S. Federal Reserve (the “Fed”) reduced interest rates three times in 2019, to support slowing economic growth. After the coronavirus outbreak, the Fed instituted two emergency rate cuts, pushing short-term interest rates close to zero. To stabilize credit markets, the Fed also implemented a new bond-buying program, as did several other central banks around the world, including the European Central Bank and the Bank of Japan.

Looking ahead, while coronavirus-related disruptions have clearly hindered worldwide economic growth, we believe that the global expansion is likely to continue once the outbreak subsides. Several risks remain, however, including a potential resurgence of the coronavirus amid loosened restrictions, policy fatigue among governments already deep into deficit spending, and structural damage to the financial system from lengthy economic interruptions.

Overall, we favor a moderately positive stance toward risk, and in particular toward credit given the extraordinary central bank measures taken in recent months. This support extends beyond investment-grade corporates and into high-yield, leading to attractive opportunities throughout the credit market. We believe that both U.S. Treasuries and sustainable investments can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments. We remain neutral on equities overall while favoring European stocks, which are poised for cyclical upside as re-openings continue.

In this environment, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of July 31, 2020
     6-month   12-month

U.S. large cap equities
(S&P 500® Index)

  2.42%   11.96%

U.S. small cap equities
(Russell 2000® Index)

  (7.61)   (4.59)

International equities
(MSCI Europe, Australasia, Far East Index)

  (7.34)   (1.67)

Emerging market equities
(MSCI Emerging Markets Index)

  3.08   6.55

3-month Treasury bills
(ICE BofA 3-Month U.S. Treasury Bill Index)

  0.48   1.46

U.S. Treasury securities
(ICE BofA 10-Year U.S. Treasury Index)

  9.92   15.55

U.S. investment grade bonds
(Bloomberg Barclays U.S. Aggregate Bond Index)

  5.69   10.12

Tax-exempt municipal bonds
(S&P Municipal Bond Index)

  1.75   4.89

U.S. high yield bonds
(Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index)

  0.62   4.07
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
 

 

 

3    THIS PAGE IS NOT PART OF YOUR FUND REPORT


Table of Contents

 

      Page  

Section 19(a) Notice

     2  

The Markets in Review

     3  

Annual Report:

  

Municipal Market Overview

     5  

The Benefits and Risks of Leveraging

     6  

Derivative Financial Instruments

     6  

Fund Summaries

     7  

Financial Statements:

  

Schedules of Investments

     15  

Statements of Assets and Liabilities

     34  

Statements of Operations

     35  

Statements of Changes in Net Assets

     36  

Statements of Cash Flows

     38  

Financial Highlights

     39  

Notes to Financial Statements

     43  

Report of Independent Registered Public Accounting Firm

     53  

Disclosure of Investment Advisory Agreements

     54  

Fund Investment Objectives, Policies and Risks

     58  

Automatic Dividend Reinvestment Plans

     70  

Director and Officer Information

     71  

Additional Information

     74  

Glossary of Terms Used in this Report

     77  

 

 

        4


Municipal Market Overview  For the Reporting Period Ended July 31, 2020

 

Municipal Market Conditions

Municipal bonds posted positive total returns during the period amid increased volatility created by the COVID-19 pandemic. Early in the period, consistently strong performance was driven by a favorable technical backdrop. However, as the economy shut down to stem the spread of COVID-19, the municipal market experienced volatility that was worse than during the height of the global financial crisis. Performance plummeted -10.87% during a two-week period in March 2020, before rebounding on valuation-based buying (For comparison, the -11.86% correction in 2008 spanned more than a month). As federal authorities stepped in to provide stimulus, passing the CARES Act and creating the Municipal Lending Facility, the market stabilized. Strong performance returned late in the period alongside the re-opening of the economy.

 

Similarly, strong technical support during most of the period temporarily waned as COVID-19 fears spurred risk-off sentiment and a streak of 60-consecutive weeks of inflows turned to record outflows. During the 12 months ended July 31, 2020, municipal bond funds experienced net inflows totaling $39 billion, drawn down by nearly $46 billion in outflows during the months of March and April (based on data from the Investment Company Institute). For the same 12-month period, new issuance was robust at $449 billion but slowed during the height of the pandemic as market liquidity became constrained amid

 

 

S&P Municipal Bond Index

Total Returns as of July 31, 2020

  6 months: 1.75%

12 months: 4.89%

 

the flight to quality. Taxable issuance was elevated as issuers increasingly advance refunded tax-exempt debt in the taxable municipal market for cost savings.

A Closer Look at Yields

 

LOGO

From July 31, 2019 to July 31, 2020, yields on AAA-rated 30-year municipal bonds decreased by 87 basis points (“bps”) from 2.24% to 1.37%, while ten-year rates decreased by 87 bps from 1.52% to 0.65% and five-year rates decreased by 88 bps from 1.11% to 0.23% (as measured by Thomson Municipal Market Data). As a result, the municipal yield curve bull steepened over the 12-month period with the spread between two- and 30-year maturities steepening by 7 bps, lagging the 45 bps of steepening experienced in the U.S. Treasury curve.

During the same period, tax-exempt municipal bonds significantly underperformed U.S. Treasuries across the yield curve. Relative valuations, which had been stretched since the passage of tax reform, reset to attractive levels not seen since 2008. This resulted in increased participation from crossover investors in a market that has mainly been driven by retail.

Financial Conditions of Municipal Issuers

The COVID-19 pandemic is an unprecedented shock to the system impacting nearly every sector in the municipal market. Luckily, most states and municipalities were in excellent fiscal health before the crisis and the federal government has provided an incredible amount of support. BlackRock expects ongoing stability in high-quality states as well as school districts and local governments given that property taxes have proven resilient in past economic downturns. Essential public services such as power, water, and sewer are protected segments. State housing authority bonds, flagship universities, and strong national and regional health systems are well positioned to absorb the impact of the economic shock. However, some segments are facing daunting financial challenges and federal support may be insufficient, requiring issuers to draw down reserves and/or borrow to meet financial obligations. Critical providers (safety net hospitals, mass transit, airports) with limited resources will require funding from the states and broader municipalities they serve. BlackRock anticipates that a small subset of the market, mainly non-rated stand-alone projects, will experience significant credit deterioration. Assuming the worst case, a prolonged recession would likely mean a spate of defaults, primarily in non-rated credits, and the migration of the muni market’s overall credit quality from double-A to a still-strong single-A rating. As a result, BlackRock advocates careful credit selection and anticipates increased credit dispersion as the market navigates near-term uncertainty.

The opinions expressed are those of BlackRock as of July 31, 2020 and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. Investing involves risk including loss of principal. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to Alternative Minimum Tax (“AMT”). Capital gains distributions, if any, are taxable.

The S&P Municipal Bond Index, a broad, market value-weighted index, seeks to measure the performance of the U.S. municipal bond market. All bonds in the index are exempt from U.S. federal income taxes or subject to the AMT. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index.

 

 

MUNICIPAL MARKET OVERVIEW

  5


The Benefits and Risks of Leveraging

 

The Funds may utilize leverage to seek to enhance the distribution rate on, and net asset value (“NAV”) of, their common shares (“Common Shares”). However, there is no guarantee that these objectives can be achieved in all interest rate environments.

In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by a Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of each Fund (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, each Fund’s shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage (after paying the leverage costs) is paid to shareholders in the form of dividends, and the value of these portfolio holdings (less the leverage liability) is reflected in the per share NAV.

To illustrate these concepts, assume a Fund’s Common Shares capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, a Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by a Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, a Fund’s financing cost of leverage is significantly lower than the income earned on a Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit Common Shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed each Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Fund had not used leverage. Furthermore, the value of the Funds’ portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of each Fund’s obligations under its respective leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Funds’ NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that each Fund’s intended leveraging strategy will be successful.

The use of leverage also generally causes greater changes in each Fund’s NAV, market price and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of a Fund’s Common Shares than if the Fund were not leveraged. In addition, each Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit a Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. Each Fund incurs expenses in connection with the use of leverage, all of which are borne by Common Shareholders and may reduce income to the Common Shares. Moreover, to the extent the calculation of each Fund’s investment advisory fees includes assets purchased with the proceeds of leverage, the investment advisory fees payable to the Funds’ investment adviser will be higher than if the Funds did not use leverage.

To obtain leverage, each Fund has issued Variable Rate Demand Preferred Shares (“VRDP Shares” or “Preferred Shares”) and/or leveraged its assets through the use of tender option bond trusts (“TOB Trusts”) as described in the Notes to Financial Statements.

Under the Investment Company Act of 1940, as amended (the “1940 Act”), each Fund is permitted to issue debt up to 33 1/3% of its total managed assets or equity securities (e.g., Preferred Shares) up to 50% of its total managed assets. A Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act. In addition, a Fund may also be subject to certain asset coverage, leverage or portfolio composition requirements imposed by the Preferred Shares’ governing instruments or by agencies rating the Preferred Shares, which may be more stringent than those imposed by the 1940 Act.

If a Fund segregates or designates on its books and records cash or liquid assets having a value not less than the value of a Fund’s obligations under the TOB Trust (including accrued interest), then the TOB Trust is not considered a senior security and is not subject to the foregoing limitations and requirements imposed by the 1940 Act.

Derivative Financial Instruments

The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other assets without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the instrument. The Funds’ successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.

 

 

6  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Summary  as of July 31, 2020    BlackRock MuniYield Arizona Fund, Inc.

 

Fund Overview

BlackRock MuniYield Arizona Fund, Inc.’s (MZA) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Arizona 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 its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the federal alternative minimum tax) and Arizona income taxes. Under normal market conditions, the Fund expects to invest at least 75% of its assets in municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest directly in securities or synthetically through the use of derivatives.

On June 16, 2020, the Board of Directors of MZA and the Board of Directors of BlackRock MuniYield Quality Fund, Inc. (MQY) each approved the reorganization of MZA into MQY. Subject to approvals by each Fund’s shareholders and the satisfaction of customary closing conditions, the reorganization is expected to occur during the first quarter of 2021.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on New York Stock Exchange (“NYSE”)

  MZA

Initial Offering Date

  October 29, 1993

Yield on Closing Market Price as of July 31, 2020 ($14.34)(a)

  4.27%

Tax Equivalent Yield(b)

  7.81%

Current Monthly Distribution per Common Share(c)

  $0.0510

Current Annualized Distribution per Common Share(c)

  $0.6120

Leverage as of July 31, 2020(d)

  37%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 45.30%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments on page 6.

 

Performance

Returns for the 12 months ended July 31, 2020 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MZA(a)(b)

    6.29      4.70

Lipper Other States Municipal Debt Funds(c)

    5.42        4.82  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices.

 
  (b) 

The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is no guarantee of future results.

The following discussion relates to the Fund’s absolute performance based on NAV:

Municipal bonds performed well from the beginning of the reporting period until February 2020 due to accommodative Fed policy and favorable supply-and-demand trends in the market. This supportive backdrop changed abruptly in March once the spread of COVID-19 led to travel restrictions, business closures and stay-at-home orders, leading to significant, broad-based weakness across the financial markets. Tax-exempt issues were hard hit in the sell-off, as investors withdrew cash from municipal bond funds and low market liquidity inhibited efficient pricing. Municipal bonds recovered in the April-July interval due to aggressive stimulus from the Fed and U.S. Congress, allowing the category to finish in positive territory for the full period.

Arizona municipal bonds trailed the national market, largely as a result of the state’s above-average weighting in securities rated below investment grade. Lower-rated securities underperformed amid the concerns about the effects of COVID-19.

Arizona’s demographic trends have been mostly favorable over the past several years as a result of the low cost of living in the state. Net migration trends have remained positive for the state and its subdivisions, with Maricopa County among the highest in-migration totals nationally. However, the population gains have been offset somewhat by lower labor-force participation resulting from the state’s status as a retirement destination. In addition, income levels remained below average, and unemployment rose in the wake of pandemic-induced recession. Arizona appears to be a strong position to weather a period of slower growth as recent budget surpluses have allowed the state to bolster its reserves by assigning over $1 billion to its “rainy day” fund.

 

 

FUND SUMMARY

  7


Fund Summary  as of July 31, 2020 (continued)    BlackRock MuniYield Arizona Fund, Inc.

 

The Fund’s use of leverage contributed to performance by enhancing income and amplifying the effect of rising prices. Holdings in bonds on the longer end of the yield curve (ten years and above) were positive, as this area experienced the strongest price appreciation. An allocation to higher-quality securities, which held up relatively well in the sell-off, further boosted performance. The Fund gained an additional benefit from its holdings in Puerto Rico Sales Tax securities.

The Fund sought to manage interest rate risk using U.S. Treasury futures. Since U.S. Treasury yields fell, as prices rose, this strategy detracted from performance. The Fund’s overweight positions in the education and health care sectors also detracted, as did security selection in education. Holdings in lower-rated issues further weighed on results.

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

Market Price and Net Asset Value Per Share Summary

 

     07/31/20      07/31/19      Change      High      Low  

Market Price

  $ 14.34      $ 14.03        2.21    $ 14.90      $ 9.64  

Net Asset Value

    14.86        14.76        0.68        15.45        12.28  

Market Price and Net Asset Value History For the Past Five Years

 

LOGO

Overview of the Fund’s Total Investments *

 

SECTOR ALLOCATION

 

Sector   07/31/20     07/31/19  

Education

    29     28

Utilities

    29       27  

Health

    14       17  

County/City/Special District/School District

    13       11  

Corporate

    10       10  

State

    3       4  

Transportation

    2       3  

Tobacco

    (a)       

 

  (a) 

Represents less than 1% of the Fund’s total investments.

 

 

   

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

CALL/MATURITY SCHEDULE (c)

 

Calendar Year Ended December 31,

       

2020

    4

2021

    8  

2022

    8  

2023

    8  

2024

    7  

 

  (c) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

 
  *

Excludes short-term securities.

 

CREDIT QUALITY ALLOCATION (b)

 

Credit Rating   07/31/20     07/31/19  

AA/Aa

    56     54

A

    26       24  

BBB/Baa

    4       6  

BB/Ba

    8       8  

CC

    1        

C

          1  

N/R

    5       7  

 

  (b) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service (“Moody’s”) if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
 

 

 

8  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Summary  as of July 31, 2020    BlackRock MuniYield California Fund, Inc.

 

Fund Overview

BlackRock MuniYield California Fund, Inc.’s (MYC) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and California 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 its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the federal alternative minimum tax) and California income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its total assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on NYSE

  MYC

Initial Offering Date

  February 28, 1992

Yield on Closing Market Price as of July 31, 2020 ($14.46)(a)

  3.57%

Tax Equivalent Yield(b)

  7.78%

Current Monthly Distribution per Common Share(c)

  $0.0430

Current Annualized Distribution per Common Share(c)

  $0.5160

Leverage as of July 31, 2020(d)

  38%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 54.10%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments on page 6.

 

Performance

Returns for the 12 months ended July 31, 2020 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MYC(a)(b)

    6.78      8.33

Lipper California Municipal Debt Funds(c)

    4.19        6.17  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices.

 
  (b) 

The Fund’s discount to NAV widened during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is no guarantee of future results.

The following discussion relates to the Fund’s absolute performance based on NAV:

Municipal bonds performed well from the beginning of the reporting period until February 2020 due to accommodative Fed policy and favorable supply-and-demand trends in the market. This supportive backdrop changed abruptly in March once the spread of COVID-19 led to travel restrictions, business closures and stay-at-home orders, leading to significant, broad-based weakness across the financial markets. Tax-exempt issues were hard hit in the sell-off, as investors withdrew cash from municipal bond funds and low market liquidity inhibited efficient pricing. Municipal bonds recovered in the April-July interval due to aggressive stimulus from the Fed and U.S. Congress, allowing the category to finish in positive territory for the full period.

California municipal bonds outperformed the national market due to strong demand from both retail and institutional investors. The high tax regime for state residents, together with the anticipation of potential higher taxes nationally to finance growing deficits, helped make California municipal bonds an attractive investment vehicle. Despite concerns about COVID-19, California’s diverse economic base gave investors confidence that the state’s debt service remained safely covered.

The Fund benefited from its position in longer-duration securities. (Duration is a measure of interest-rate sensitivity.) At the sector level, positions in transportation, state and local tax-backed issues, and education made the largest contributions. The Fund’s use of leverage also contributed to performance by enhancing income and amplifying the effect of rising prices.

The Fund sought to manage interest rate risk using U.S. Treasury futures. Given that U.S. Treasury yields fell, as prices rose, this strategy detracted from performance.

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

 

FUND SUMMARY

  9


Fund Summary  as of July 31, 2020 (continued)    BlackRock MuniYield California Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/20      07/31/19      Change      High      Low  

Market Price

  $ 14.46      $ 14.11        2.48    $ 15.09      $ 10.00  

Net Asset Value

    16.24        15.62        3.97        16.45        13.09  

Market Price and Net Asset Value History For the Past Five Years

 

LOGO

Overview of the Fund’s Total Investments *

 

SECTOR ALLOCATION

 

Sector   07/31/20     07/31/19  

County/City/Special District/School District

    26     36

Education

    19       20  

State

    18       8  

Transportation

    17       12  

Utilities

    10       6  

Health

    6       14  

Tobacco

    3       3  

Housing

    1       1  

 

   

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

CALL/MATURITY SCHEDULE (d)

 

Calendar Year Ended December 31,

       

2020

    1

2021

    4  

2022

    3  

2023

    3  

2024

    9  

 

  (d) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

 
  *

Excludes short-term securities.

 

CREDIT QUALITY ALLOCATION (a)

 

Credit Rating   07/31/20     07/31/19  

AAA/Aaa

    4     7

AA/Aa

    70       72  

A

    15       12  

BBB/Baa

    1       1  

BB/Ba

    (b)      1  

B/B

    1        

CC

    1        

C

          1  

N/R(c)

    8       6  

 

  (a) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (b) 

Represents less than 1% of the Fund’s total investments.

 
  (c)

The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2020 and July 31, 2019, the market value of unrated securities deemed by the investment adviser to be investment grade each represents less than 1% of the Fund’s total investments.

 
 

 

 

10  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Summary  as of July 31, 2020    BlackRock MuniYield Investment Fund

 

Fund Overview

BlackRock MuniYield Investment Fund’s (MYF) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. 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 its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the federal alternative minimum tax). Under normal market conditions, the Fund primarily invests in municipal bonds that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its total assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

On June 16, 2020, the Board of Directors of MYF and the Board of Directors of BlackRock MuniYield Quality Fund, Inc. (MQY) each approved the reorganization of MYF into MQY. Subject to approvals by each Fund’s shareholders and the satisfaction of customary closing conditions, the reorganization is expected to occur during the first quarter of 2021.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on NYSE

  MYF

Initial Offering Date

  February 28, 1992

Yield on Closing Market Price as of July 31, 2020 ($13.79)(a)

  4.87%

Tax Equivalent Yield(b)

  8.23%

Current Monthly Distribution per Common Share(c)

  $0.0560

Current Annualized Distribution per Common Share(c)

  $0.6720

Leverage as of July 31, 2020(d)

  37%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.80%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change. A portion of the distribution may be deemed a return of capital or net realized gain.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments on page 6.

 

Performance

Returns for the 12 months ended July 31, 2020 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MYF(a)(b)

    (0.11 )%       5.25

Lipper General & Insured Municipal Debt Funds (Leveraged)(c)

    3.68        4.99  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices.

 
  (b) 

The Fund moved from neither a premium nor discount to NAV to a discount during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is no guarantee of future results.

The following discussion relates to the Fund’s absolute performance based on NAV:

Municipal bonds performed well from the beginning of the reporting period until February 2020 due to accommodative Fed policy and favorable supply-and-demand trends in the market. This supportive backdrop changed abruptly in March once the spread of COVID-19 led to travel restrictions, business closures and stay-at-home orders, leading to significant, broad-based weakness across the financial markets. Tax-exempt issues were hard hit in the sell-off, as investors withdrew cash from municipal bond funds and low market liquidity inhibited efficient pricing. Municipal bonds recovered in the April-July interval due to aggressive stimulus from the Fed and U.S. Congress, allowing the category to finish in positive territory for the full period.

In this environment, positions in sectors and securities that experienced the smallest impact from COVID-19 — including water/sewer, public power, and housing — were generally the leading contributors. Similarly, positions in higher-quality securities generally performed well due to their relative strength in the March sell-off.

Allocations to the health care and transportation sectors, while benefiting returns on an absolute basis, underperformed somewhat due to their higher sensitivity to the effects of the coronavirus pandemic. The Fund sought to manage interest rate risk using U.S. Treasury futures. Since U.S. Treasury yields fell, as prices rose, this strategy detracted from performance. Certain individual holdings in sectors most affected by COVID-19, such as transportation and higher education, also dampened results.

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

 

FUND SUMMARY

  11


Fund Summary  as of July 31, 2020 (continued)    BlackRock MuniYield Investment Fund

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/20     07/31/19      Change      High      Low  

Market Price

  $ 13.79     $ 14.49        (4.83 )%     $ 15.40      $ 9.36  

Net Asset Value

    14.53       14.49        0.28        15.17        11.96  

Market Price and Net Asset Value History For the Past Five Years

 

LOGO

Overview of the Fund’s Total Investments *

 

SECTOR ALLOCATION

 

Sector   07/31/20     07/31/19  

Transportation

    27     25

County/City/Special District/School District

    17       19  

Health

    15       20  

Housing

    11       9  

Utilities

    10       10  

State

    8       6  

Tobacco

    5       5  

Education

    5       3  

Corporate

    2       3  

Industrial Conglomerates

    (a)       

 

  (a) 

Represents less than 1% of the Fund’s total investments.

 

 

   

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

CALL/MATURITY SCHEDULE (d)

 

Calendar Year Ended December 31,

       

2020

    3

2021

    14  

2022

    4  

2023

    12  

2024

    4  

 

  (d) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

 
  *

Excludes short-term securities.

 

CREDIT QUALITY ALLOCATION (b)

 

Credit Rating   07/31/20     07/31/19  

AAA/Aaa

    4     4

AA/Aa

    37       42  

A

    24       24  

BBB/Baa

    11       13  

BB/Ba

    5       2  

B/B

    2       4  

C

          1  

N/R(c)

    17       10  

 

  (b) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (c) 

The investment adviser evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2020, and July 31, 2019, the market value of unrated securities deemed by the investment adviser to be investment grade represents 3% and less than 1%, respectively, of the Fund’s total investments.

 
 

 

 

12  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Summary  as of July 31, 2020    BlackRock MuniYield New Jersey Fund, Inc.

 

Fund Overview

BlackRock MuniYield New Jersey Fund, Inc.’s (MYJ) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes and New Jersey personal income tax as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may subject to the federal alternative minimum tax) and New Jersey personal income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest up to 20% of its total assets in securities that are rated below investment grade, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of purchase. The Fund may invest directly in securities or synthetically through the use of derivatives.

No assurance can be given that the Fund’s investment objective will be achieved.

Fund Information

 

Symbol on NYSE

  MYJ

Initial Offering Date

  May 1, 1992

Yield on Closing Market Price as of July 31, 2020 ($14.28)(a)

  5.08%

Tax Equivalent Yield(b)

  10.49%

Current Monthly Distribution per Common Share(c)

  $0.0605

Current Annualized Distribution per Common Share(c)

  $0.7260

Leverage as of July 31, 2020(d)

  39%

 

  (a) 

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

 
  (b) 

Tax equivalent yield assumes the maximum marginal U.S. federal and state tax rate of 51.55%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

 
  (c) 

The distribution rate is not constant and is subject to change.

 
  (d) 

Represents VRDP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VRDP Shares and TOB Trusts, minus the sum of accrued liabilities. Does not reflect derivatives or other instruments that may give rise to economic leverage. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging and Derivative Financial Instruments on page 6.

 

Performance

Returns for the 12 months ended July 31, 2020 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MYJ(a)(b)

    (0.50 )%       3.83

Lipper New Jersey Municipal Debt Funds(c)

    0.66        3.52  

 

  (a) 

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices.

 
  (b) 

The Fund’s discount to NAV widened during the period, which accounts for the difference between performance based on market price and performance based on NAV.

 
  (c) 

Average return. Returns reflect reinvestment of dividends and/or distributions at NAV on the ex-dividend date as calculated by Lipper.

 

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Past performance is no guarantee of future results.

The following discussion relates to the Fund’s absolute performance based on NAV:

Municipal bonds performed well from the beginning of the reporting period until February 2020 due to accommodative Fed policy and favorable supply-and-demand trends in the market. This supportive backdrop changed abruptly in March once the spread of COVID-19 led to travel restrictions, business closures and stay-at-home orders, leading to significant, broad-based weakness across the financial markets. Tax-exempt issues were hard hit in the sell-off, as investors withdrew cash from municipal bond funds and low market liquidity inhibited efficient pricing. Municipal bonds recovered in the April-July interval due to aggressive stimulus from the Fed and U.S. Congress, allowing the category to finish in positive territory for the full period.

New Jersey underperformed the national market. COVID-19 was expected to have particularly negative impacts on the state’s budget due to increased expenses related to the coronavirus and decreasing revenues from sales and income taxes.

The Fund’s position in the state tax-backed state sector was a key contributor to performance, partially as a result of a position in Puerto Rico sales tax bonds. Holdings in local tax-backed issues also contributed to results, primarily due to positions in zero coupon bonds. The Fund’s position in bonds with maturities of 20 years and above was an additional contributor. Both long-term bonds and zero-coupon securities benefited from their higher interest rate sensitivity given that yields fell significantly. (Prices rise as yields fall.) The Fund’s use of leverage, which enhanced income and amplified the effect of rising prices, was an additional contributor.

The Fund sought to manage interest rate risk using U.S. Treasury futures. Since U.S. Treasury yields fell, as prices rose, this strategy detracted from performance. Reinvestment risk continued to be a headwind since the proceeds from bonds that matured or were called needed to be reinvested at lower yields compared to bonds that were issued when yields were higher.

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

 

FUND SUMMARY

  13


Fund Summary  as of July 31, 2020 (continued)    BlackRock MuniYield New Jersey Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

     07/31/20      07/31/19      Change      High      Low  

Market Price

  $ 14.28      $ 15.08        (5.31 )%     $ 15.85      $ 10.37  

Net Asset Value

    15.89        16.08        (1.18      16.63        13.46  

Market Price and Net Asset Value History For the Past Five Years

 

LOGO

Overview of the Fund’s Total Investments *

 

SECTOR ALLOCATION

 

Sector   07/31/20     07/31/19  

Transportation

    35     36

County/City/Special District/School District

    18       18  

Education

    17       17  

State

    9       9  

Health

    6       6  

Corporate

    5       7  

Tobacco

    4       3  

Utilities

    4       2  

Housing

    2       2  

 

   

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

CALL/MATURITY SCHEDULE (c)

 

Calendar Year Ended December 31,

       

2020

    3

2021

    17  

2022

    9  

2023

    7  

2024

    17  

 

  (c) 

Scheduled maturity dates and/or bonds that are subject to potential calls by issuers over the next five years.

 
  *

Excludes short-term securities.

 

CREDIT QUALITY ALLOCATION (a)

 

Credit Rating   07/31/20     07/31/19  

AAA/Aaa

    6     7

AA/Aa

    30       28  

A

    18       22  

BBB/Baa

    31       31  

BB/Ba

    8       6  

CC

          1  

N/R(b)

    7       5  

 

  (a) 

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

 
  (b) 

The investment adviser evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2020, and July 31, 2019, the market value of unrated securities deemed by the investment adviser to be investment grade represents 1% and less than 1%, respectively, of the Fund’s total investments.

 
 

 

 

14  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  

July 31, 2020

  

BlackRock MuniYield Arizona Fund, Inc. (MZA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds — 143.1%

 

Arizona — 136.8%

 

Corporate — 15.3%  

County of Maricopa Arizona Pollution Control Corp., Refunding RB, Southern California Edison Co., Series A, 5.00%, 06/01/35

  $ 2,305     $ 2,310,670  

County of Pima Arizona IDA, RB, Tucson Electric Power Co. Project, Series A, 5.25%, 10/01/40

    1,000       1,005,890  

County of Pima Arizona IDA, Refunding RB

   

Tucson Electric Power Co. Project, Series A,
4.00%, 09/01/29

    1,000       1,064,410  

Salt Verde Financial Corp., RB, Senior:

   

5.50%, 12/01/29

    2,000       2,683,760  

5.00%, 12/01/37

    2,500       3,478,675  
   

 

 

 
      10,543,405  
County/City/Special District/School District — 20.4%  

County of Maricopa Arizona School District No. 28 Kyrene Elementary, GO, School Improvement Project of 2010, Series B:

   

5.50%, 07/01/29

    480       555,686  

5.50%, 07/01/30

    400       463,072  

County of Maricopa Arizona Unified School District No. 11 Peoria, GO, (AGM), 5.00%, 07/01/35

    1,250       1,467,262  

Phoenix-Mesa Gateway Airport Authority, RB, Mesa Project, AMT, 5.00%, 07/01/38

    3,600       3,874,788  

Town of Buckeye Arizona, RB, 5.00%, 07/01/43

    4,000       4,720,160  

Town of Queen Creek Arizona Excise Tax Revenue, RB:

   

4.00%, 08/01/50

    1,700       2,034,271  

Series A, 5.00%, 08/01/42

    750       936,653  
   

 

 

 
      14,051,892  
Education — 46.0%  

Arizona Board of Regents, COP, Refunding, University of Arizona, Series C, 5.00%, 06/01/30

    2,595       2,809,062  

Arizona Board of Regents, RB, Series A,
4.00%, 07/01/42

    1,000       1,204,110  
Arizona IDA, RB:            

Arizona Charter Schools Project, 7.10%, 01/01/55(a)

    250       245,283  

Doral Academy of Neveda — Fire Mesa & Red Rock Campus Projects, Series A, 5.00%, 07/15/49(a)

    1,000       1,041,620  

Lone Mountain Campus Project, Series A,
5.00%, 12/15/49(a)

    250       264,235  

NCCU Properties LLC North Carolina University Project, Series A (BAM), 5.00%, 06/01/49

    2,500       3,020,225  
Arizona IDA, Refunding RB:            

Academies of Math And Science, 5.00%, 07/01/37

    750       890,662  

Basis Schools Project, Series A,
5.13%, 07/01/37(a)

    500       525,105  

Basis Schools Project, Series G,
5.00%, 07/01/47(a)

    2,360       2,437,337  

Odyssey Preparatory Academy Project, Series A, 5.50%, 07/01/52(a)

    600       645,594  
City of Phoenix Arizona IDA, RB:            

Candeo School, Inc. Project, 6.63%, 07/01/23(b)

    500       595,180  

Great Hearts Academies — Veritas Projects,
6.30%, 07/01/21(b)

    500       528,325  

Great Hearts Academies Projects, Series A,
5.00%, 07/01/44

    2,000       2,129,540  

Legacy Traditional Schools Projects, Series A,
6.75%, 07/01/44(a)

    440       483,050  

Legacy Traditional Schools Projects, Series A,
5.00%, 07/01/46(a)

    500       524,505  

City of Phoenix Arizona IDA, Refunding RB:

   

Great Hearts Academies Projects, 5.00%, 07/01/46

    500       539,760  
Security   Par
(000)
    Value  
Education (continued)  
City of Phoenix Arizona IDA, RB:            

Legacy Traditional School Projects,
5.00%, 07/01/45(a)

  $ 500     $ 521,110  

County of Maricopa Arizona IDA, RB, Reid Traditional Schools Projects, 5.00%, 07/01/47

    1,000       1,094,840  

County of Maricopa Arizona IDA, Refunding RB(a):

   

Legacy Traditional Schools Project, 5.00%, 07/01/54

    250       265,587  

Paradise Schools Projects, 5.00%, 07/01/47

    1,000       1,053,730  

County of Pima Arizona IDA, Refunding RB, American Leadership Academy Project, 5.00%, 06/15/52(a)

    530       520,725  

Maricopa County Industrial Development Authority, RB, Creighton University Project, 4.00%, 07/01/50

    1,500       1,678,440  

McAllister Academic Village LLC, Refunding RB, Arizona State University, 5.00%, 07/01/39

    500       602,590  

Northern Arizona University, RB, Stimulus Plan for Economic and Educational Development,
5.00%, 08/01/23(b)

    3,000       3,441,690  

Student & Academic Services LLC, RB, (BAM),
5.00%, 06/01/39

    1,400       1,597,456  

Town of Florence, Inc. Arizona IDA, ERB, Legacy Traditional School Project, Queen Creek and Casa Grande Campuses, 6.00%, 07/01/43

    500       527,530  

University of Arizona, Refunding RB, 5.00%, 06/01/39

    2,050       2,473,571  
   

 

 

 
      31,660,862  
Health — 21.5%  

Arizona Health Facilities Authority, RB, Catholic Healthcare West, Series B-2 (AGM), 5.00%, 03/01/41

    500       510,320  

Arizona Health Facilities Authority, Refunding RB, Series A:

   

Phoenix Children’s Hospital, 5.00%, 02/01/42

    1,000       1,056,330  

Scottsdale Lincoln Hospitals Project, 5.00%, 12/01/42

    2,785       3,173,006  

County of Maricopa Arizona IDA, Refunding RB:

   

Banner Health Obligation Group, 5.00%, 01/01/38

    500       603,445  

Banner Health Obligation Group, Series A,
4.00%, 01/01/41

    3,000       3,412,770  

HonorHealth, Series A, 4.13%, 09/01/42

    750       850,335  

HonorHealth, Series A, 5.00%, 09/01/42

    1,000       1,214,350  

County of Yavapai Arizona IDA, Refunding RB:

   

Northern Arizona Healthcare System,
5.25%, 10/01/26

    1,000       1,053,680  

Yavapai Regional Medical Center, 4.00%, 08/01/43

    1,650       1,877,304  

University Medical Center Corp., Refunding RB,
6.00%, 07/01/21(b)

    1,000       1,053,420  
   

 

 

 
      14,804,960  
Transportation — 2.7%  

City of Phoenix Arizona Civic Improvement Corp., Refunding RB:

   

Junior Lien Airport, Series D, 4.00%, 07/01/40

    1,000       1,121,370  

Senior Lien, AMT, 5.00%, 07/01/32

    700       776,496  
   

 

 

 
      1,897,866  
Utilities — 30.9%  

City of Goodyear AZ Water & Sewer Revenue, RB, Sunordinate, 2nd Series, 4.00%, 07/01/45

    250       294,773  

City of Lake Havasu City Arizona Wastewater System Revenue, RB, Series B (AGM), 5.00%, 07/01/40

    3,500       4,116,315  

City of Mesa Arizona Utility System Revenue, RB,
5.00%, 07/01/42

    3,000       3,750,420  

City of Phoenix Civic Improvement Corp., ARB, AMT, Series A, 5.00%, 07/01/42

    3,000       3,533,190  

City of Phoenix Civic Improvement Corp., RB:

   

Junior Lien, Series A, 4.00%, 07/01/39

    1,300       1,542,944  

Series B (BHAC), 5.50%, 07/01/41

    100       161,757  

County of Pinal Arizona IDA, RB, San Manuel Facility Project, 6.25%, 06/01/26

    285       320,083  
 

 

 

SCHEDULES OF INVESTMENTS

  15


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Arizona Fund, Inc. (MZA)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Utilities (continued)  

County of Pinal Arizona IDA, Refunding RB, Electric District No. 3, 5.25%, 07/01/21(b)

  $ 2,500     $ 2,617,800  

Salt River Project Agricultural Improvement & Power District, Refunding RB:

   

5.00%, 01/01/38

    2,000       2,553,320  

Series A, 5.00%, 12/01/41

    2,000       2,399,700  
   

 

 

 
    21,290,302  
   

 

 

 

Total Municipal Bonds in Arizona

 

    94,249,287  

Puerto Rico — 6.3%

 

State — 4.1%  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, Restructured:

   

CAB, Series A-1, 0.00%, 07/01/46(c)

    1,156       336,939  

Series A-1, 4.75%, 07/01/53

    384       407,731  

Series A-1, 5.00%, 07/01/58

    1,382       1,488,442  

Series A-2, 4.33%, 07/01/40

    196       203,862  

Series A-2, 4.78%, 07/01/58

    357       380,187  
   

 

 

 
      2,817,161  
Tobacco — 0.7%  

Children’s Trust Fund, Refunding RB, Tobacco Settlement Asset-Backed Bonds, 5.63%, 05/15/43

    460       460,092  
   

 

 

 
Utilities — 1.5%  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, RB, Senior Lien, Series A:

   

5.00%, 07/01/33

    525       538,949  

5.13%, 07/01/37

    150       154,313  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, Refunding RB, Senior Lien, Series A,
6.00%, 07/01/38

    345       348,060  
   

 

 

 
      1,041,322  
   

 

 

 

Total Municipal Bonds in Puerto Rico

 

    4,318,575  
   

 

 

 

Total Municipal Bonds — 143.1%
(Cost — $89,650,171)

 

    98,567,862  
   

 

 

 
Security   Par
(000)
    Value  

Municipal Bonds Transferred to Tender Option Bond
Trusts(d) — 11.5%

 

Arizona — 11.5%

 

Utilities — 11.5%  

City of Mesa Arizona Utility System Revenue, RB, Utility System, 5.00%, 07/01/35

  $ 3,000     $ 3,120,810  

City of Phoenix Civic Improvement Corp., Refunding RB, Senior Lien, AMT, 5.00%, 07/01/43

    4,000       4,788,400  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond Trusts — 11.5%
(Cost — $7,321,297)

 

    7,909,210  
   

 

 

 

Total Long-Term Investments — 154.6%
(Cost — $96,971,468)

 

    106,477,072  
   

 

 

 
    

    

Shares

        
Short-Term Securities — 3.9%  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.04%(e)(f)

    2,704,409       2,704,950  
   

 

 

 

Total Short-Term Securities — 3.9%
(Cost — $2,704,213)

 

    2,704,950  
   

 

 

 

Total Investments — 158.5%
(Cost — $99,675,681)

 

    109,182,022  

Other Assets Less Liabilities — 0.5%

 

    331,740  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (5.1)%

 

    (3,500,516

VRDP Shares, at Liquidation Value, Net of Deferred Offering Costs — (53.9)%

 

    (37,127,895
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 68,885,351  
 

 

 

 
 
(a) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(b) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(c) 

Zero-coupon bond.

(d) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(e) 

Annualized 7-day yield as of period end.

(f) 

Investments in issuers considered to be an affiliate/affiliates of the Fund during the year ended July 31, 2020 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer    Shares
Held at
07/31/19
     Shares
Purchased
     Shares
Sold
     Shares
Held at
07/31/20
     Value at
07/31/20
     Income     

Net

Realized
Gain (Loss) (a)

     Change in
Unrealized
Appreciation
(Depreciation)
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

     1,989,483        714,926 (b)              2,704,409      $ 2,704,950      $ 8,967      $ 829      $ 737  
              

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Includes net capital gain distributions, if applicable.

 
  (b) 

Represents net shares purchased (sold).

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

 

16  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Arizona Fund, Inc. (MZA)

 

Derivative Financial Instruments Categorized by Risk Exposure

For the year ended July 31, 2020, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from:

                    

Futures contracts

   $      $      $      $      $ (997,468    $      $ (997,468
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

                    

Futures contracts

   $      $      $      $      $ 91,271      $      $ 91,271  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:

 

Average notional value of contracts — long

   $   (a) 

Average notional value of contracts — short

     3,004,545  

 

  (a) 

Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments. For information about the Fund’s policy regarding valuation of investments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1        Level 2        Level 3        Total  

Assets:

 

Investments:

 

Long-Term Investments

   $        $ 106,477,072        $        $ 106,477,072  

Short-Term Securities

     2,704,950                            2,704,950  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 2,704,950        $ 106,477,072        $        $ 109,182,022  
  

 

 

      

 

 

      

 

 

      

 

 

 

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 disclosure hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities:

 

TOB Trust Certificates

   $        $ (3,500,000      $        $ (3,500,000

VRDP Shares at Liquidation Value

              (37,300,000                 (37,300,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $        $ (40,800,000      $        $ (40,800,000
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS

  17


Schedule of Investments

July 31, 2020

  

BlackRock MuniYield California Fund, Inc. (MYC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds  85.4%

 

California  79.9%

 

County/City/Special District/School District  21.7%  

Beverly Hills Unified School District California, GO, Series A, 3.00%, 08/01/41

  $ 2,000     $ 2,184,480  

California Statewide Communities Development Authority, RB, Lancer Educational Student Housing Project, 5.00%, 06/01/51(a)

    165       168,836  

California Statewide Communities Development Authority, Special Assessment, Statewide Community Infrastructure Program, Series A:

   

5.00%, 09/02/39

    200       232,342  

5.00%, 09/02/44

    115       129,905  

5.00%, 09/02/48

    115       127,796  

Chabot-Las Positas Community College District, GO, Refunding, 4.00%, 08/01/34

    1,000       1,165,530  

City & County of San Francisco California, COP, Green Bond, 49 South Van Ness Projects, Series A, 4.00%, 04/01/44

    11,300       12,980,875  

City of Los Angeles California, COP, Senior, Sonnenblick Del Rio West Los Angeles (AMBAC), 6.20%, 11/01/31

    2,000       2,008,300  

City of San Jose California Hotel Tax Revenue, RB, Convention Center Expansion & Renovation Project:

   

6.50%, 05/01/36

    1,520       1,582,381  

6.50%, 05/01/42

    1,860       1,934,121  

County of Los Angeles California Metropolitan Transportation Authority, Refunding RB, Series A, 5.00%, 07/01/42

    2,000       2,498,860  

County of Riverside California Public Financing Authority, RB, Capital Facilities Project, 5.25%, 11/01/45

    5,000       5,991,100  

County of Santa Clara California, RB, Series A, 4.00%, 05/01/45

    15,000       17,683,950  

County of Santa Clara Financing Authority, RB, Series A, 4.00%, 04/01/37

    250       293,058  

Mount San Antonio Community College District, GO, Refunding, Election of 2018, Series A, 5.00%, 08/01/44

    8,000       10,404,720  

San Francisco Bay Area Rapid Transit District, GO, Election of 2016, Green Bonds, Series A, 4.00%, 08/01/42

    7,875       9,216,270  

West Contra Costa California Unified School District, GO, Election of 2012, Series A, 5.50%, 08/01/39

    2,500       2,848,950  

West Valley-Mission Community College District, GO, Series A, 4.00%, 08/01/44

    3,420       4,082,078  
   

 

 

 
    75,533,552  
Education  3.9%  

California Municipal Finance Authority, RB, John Adams Academy, Series A(a):

   

5.00%, 10/01/39

    150       157,548  

5.00%, 10/01/49

    255       262,834  

5.00%, 10/01/57

    505       518,034  

California Municipal Finance Authority, Refunding RB:

   

Master’s University, 5.00%, 08/01/48

    590       618,420  

William Jessup University, 5.00%, 08/01/39

    290       308,026  

William Jessup University, 5.00%, 08/01/48

    350       366,859  

California Public Finance Authority, RB, Trinity Classical Academy Project, Series A, 5.00%, 07/01/54(a)

    195       199,854  

California School Finance Authority, RB:

   

Alliance College-Ready Public Schools—2023 Union LLC Project, Series A, 6.00%, 07/01/33

    1,500       1,672,785  

Alliance College-Ready Public Schools—2023 Union LLC Project, Series A, 6.30%, 07/01/43

    3,000       3,347,370  

Real Journey Academies, Series A, 5.00%, 06/01/58(a)

    1,465       1,475,826  

Value Schools, 6.65%, 07/01/33

    595       646,033  

Value Schools, 6.90%, 07/01/43

    1,330       1,430,987  

State of California University, Refunding RB, Systemwide, Series A, 5.00%, 11/01/41

    2,000       2,436,580  
   

 

 

 
      13,441,156  
Security   Par
(000)
    Value  
Health  5.0%            

California Health Facilities Financing Authority, RB, Series A:

   

Children’s Hospital, 5.25%, 11/01/41

  $ 9,700     $ 10,227,001  

Sutter Health, 5.00%, 08/15/52

    2,005       2,221,941  

California Health Facilities Financing Authority, Refunding RB, Sutter Health, Series B, 5.00%, 11/15/46

    4,000       4,728,080  

California Municipal Finance Authority, Refunding RB, Series A(a):

   

5.00%, 11/01/39

    135       144,115  

5.00%, 11/01/49

    150       157,628  
   

 

 

 
      17,478,765  
Housing  1.9%  

California Community Housing Agency, RB, M/F Housing, Annadel Apartments, Series A, 5.00%, 04/01/49(a)

    1,670       1,855,420  

California Housing Finance, RB, M/F Housing, Series A, 4.25%, 01/15/35(b)

    (c)      567  

California Statewide Communities Development Authority, Special Assessment Bonds, S/F Housing:

   

5.00%, 09/02/40

    205       234,924  

4.00%, 09/02/50

    165       169,849  

5.00%, 09/02/50

    165       183,711  

Statewide Community Infrastructure Program, Series C, 5.00%, 09/02/39

    415       482,110  

County of Santa Clara California Housing Authority, RB, M/F, John Burns Gardens Apartments Project, Series A, AMT, 6.00%, 08/01/41

    3,500       3,508,750  
   

 

 

 
      6,435,331  
State  16.7%  

State of California, GO, Refunding:

   

4.00%, 03/01/36

    20,000       24,889,800  

4.00%, 10/01/37

    3,750       4,643,100  

5.00%, 11/01/39

    7,250       9,395,927  

Various Purpose, 5.00%, 09/01/35

    10,115       12,601,773  

Various Purpose, 5.25%, 10/01/39

    3,500       4,332,720  

State of California Public Works Board, RB:

   

Various Capital Projects, Series I, 5.50%, 11/01/33

    1,510       1,743,884  

Various Correctional Facilities, Series A, 5.00%, 09/01/29

    250       294,763  
   

 

 

 
      57,901,967  
Tobacco  4.6%  

County of California Tobacco Securitization Agency, Refunding RB:

   

Asset-Backed, Merced County, Series A, 5.25%, 06/01/45

    775       774,961  

CAB, Series B-2, 0.00%, 06/01/55(d)

    2,485       431,744  

Series A, 4.00%, 06/01/49

    240       269,957  

Golden State Tobacco Securitization Corp., Refunding RB:

   

Series A-1, 5.00%, 06/01/47

    325       332,212  

Series A-2, 5.00%, 06/01/47

    11,495       11,750,074  

Tobacco Securitization Authority of Southern California, Refunding RB, Tobacco Asset Securitization Corporation, 5.00%, 06/01/48

    2,190       2,549,861  
   

 

 

 
      16,108,809  
Transportation  18.3%  

California Municipal Finance Authority, Refunding ARB, United Airlines, Inc. Project, AMT, 4.00%, 07/15/29

    2,395       2,411,334  

City & County of San Francisco California Airports Commission, Refunding ARB, AMT:

   

Series C, 5.00%, 05/01/42

    5,050       5,986,522  

2nd Series A, 5.25%, 05/01/33

    1,440       1,603,210  

San Francisco International Airport, Series D, 5.25%, 05/01/48

    2,250       2,730,960  

Series A, 5.00%, 05/01/44

    5,000       6,127,250  
 

 

 

18  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield California Fund, Inc. (MYC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Transportation (continued)  

City & County of San Francisco International Airport Commission, Refunding RB, Second Series, Series A, AMT, 5.00%, 05/01/27

  $ 500     $ 536,415  

City of Long Beach California Harbor Revenue, ARB, Series A, AMT, 5.00%, 05/15/40

    4,915       5,909,157  

City of Los Angeles California Department of Airports, ARB, AMT:

   

Los Angeles International Airport, Series B, 5.00%, 05/15/36

    2,865       3,422,586  

Subordinate, Series C, 5.00%, 05/15/44

    5,955       7,175,060  

City of Los Angeles California Department of Airports, Refunding ARB, Los Angeles International Airport, AMT, 5.00%, 05/15/43

    2,175       2,712,812  

City of Los Angeles California Metropolitan Transportation Authority, Refunding RB, Green Bond, Series A, 5.00%, 07/01/41

    1,300       1,626,105  

City of Los Angeles Department of Airports, ARB, Series A:

   

AMT, 4.00%, 05/15/36

    2,080       2,313,210  

Los Angeles International Airports, AMT, 5.25%, 05/15/38

    1,720       2,155,332  

City of San Jose California, ARB, Norman Y Mineta San Jose International Airport SJC, Series A-1, AMT (AGM):

   

5.50%, 03/01/30

    1,000       1,025,660  

5.75%, 03/01/34

    1,000       1,026,240  

City of San Jose California, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, Series A-1, AMT, 5.75%, 03/01/34

    2,000       2,052,580  

City of San Jose California International Airport, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, Series A-1, AMT, 6.25%, 03/01/34

    1,400       1,440,810  

County of Sacramento California Airport System Revenue, Refunding RB, Series C, AMT, 5.00%, 07/01/37

    3,000       3,645,180  

County of Sacramento California Airport System Revenue, Refunding ARB, Senior Series A, 5.00%, 07/01/41

    8,290       9,776,563  
   

 

 

 
      63,676,986  
Utilities  7.8%  

California School Finance Authority, RB, Teach Public Schools, Series A, 5.00%, 06/01/39(a)

    740       773,581  

City of Los Angeles California Department of Water & Power, RB, Power System, Series A:

   

5.00%, 07/01/42

    3,440       4,270,244  

5.00%, 07/01/45

    100       128,991  

City of Los Angeles California Department of Water & Power, Refunding RB, Series B, 5.00%, 07/01/43

    5,175       6,617,790  

City of Richmond California Wastewater Revenue, Refunding RB, Series A, 5.00%, 08/01/42

    5,185       6,460,095  

East Bay California Municipal Utility District Water System Revenue, RB, Green Bond, Series A, 5.00%, 06/01/44

    2,000       2,614,680  

Eastern Municipal Water District, Refunding RB, Series A, 5.00%, 07/01/42

    3,000       3,705,390  

Los Angeles Department of Water & Power, Refunding RB, Series B, 5.00%, 07/01/40

    2,000       2,696,120  
   

 

 

 
      27,266,891  
   

 

 

 

Total Municipal Bonds in California

 

    277,843,457  
   

 

 

 

Puerto Rico  5.5%

 

State  4.3%  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, Restructured:

   

CAB, Series A-1, 0.00%, 07/01/46(d)

    8,295       2,417,744  

Series A-1, 4.75%, 07/01/53

    1,689       1,793,380  

Series A-1, 5.00%, 07/01/58

    6,675       7,189,108  

Series A-2, 4.33%, 07/01/40

    1,696       1,764,027  
Security   Par
(000)
    Value  
State (continued)  

Series A-2, 4.78%, 07/01/58

  $ 1,727     $ 1,839,169  
   

 

 

 
      15,003,428  
Tobacco  0.0%  

Children’s Trust Fund, Refunding RB, Tobacco Settlement Asset-Backed Bonds, 5.50%, 05/15/39

    95       95,028  
   

 

 

 
Utilities  1.2%  

Puerto Rico Commonwealth Aqueduct & Sewer Authority, RB, Senior Lien, Series A, 5.00%, 07/01/33

    2,185       2,243,055  

Puerto Rico Commonwealth Aqueduct & Sewer Authority, Refunding RB, Senior Lien, Series A, 6.00%, 07/01/38

    1,740       1,755,434  
   

 

 

 
      3,998,489  
   

 

 

 

Total Municipal Bonds in Puerto Rico

 

    19,096,945  
   

 

 

 

Total Municipal Bonds 85.4%
(Cost 
$272,649,551)

 

    296,940,402  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(e) — 72.8%

 

California  72.8%

   
County/City/Special District/School District 19.6%  

County of Los Angeles California Public Works Financing Authority, Refunding RB, Series A:

   

5.00%, 12/01/39

    17,850       20,954,115  

5.00%, 12/01/44

    14,095       16,433,353  

Palomar Community College District, GO, Election of 2006, Series C, 5.00%, 08/01/44

    15,140       18,225,532  

Santa Monica Community College District, GO, Election of 2016, Series A, 5.00%, 08/01/43

    10,000       12,658,900  
   

 

 

 
      68,271,900  
Education  25.8%  

State of California University, Refunding RB, Series A:

   

5.00%, 11/01/43

    5,001       6,019,490  

Systemwide, 5.00%, 11/01/41

    9,775       11,908,785  

Systemwide, 5.00%, 11/01/42(f)

    13,430       16,726,930  

University of California, RB, Series AM, 5.25%, 05/15/44

    11,950       13,955,210  

University of California, Refunding RB:

   

Series AZ, 5.00%, 05/15/43(f)

    12,000       15,185,160  

Series I, 5.00%, 05/15/40

    21,875       26,059,463  
   

 

 

 
      89,855,038  
Health  3.7%  

California Health Facilities Financing Authority, RB, Sutter Health, Series A, 5.00%, 11/15/41

    11,000       12,954,920  
   

 

 

 
State — 7.6%  

State of California, GO, Refunding, Various Purpose, Bid Group, 5.00%, 08/01/37

    10,975       14,210,319  

State of California, GO, Various Purpose, 4.00%, 03/01/46(f)

    10,000       12,095,600  
   

 

 

 
    26,305,919  
Transportation — 9.0%  

City & County of San Francisco California Airports Commission, Refunding ARB, AMT, Series E, 5.00%, 05/01/45(f)

    16,250       19,907,712  

City of Los Angeles California Department of Airports, ARB, Subordinate, Series A, AMT, 5.00%, 05/15/45

    10,045       11,578,565  
   

 

 

 
    31,486,277  
 

 

 

SCHEDULES OF INVESTMENTS

  19


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield California Fund, Inc. (MYC)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Utilities — 7.1%  

Sacramento Municipal Utility District, Refunding RB, Electric Revenue, Series H, 4.00%, 08/15/45

  $ 20,000     $ 24,542,800  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond
Trusts — 72.8%
(Cost — $232,280,154)

 

    253,416,854  
   

 

 

 

Total Long-Term Investments — 158.2%
(Cost — $504,929,705)

 

    550,357,256  
   

 

 

 
     Shares         
Short-Term Securities — 1.0%  

BlackRock Liquidity Funds California Money Fund, Institutional Class, 0.02%(g)(h)

    3,423,867       3,424,210  
   

 

 

 

Total Short-Term Securities — 1.0%
(Cost — $3,424,203)

 

    3,424,210  
   

 

 

 

Total Investments — 159.2%
(Cost — $508,353,908)

 

    553,781,466  

Other Assets Less Liabilities — 1.3%

 

    4,491,976  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (30.1)%

 

    (104,807,267

VRDP Shares, at Liquidation Value, Net of Deferred Offering
Costs — (30.4)%

 

    (105,667,064
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 347,799,111  
   

 

 

 

 

(a) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(b) 

Variable or floating rate security, which interest rate adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of period end.

(c) 

Amount is less than 500.

(d) 

Zero-coupon bond.

(e) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(f) 

All or a portion of the security is subject to a recourse agreement. The aggregate maximum potential amount the Fund could ultimately be required to pay under the agreements which expire between May 1, 2025 to March 1, 2028, is $27,116,500. See Note 4 of the Notes to Financial Statements for details.

(g) 

Annualized 7-day yield as of period end.

 
(h) 

Investments in issuers considered to be an affiliate/affiliates of the Fund during the year ended July 31, 2020 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer   Shares
Held at
07/31/19
    Shares
Purchased
    Shares
Sold
    Shares
Held at
07/31/20
    Value at
07/31/20
    Income    

Net

Realized
Gain (Loss)
 (a)

    Change in
Unrealized
Appreciation
(Depreciation)
 

BlackRock Liquidity Funds California Money Fund, Institutional Class

          3,423,867 (b)            3,423,867     $ 3,424,210     $ 35,077     $ 398     $ 7  
         

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) 

Includes net capital gain distributions, if applicable.

 
  (b) 

Represents net shares purchased (sold).

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

Derivative Financial Instruments Categorized by Risk Exposure

For the year ended July 31, 2020, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
    

Foreign
Currency
Exchange

Contracts

     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from:

                    

Futures contracts

   $      $      $      $      $ (4,053,595    $      $ (4,053,595
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

   $      $      $      $      $ 324,166      $      $ 324,166  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

20  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield California Fund, Inc. (MYC)

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:

        

Average notional value of contracts — long

   $ (a) 

Average notional value of contracts — short

   $ 14,043,486  

 

  (a) 

Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments. For information about the Fund’s policy regarding valuation of investments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1        Level 2        Level 3        Total  

Assets:

                 

Investments:

                 

Long-Term Investments

   $        $ 550,357,256        $        $ 550,357,256  

Short-Term Securities

     3,424,210                            3,424,210  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 3,424,210        $ 550,357,256        $        $ 553,781,466  
  

 

 

      

 

 

      

 

 

      

 

 

 

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 disclosure hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities:

                 

TOB Trust Certificates

   $        $ (104,690,676      $        $ (104,690,676

VRDP Shares at Liquidation Value

              (105,900,000                 (105,900,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $        $ (210,590,676      $        $ (210,590,676
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS

  21


Schedule of Investments

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  

Municipal Bonds — 106.6%

 

Alabama — 0.3%  

City of Selma IDB, RB, Gulf Opportunity Zone, International Paper Co. Project, Series A, 5.38%, 12/01/35

  $ 545     $ 573,640  
   

 

 

 
Arizona — 2.6%  

Arizona IDA, Refunding RB, Basis Schools, Inc. Projects, Series A, 5.38%, 07/01/50(a)

    1,645       1,720,423  

City of Phoenix Arizona IDA, RB, Legacy Traditional Schools Projects, Series A, 5.00%, 07/01/46(a)

    1,070       1,122,441  

City of Phoenix Civic Improvement Corp., ARB, Junior Lien Airport Revenue Bonds, 3.00%, 07/01/49

    1,500       1,547,625  

County of Maricopa Arizona IDA, Refunding RB, Honorhealth, Series A, 4.13%, 09/01/38

    550       637,428  

Salt Verde Financial Corp., RB, Senior, 5.00%, 12/01/32

    155       208,301  
   

 

 

 
      5,236,218  
Arkansas — 0.6%  

Arkansas Development Finance Authority, RB, Big River Steel Project, AMT, 4.50%, 09/01/49(a)

    1,210       1,224,363  
   

 

 

 
California — 9.5%  

ABC Unified School District, GO, (FGIC), 0.00%, 08/01/34(b)

    1,215       925,599  

Alvord Unified School District, GO, Refunding Series B, 0.00%, 08/01/41(b)

    1,175       658,776  

California Municipal Finance Authority, Refunding RB, Community Medical Centers, Series A, 5.00%, 02/01/42

    145       168,439  

California Statewide Communities Development Authority, RB, Lancer Educational student Housing Project, Series A, 5.00%, 06/01/46(a)

    1,680       1,718,035  

California Statewide Communities Development Authority, Refunding RB, Lancer Educational student Housing Project, Series A, 5.00%, 06/01/36(a)

    1,360       1,416,386  

City & County of San Francisco California Airports Commission, Refunding ARB, 2nd Series A, AMT:

   

5.50%, 05/01/28

    1,065       1,198,434  

5.25%, 05/01/33

    830       924,072  

City of San Jose California International Airport, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, Series A-1, AMT, 5.50%, 03/01/30

    1,500       1,538,385  

Golden State Tobacco Securitization Corp., Refunding RB, Series A-2, 5.00%, 06/01/47

    655       669,534  

Kern Community College District, GO, Safety, Repair & Improvement, Series C, 5.50%, 11/01/23(c)

    1,620       1,897,328  

Regents of the University of California Medical Center Pooled Revenue, Refunding RB, Series J:

   

5.25%, 05/15/23(c)

    2,905       3,312,601  

5.25%, 05/15/38

    825       924,924  

State of California, GO, Various Purposes, 6.00%, 03/01/33

    850       853,408  

State of California Public Works Board, LRB, Various Capital Projects, Series I, 5.50%, 11/01/31

    1,000       1,156,860  

State of California Public Works Board, RB, Department of Corrections & Rehabilitation, Series F, 5.25%, 09/01/33

    835       951,892  

Washington Township Health Care District, GO, Election of 2004, Series B, 5.50%, 08/01/40

    625       709,206  
   

 

 

 
      19,023,879  
Colorado — 2.3%  

Centerra Metropolitan District No. 1, Tax Allocation Bonds, 5.00%, 12/01/47(a)

    345       349,185  

City & County of Denver Colorado, RB, Capital Appreciation Bonds, Series A-2,
0.00%,
08/01/37(b)

    1,760       993,608  
Security  

Par

(000)

    Value  
Colorado (continued)  

City & County of Denver Colorado Airport System Revenue, ARB, Series A, AMT:

   

5.50%, 11/15/28

  $ 1,000     $ 1,140,330  

5.50%, 11/15/30

    330       375,299  

5.50%, 11/15/31

    400       454,372  

Colorado Health Facilities Authority, Refunding RB, Commonspirit Health, Series A-2, 3.25%, 08/01/49

    1,195       1,217,012  
   

 

 

 
      4,529,806  
Connecticut — 1.4%  

Connecticut Housing Finance Authority, Refunding RB, S/F Housing:

   

Sub-Series A-1, 3.85%, 11/15/43

    1,545       1,685,503  

Series A-1, 3.80%, 11/15/39

    995       1,095,435  
   

 

 

 
      2,780,938  
Delaware — 1.2%  

County of Sussex Delaware, RB, NRG Energy, Inc., Indian River Power LLC Project, 6.00%, 10/01/40

    500       507,500  

Delaware State Health Facilities Authority, RB, Beebe Medical Center Project, 5.00%, 06/01/48

    1,605       1,870,900  
   

 

 

 
      2,378,400  
District of Columbia — 0.3%  

Metropolitan Washington Airports Authority Dulles Toll Road Revenue, Refunding RB, Subordinate, Dulles Metrorail and Capital Improvement Projects, Series B, 4.00%, 10/01/49

    530       587,224  
   

 

 

 
Florida — 7.8%  

Broward County FL Airport System Revenue, RB, AMT, Series A, 5.00%, 10/01/49

    300       365,964  

City of Tampa Florida, RB, CAB, Series A(b):

   

0.00%, 09/01/49

    320       106,627  

0.00%, 09/01/53

    340       94,173  

County of Broward Florida Airport System Revenue, ARB, Series A, AMT, 5.00%, 10/01/45

    1,005       1,150,383  

County of Hillsborough Florida Aviation Authority, Refunding ARB, Tampa International Airport, Series A, AMT, 5.50%, 10/01/29

    1,995       2,258,579  

County of Lee Florida Airport Revenue, Refunding ARB, Series A, AMT, 5.38%, 10/01/32

    2,000       2,082,700  

County of Lee Florida HFA, RB, S/F Housing, Multi-County Program, Series A-2, AMT (Ginnie Mae, Fannie Mae & Freddie Mac), 6.00%, 09/01/40

    80       81,086  

County of Manatee Florida HFA, RB, S/F Housing, Series A, AMT (Ginnie Mae, Fannie Mae & Freddie Mac), 5.90%, 09/01/40

    75       76,013  

County of Miami-Dade, RB, Seaport Department, Series B, AMT:

   

6.25%, 10/01/38

    525       598,715  

6.00%, 10/01/42

    700       795,697  

County of Miami-Dade Florida, RB, Seaport Department, Series A, 5.38%, 10/01/33

    1,170       1,318,520  

County of Miami-Dade Florida Aviation Revenue, Refunding ARB, Series A, AMT, 5.00%, 10/01/22(c)

    2,440       2,684,415  

County of Osceola FL Transportation Revenue, Refunding RB, Series A-2(b):

   

0.00%, 10/01/38

    1,000       591,120  

0.00%, 10/01/41

    555       274,919  

0.00%, 10/01/42

    410       195,238  

0.00%, 10/01/43

    370       169,216  

0.00%, 10/01/44

    380       167,451  

0.00%, 10/01/45

    1,315       558,375  
 

 

 

22  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  
Florida (continued)  

Lakewood Ranch Stewardship District, Special Assessment Bonds, Lakewood National & Polo Run Projects:

   

5.25%, 05/01/37

  $ 240     $ 262,258  

5.38%, 05/01/47

    260       283,663  

Palm Beach County Health Facilities Authority, RB, Acts Retirement-Life Communities, Inc., Series B,
5.00%, 11/15/42

    85       99,793  

Reedy Creek Florida Improvement District, GO, Series A, 5.25%, 06/01/23(c)

    1,200       1,372,488  
   

 

 

 
      15,587,393  
Georgia — 2.8%  

Main Street Natural Gas, Inc., RB, Series A:

   

5.00%, 05/15/37

    1,475       2,011,089  

5.00%, 05/15/38

    910       1,254,699  

5.00%, 05/15/49

    1,080       1,603,044  

Municipal Electric Authority of Georgia, RB, Plant Vogtle Units 3 & 4 Project:

   

4.00%, 01/01/49

    280       307,081  

5.00%, 01/01/56

    385       448,575  
   

 

 

 
      5,624,488  
Hawaii — 0.6%  

State of Hawaii Airports System Revenue, COP, AMT:

   

5.25%, 08/01/25

    485       541,013  

5.25%, 08/01/26

    525       584,750  
   

 

 

 
      1,125,763  
Illinois — 13.0%  

Chicago Board of Education, GO, Series C:

   

Dedicated Revenues, Series H, 5.00%, 12/01/36

    295       319,450  

Project, 5.25%, 12/01/35

    970       1,031,508  

Chicago Board of Education, GO, Refunding:

   

Dedicated Revenues, Series D, 5.00%, 12/01/25

    530       585,698  

Dedicated Revenues, Series G, 5.00%, 12/01/34

    290       315,816  

5.00%, 12/01/25

    415       458,612  

Chicago Board of Education, GO:

   

5.00%, 12/01/46

    345       371,078  

5.00%, 12/01/46

    885       913,426  

City of Chicago Illinois Midway International Airport, Refunding GARB, 2nd Lien, Series A, AMT,
5.00%, 01/01/41

    1,000       1,092,950  

City of Chicago Illinois O’Hare International Airport, GARB, 3rd Lien, Series C, 6.50%, 01/01/21(c)

    2,065       2,119,185  

City of Chicago Illinois Transit Authority, RB, Sales Tax Receipts:

   

5.25%, 12/01/36

    1,000       1,050,610  

5.25%, 12/01/40

    1,000       1,047,860  

County of Cook Illinois Community College District No. 508, GO, City College of Chicago:

   

5.50%, 12/01/38

    1,000       1,098,740  

5.25%, 12/01/43

    1,500       1,605,705  

Illinois Finance Authority, RB, Carle Foundation, Series A, 6.00%, 08/15/41

    4,000       4,184,280  

Metropolitan Pier & Exposition Authority, RB:

   

McCormick Place Expansion (BAM),
0.00%, 12/15/56(b)

    2,965       805,917  

McCormick Place Expansion Project Bonds, Series A, 5.00%, 06/15/57

    1,215       1,301,010  

Metropolitan Pier & Exposition Authority, Refunding RB:

   

McCormick Place Expansion (BAM),
0.00%, 12/15/54(b)

    4,140       1,221,010  

McCormick Place Expansion Project, 4.00%, 06/15/50

    315       314,868  

Railsplitter Tobacco Settlement Authority, RB(c):

   

5.50%, 06/01/21

    1,370       1,430,390  

6.00%, 06/01/21

    390       408,798  
Security  

Par

(000)

    Value  
Illinois (continued)  

State of Illinois, GO:

   

5.25%, 02/01/30

  $ 2,010     $ 2,192,649  

5.50%, 07/01/33

    1,000       1,081,310  

5.50%, 07/01/38

    415       446,959  

Miscellaneous Purpose, Series D, 5.00%, 11/01/28

    440       507,355  
   

 

 

 
      25,905,184  
Indiana — 1.8%  

City of Valparaiso Indiana, RB, Exempt Facilities, Pratt Paper LLC Project, AMT, 6.75%, 01/01/34

    1,350       1,475,563  

County of Allen Indiana, RB, StoryPoint Fort Wayne Project, Series A-1(a):

   

6.63%, 01/15/34

    170       142,453  

6.75%, 01/15/43

    355       286,922  

6.88%, 01/15/52

    515       409,147  

Indiana Finance Authority, Refunding RB, Marquette Project, 4.75%, 03/01/32

    700       718,571  

Town of Chesterton Indiana, RB, StoryPoint Chesterton Project, Series A-1, 6.38%, 01/15/51(a)

    720       535,925  
   

 

 

 
      3,568,581  
Iowa — 2.1%  

Iowa Finance Authority, Refunding RB, Iowa Fertilizer Co. Project:

   

Series B, 5.25%, 12/01/50(d)

    1,255       1,327,614  

Midwestern Disaster Area, 5.25%, 12/01/25

    865       909,478  

Iowa Student Loan Liquidity Corp., Refunding RB, AMT, Series B, 3.00%, 12/01/39

    1,885       1,904,378  
   

 

 

 
      4,141,470  
Kansas — 0.3%  

City of Lenexa Kansas, Refunding RB, Lakeview Village, Inc., Series A, 5.00%, 05/15/43

    655       656,055  
   

 

 

 
Louisiana — 3.0%  

Lake Charles Louisiana Harbor & Terminal District, RB, Series B, AMT (AGM), 5.50%, 01/01/29

    1,500       1,730,430  

Louisiana Local Government Environmental Facilities & Community Development Authority, RB, Westlake Chemical Corp. Project, Series A-1, 6.50%, 11/01/35

    1,420       1,436,287  

Louisiana Public Facilities Authority, RB, Louisiana Children’s Medical Center, 4.00%, 06/01/50(e)

    535       608,621  

Louisiana Public Facilities Authority, Refunding RB, Ochsner Clinic Foundation Project, 5.00%, 05/15/47

    1,895       2,162,707  
   

 

 

 
      5,938,045  
Maine — 0.6%  

Maine Health & Higher Educational Facilities Authority, RB, Maine General Medical Center, 7.50%, 07/01/32

    765       793,198  

State of Maine Housing Authority, RB, M/F Housing,
Series E, 4.25%, 11/15/43

    420       481,442  
   

 

 

 
      1,274,640  
Maryland — 1.3%  

City of Baltimore Maryland, Refunding RB, East Baltimore Research Park, Series A, 4.50%, 09/01/33

    185       188,267  

County of Montgomery Housing Opportunities Commission, Refunding RB, S/F Housing, Series C, AMT,
3.30%, 07/01/39

    2,200       2,346,696  
   

 

 

 
      2,534,963  
Massachusetts — 2.2%  

Massachusetts Development Finance Agency, Refunding RB:

   

Atrius Health Issue, Series A, 4.00%, 06/01/49

    170       184,390  

Suffolk University, 4.00%, 07/01/39

    2,045       2,111,626  

Massachusetts Educational Financing Authority, RB, Subordinate Education Loan Revenue Bonds, AMT, 3.75%, 07/01/47

    2,135       2,174,946  
   

 

 

 
      4,470,962  
 

 

 

SCHEDULES OF INVESTMENTS

  23


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  
Michigan — 2.0%  

Eastern Michigan University, RB, Series A,
4.00%, 03/01/47

  $ 1,455     $ 1,624,013  

Michigan Finance Authority, Refunding RB, Henry Ford Health System, 4.00%, 11/15/46

    645       706,933  

Michigan Strategic Fund, RB, I-75 Improvement Projects, AMT, 5.00%, 06/30/48

    570       637,431  

State of Michigan Housing Development Authority, RB:

   

S/F Housing, Series A, 4.00%, 06/01/49

    310       345,064  

M/F Housing, Series A-1, 3.35%, 10/01/49

    420       444,952  

RB, S/F Housing, Series C, 4.13%, 12/01/38

    220       247,485  
   

 

 

 
      4,005,878  
Montana — 0.1%  

City of Kalispell Montana, Refunding RB, Immanuel Lutheran Corporation Project, Series A, 5.25%, 05/15/37

    170       170,354  
   

 

 

 
Nevada — 1.1%  

Las Vegas Convention & Visitors Authority, RB, Series B, 4.00%, 07/01/49

    2,000       2,127,080  
   

 

 

 
New Hampshire — 0.5%  

New Hampshire Housing Finance Authority, RB, M/F Housing, Cimarron, Whittier Falls & Marshall (FHA), 4.00%, 07/01/52

    1,000       1,084,830  
   

 

 

 
New Jersey — 5.1%  

New Jersey EDA, RB, Private Activity Bond, Goethals Bridge Replacement Project, AMT (AGM), 5.00%, 01/01/31

    900       1,004,382  

New Jersey Higher Education Student Assistance Authority, RB, Senior Bonds, Series B, AMT, 3.50%, 12/01/39

    755       768,628  

New Jersey Housing & Mortgage Finance Agency, Refunding RB, S/F Housing, Series E,
2.45%, 10/01/50(e)

    160       160,594  

New Jersey Transportation Trust Fund Authority, RB, Series AA:

   

Transportation Program Bonds, 4.13%, 06/15/39

    1,210       1,325,192  

Transportation System, 5.50%, 06/15/39

    2,475       2,702,650  

New Jersey Transportation Trust Fund Authority, Refunding RB, Transportation System, Series A, 5.00%, 12/15/36

    180       210,841  

Tobacco Settlement Financing Corp., Refunding RB, Sub-Series B, 5.00%, 06/01/46

    3,610       4,061,286  
   

 

 

 
      10,233,573  
New York — 6.7%  

City of New York Housing Development Corp., RB, Sustainable Development Bonds, M/F Housing, Series A, 3.00%, 11/01/55

    820       853,907  

City of New York Transitional Finance Authority Future Tax Secured Revenue, RB, Future Tax Secured Subordinate Bonds, Series C, 4.00%, 05/01/45

    935       1,114,585  

City of New York Water & Sewer System, RB, 2nd General Resolution Revenue Bonds, 3.00%, 06/15/50

    3,000       3,183,840  

Counties of New York Tobacco Trust IV, Refunding RB, Settlement Pass-Through Turbo, Series A, 6.25%, 06/01/41(a)

    1,100       1,100,550  

County of Monroe Industrial Development Corp., Refunding RB, University of Rochester Project,
4.00%, 07/01/50(e)

    1,420       1,665,277  

Metropolitan Transportation Authority, Refunding RB, Sereis C-1, 5.00%, 11/15/56

    3,010       3,317,201  

New York Transportation Development Corp., ARB, LaGuardia Airport Terminal B Redevelopment Project, Series A, AMT, 5.25%, 01/01/50

    475       519,346  

Port Authority of New York & New Jersey, ARB, Consolidate Bonds, Series 221, AMT, 4.00%, 07/15/60

    950       1,064,541  

State of New York Thruway Authority, Refunding RB, Subordinate, Series B, 4.00%, 01/01/50

    510       584,016  
   

 

 

 
      13,403,263  
Security  

Par

(000)

    Value  
North Carolina — 0.4%  

North Carolina Medical Care Commission, RB, Novant Health Obligated Group, 4.00%, 11/01/52

  $ 445     $ 507,696  

North Carolina Turnpike Authority, RB, Senior Lien, Triangle Express Way System:

   

4.00%, 01/01/55

    105       116,331  

(AGM), 4.00%, 01/01/55

    100       111,891  
   

 

 

 
      735,918  
Ohio — 3.0%  

Buckeye Tobacco Settlement Financing Authority, Refunding RB, Senior, Class 2, Series B-2, 5.00%, 06/01/55

    1,895       2,088,915  

County of Montgomery Ohio, Refunding RB, Premier Health Partners Obligated Group, 4.00%, 11/15/42

    715       775,496  

Ohio Housing Finance Agency, RB, S/F Housing, Series A (Ginnie Mae, Fannie Mae & Freddie Mac),
4.00%, 09/01/48

    285       311,431  

State of Ohio, Refunding RB, Series A, 4.00%, 01/15/50

    1,055       1,186,179  

State of Ohio Air Quality Development Authority, RB, AMG Vanadium Project, AMT, 5.00%, 07/01/49 (a)

    460       468,275  

State of Ohio Turnpike & Infrastructure Commission, RB, Junior Lien, Infrastructure Projects, Series A-1,
5.25%, 02/15/31

    1,000       1,120,860  
   

 

 

 
      5,951,156  
Oklahoma — 0.9%  

City of Oklahoma Turnpike Authority, RB, Series A,
4.00%, 01/01/48

    325       365,284  

County of Tulsa Oklahoma Industrial Authority, Refunding RB, Montereau, Inc. Project, 5.25%, 11/15/37

    450       474,759  

Oklahoma Development Finance Authority, RB, OU Medicine Project, Series B, 5.25%, 08/15/48

    760       889,937  
   

 

 

 
      1,729,980  
Oregon — 0.1%  

State of Oregon Housing & Community Services Department, RB, S/F Housing, Mortgage Program, Series C, 3.95%, 07/01/43

    230       253,016  
   

 

 

 
Pennsylvania — 5.4%  

Allentown Neighborhood Improvement Zone Development Authority, RB, City Center Project, 5.00%, 05/01/42 (a)

    585       603,509  

County of Bucks IDA, RB, St. Luke’s University Health Network Project, 4.00%, 08/15/50

    1,430       1,561,431  

County of Montgomery Higher Education & Health Authority, Refunding RB, Thomas Jefferson University, Series A, 4.00%, 09/01/49

    560       614,695  

Pennsylvania Economic Development Financing Authority, RB, Series A-1, 4.00%, 04/15/50

    525       602,648  

Pennsylvania Economic Development Financing Authority, Refunding RB, National Gypsum Co., AMT,
5.50%, 11/01/44

    1,000       1,026,460  

Pennsylvania Higher Education Assistance Agency, RB, AMT, Series B, 3.00%, 06/01/47

    105       103,527  

Pennsylvania Higher Educational Facilities Authority, RB, University of Pennsylvania Health System Obligation, 4.00%, 08/15/44

    1,000       1,153,290  

Pennsylvania Housing Finance Agency, Refunding RB, S/F Housing Mortgage, Series 119, 3.50%, 10/01/36

    1,490       1,591,246  

Pennsylvania Turnpike Commission, RB, Series A:

   

5.63%, 12/01/20(c)

    545       554,712  

Subordinate, 4.00%, 12/01/49

    1,215       1,347,751  

Township of Bristol Pennsylvania School District, GO, 5.25%, 06/01/37

    1,500       1,673,880  
   

 

 

 
      10,833,149  
 

 

 

24  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  
Puerto Rico — 5.8%  

Children’s Trust Fund, Refunding RB, Tobacco Settlement Asset-Backed Bonds:

   

5.50%, 05/15/39

  $ 430     $ 430,129  

5.63%, 05/15/43

    445       445,089  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, RB, Senior Lien, Series A, 5.00%, 07/01/33

    1,280       1,314,010  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, Refunding RB, Senior Lien, Series A:

   

6.00%, 07/01/38

    465       469,125  

6.00%, 07/01/44

    840       847,358  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, Restructured:

   

CAB, Series A-1, 0.00%, 07/01/46(b)

    2,168       631,907  

Series A-1, 4.75%, 07/01/53

    1,176       1,248,677  

Series A-1, 5.00%, 07/01/58

    4,748       5,113,691  

Series A-2, 4.33%, 07/01/40

    364       378,600  

Series A-2, 4.78%, 07/01/58

    136       144,833  

Series B-1, 4.75%, 07/01/53

    252       267,677  

Series B-2, 4.78%, 07/01/58

    244       259,550  
   

 

 

 
      11,550,646  
Rhode Island — 3.4%  

Rhode Island Student Loan Authority, RB, AMT, Series A, 3.63%, 12/01/37

    1,060       1,093,443  

Rhode Island Turnpike & Bridge Authority, RB, Series A:

   

3.00%, 10/01/38

    375       401,186  

3.00%, 10/01/39

    535       570,530  

Tobacco Settlement Financing Corp., Refunding RB:

   

Series A, 5.00%, 06/01/35

    525       593,187  

Series B, 4.50%, 06/01/45

    3,950       4,174,755  
   

 

 

 
      6,833,101  
South Carolina — 5.3%  

County of Charleston South Carolina, ARB, Special Sources, 5.25%, 12/01/38

    2,505       2,882,303  

County of Charleston South Carolina Airport District, ARB, Series A, AMT:

   

6.00%, 07/01/38

    1,955       2,206,824  

5.50%, 07/01/41

    1,000       1,111,300  

South Carolina Jobs EDA, Refunding RB, Prisma Health Obligated Group, Series A, 4.25%, 05/01/48

    1,685       1,821,586  

State of South Carolina Ports Authority, ARB:

   

(AMT), 5.25%, 07/01/25(c)

    1,280       1,586,419  

AMT, 5.00%, 07/01/55

    820       962,409  
   

 

 

 
      10,570,841  
Tennessee — 0.8%  

Greeneville Health & Educational Facilities Board, Refunding RB, Ballad Health Obligation Group, Series A, 4.00%, 07/01/40

    1,500       1,620,360  
   

 

 

 
Texas — 5.8%  

Brazos Higher Education Authority, Inc., RB, Subordinate, Student Loan Program, Series 1B (AMT), 3.00%, 04/01/40

    70       67,551  

Central Texas Regional Mobility Authority, Refunding RB, Senior Lien, 6.00%, 01/01/21(c)

    2,600       2,662,036  

City of Houston Texas Airport System Revenue, Refunding ARB, United Airlines, Inc. Terminal Improvement Projects, Series B-2 (AMT), 5.00%, 07/15/27

    140       147,337  

City of Houston Texas Airport System Revenue, Refunding RB, Series A:

   

Special Facilities, Continental Airlines, Inc., AMT, 6.63%, 07/15/38

    250       255,090  
Security  

Par

(000)

    Value  
Texas (continued)  

United Airlines, Inc. Terminal E Project, 5.00%, 07/01/27

  $ 135     $ 142,142  

Dallas-Fort Worth International Airport, ARB, Joint Improvement, Series H, AMT, 5.00%, 11/01/21(c)

    1,535       1,615,618  

North Texas Tollway Authority, Refunding RB, 2nd Tier, 4.25%, 01/01/49

    720       818,978  

Red River Education Finance Corp., RB, Texas Christian University Project, 5.25%, 03/15/23(c)

    710       804,778  

Texas Department of Housing & Community Affairs, RB, S/F Housing Mortgage, Series A (Ginnie Mae), 4.25%, 09/01/43

    230       259,396  

Texas Private Activity Bond Surface Transportation Corp., RB, Segment 3C Project, AMT, 5.00%, 06/30/58

    1,795       2,095,070  

Texas Transportation Commission, RB, First Tier Toll Revenue(b):

   

CAB, 0.00%, 08/01/41

    1,950       838,422  

0.00%, 08/01/35

    310       184,686  

0.00%, 08/01/36

    170       96,101  

0.00%, 08/01/37

    225       120,481  

0.00%, 08/01/38

    810       410,905  

0.00%, 08/01/44

    1,010       368,185  

0.00%, 08/01/45

    1,775       613,280  
   

 

 

 
      11,500,056  
Virginia — 3.7%  

City of Lexington Virginia IDA, RB, Washington & Lee University, 5.00%, 01/01/22(c)

    560       598,321  

Tobacco Settlement Financing Corp., Refunding RB, Senior Series B-1, 5.00%, 06/01/47

    1,395       1,394,986  

Virginia Housing Development Authority, RB:

   

M/F, Rental Housing, Series D, 3.90%, 10/01/48

    1,570       1,750,330  

Series E, 3.15%, 12/01/49

    1,070       1,137,752  

Virginia Small Business Financing Authority, RB, AMT:

   

Covanta Project, 5.00%, 01/01/48(a)(d)

    585       587,808  

Senior Lien, Elizabeth River Crossings OpCo LLC Project, 6.00%, 01/01/37

    1,715       1,843,111  
   

 

 

 
      7,312,308  
Washington — 0.5%  

King County Housing Authority, Refunding RB, 3.00%, 06/01/40

    490       524,261  

Washington Health Care Facilities Authority, Refunding RB, Seattle Cancer Care Alliance, 5.00%, 09/01/55

    315       392,685  
   

 

 

 
      916,946  
West Virginia — 1.1%  

West Virginia Hospital Finance Authority, RB, Improvement, West Virginia University Health System Obligated Group, Series A, 4.00%, 06/01/51

    1,940       2,112,641  
   

 

 

 
Wisconsin — 1.2%  

Public Finance Authority, Refunding RB, Mery’s Wood at Marylhurst Projects, 5.25%, 05/15/52(a)

    1,015       1,045,816  

Wisconsin Housing & Economic Development Authority, RB, M/F Housing, Series A:

   

4.45%, 05/01/57

    660       742,216  

3.15%, 11/01/44

    520       555,240  
   

 

 

 
      2,343,272  
   

 

 

 

Total Municipal Bonds — 106.6%
(Cost — $195,876,070)

 

    212,450,380  
   

 

 

 
 

 

 

SCHEDULES OF INVESTMENTS

  25


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  

Municipal Bonds Transferred to Tender Option Bond
Trusts(f) — 52.8%

 

Arizona — 0.6%  

County of Maricopa Industrial Development Authority, RB, Banner Health, Series A, 4.00%, 01/01/41

  $ 1,065     $ 1,211,533  
   

 

 

 
California — 8.0%  

Bay Area Toll Authority, Refunding RB, San Francisco Bay Area Toll Bridge, 4.00%, 04/01/42(g)

    1,998       2,300,849  

Grossmont California Union High School District, GO, Election of 2008, Series B, 5.00%, 08/01/20(c)

    6,000       6,000,000  

Los Angeles Community College District California, GO, Election of 2008, Series C, 5.25%, 08/01/39(c)(g)

    5,253       5,252,824  

Sacramento Area Flood Control Agency, Refunding, Consolidated Capital Assessment District No. 2 Bonds, 5.00%, 10/01/47

    1,980       2,394,828  
   

 

 

 
      15,948,501  
District of Columbia — 0.4%  

District of Columbia Housing Finance Agency, RB, M/F Housing, Series B-2 (FHA), 4.10%, 09/01/39

    610       698,066  
   

 

 

 
Florida — 5.6%  

City of South Miami Health Facilities Authority, Inc., Refunding RB, Baptist Health South Florida, 5.00%, 08/15/47

    1,575       1,836,198  

City of Tampa Florida, RB, Baycare Health System,
Series A, 4.00%, 11/15/46

    1,918       2,126,710  

County of Broward Florida Airport Facilities Revenue, ARB, Senior Bond, Series B, AMT, 4.00%, 09/01/49

    2,660       2,866,043  

Greater Orlando Aviation Authority, ARB, Series A, AMT, 4.00%, 10/01/49(g)

    3,858       4,335,959  
   

 

 

 
      11,164,910  
Georgia — 2.4%  

Georgia Housing & Finance Authority, Refunding RB, S/F Mortgage Bonds, Series A:

   

3.70%, 06/01/49

    2,696       2,971,230  

3.60%, 12/01/44

    1,615       1,780,038  
   

 

 

 
      4,751,268  
Illinois — 0.5%  

Illinois Finance Authority, Refunding RB, Presence Health Network, Series C:

   

4.00%, 02/15/27(c)

    2       2,560  

4.00%, 02/15/41

    912       1,020,755  
   

 

 

 
      1,023,315  
Maine — 0.3%  

State of Maine Housing Authority, RB, M/F Housing,
Series E, 4.15%, 11/15/38

    563       651,392  
   

 

 

 
Maryland — 2.0%  

City of Baltimore Maryland, RB, Water Projects, Series A, 4.00%, 07/01/49

    3,378       3,914,568  
   

 

 

 
Massachusetts — 0.6%  

Massachusetts Housing Finance Agency, RB, Sustainability Bonds, Series A-1, 3.10%, 06/01/60

    1,246       1,282,051  
   

 

 

 
Michigan — 4.1%  

Michigan Finance Authority, RB, Multi Model- McLaren Health Care, 4.00%, 02/15/47

    1,964       2,242,338  

Michigan State Building Authority, Refunding RB, Facilities Program, Series I, 4.00%, 04/15/54

    2,523       2,943,236  

State of Michigan Housing Development Authority, RB, M/F Housing, Series A, 4.05%, 10/01/48

    2,756       3,057,360  
   

 

 

 
      8,242,934  
Security  

Par

(000)

    Value  
Nebraska — 0.6%  

Nebraska Investment Finance Authority, RB, S/F Housing, Series A (Ginnie Mae, Fannie Mae & Freddie Mac), 3.70%, 03/01/47

  $ 1,106     $ 1,248,155  
   

 

 

 
Nevada — 4.9%  

County of Clark Nevada, GO, Stadium Improvement,
Series A, 5.00%, 05/01/48

    2,740       3,371,391  

Las Vegas Valley Water District, GO, Refunding, Series C, 5.00%, 06/01/28

    6,070       6,309,583  
   

 

 

 
      9,680,974  
New Jersey — 0.5%  

New Jersey Transportation Trust Fund Authority, RB, Transportation System, Series B, 5.25%, 06/15/36(g)

    1,000       1,029,097  
   

 

 

 
New York — 11.4%  

City of New York Housing Development Corp., Refunding RB, Sustainable Neighborhood Bonds, Series A,
4.15%, 11/01/38

    1,280       1,432,896  

City of New York Municipal Water Finance Authority, Refunding RB, Series FF, 5.00%, 06/15/45

    3,859       4,162,667  

City of New York Transitional Finance Authority Future Tax Secured Revenue, RB, Future Tax Secured Subordinate Bonds, Series C, 3.00%, 05/01/46

    1,488       1,596,937  

City of New York Water & Sewer System, Refunding RB, Water & Sewer System, 2nd General Resolution, Series BB, 5.25%, 12/15/21(c)

    4,408       4,716,400  

Hudson Yards Infrastructure Corp., RB, Senior-Fiscal 2012(g):

   

5.75%, 02/15/21(c)

    799       820,986  

5.75%, 02/15/47

    491       505,046  

New York Liberty Development Corp., ARB, 1 World Trade Center Port Authority Consolidated Bonds,
5.25%, 12/15/43

    4,365       4,612,584  

New York Liberty Development Corp., Refunding RB,
4 World Trade Center Project, 5.75%, 11/15/51(g)

    2,560       2,724,449  

State of New York Power Authority, Refunding RB, Series A, 4.00%, 11/15/60

    1,740       2,066,911  
   

 

 

 
      22,638,876  
Pennsylvania — 2.0%  

Commonwealth of Pennsylvania, GO, 1st Series,
4.00%, 03/01/36(g)

    1,769       2,078,516  

Pennsylvania Turnpike Commission, RB, Subordinate, Series A, 5.50%, 12/01/42

    1,514       1,815,721  
   

 

 

 
      3,894,237  
Rhode Island — 1.1%  

Rhode Island Housing & Mortgage Finance Corp., Refunding RB, S/F Housing, Home Ownership Opportunity Bonds, Series 69-B (Ginnie Mae, Fannie Mae & Freddie Mac):

   

3.55%, 10/01/33

    1,440       1,592,741  

3.95%, 10/01/43

    514       561,200  
   

 

 

 
      2,153,941  
South Carolina — 1.2%  

South Carolina Ports Authority, ARB, Series B, AMT,
4.00%, 07/01/49(g)

    2,235       2,468,826  
   

 

 

 
Texas — 4.8%  

County of Hidalgo Texas, GOL, Certificates of Obligation, Series A, 4.00%, 08/15/43

    2,703       3,169,892  

North Texas Tollway Authority, RB, Special Projects System, Series A, 5.50%, 09/01/21(c)

    3,480       3,678,812  

Texas Department of Housing & Community Affairs, RB, S/F Housing, Series A:

   

3.00%, 09/01/45

    611       640,113  

3.00%, 03/01/50

    1,159       1,212,871  
 

 

 

26  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

(Percentages shown are based on Net Assets)

 

Security  

Par

(000)

    Value  
Texas (continued)  

Texas Department of Housing & Community Affairs, RB, S/F Housing, Series A (Ginnie Mae):

   

3.63%, 09/01/44

  $ 495     $ 539,493  

3.75%, 09/01/49

    271       295,779  
   

 

 

 
      9,536,960  
Washington — 0.9%  

Washington Health Care Facilities Authority, Refunding RB, Multicare Health System, Series B, 4.13%, 08/15/43

    1,641       1,797,467  
   

 

 

 
Wisconsin — 0.9%  

Wisconsin Housing & Economic Development Authority, RB, M/F Housing, Series A, 4.30%, 11/01/53

    1,605       1,797,504  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option
Bond Trusts — 52.8%
(Cost — $99,022,153)

 

    105,134,575  
   

 

 

 

Total Long-Term Investments — 159.4%
(Cost — $294,898,223)

 

    317,584,955  
   

 

 

 
Security  

 

Shares

    Value  
Short-Term Securities — 0.1%  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.04%(h)(i)

    230,867     $ 230,913  
   

 

 

 

Total Short-Term Securities — 0.1%
(Cost — $230,913)

 

    230,913  
   

 

 

 

Total Investments — 159.5%
(Cost — $295,129,136)

 

    317,815,868  

Other Assets Less Liabilities — 0.1%

 

    123,744  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (29.9)%

 

    (59,490,831

VRDP Shares, at Liquidation Value, Net of Deferred Offering
Costs — (29.7)%

 

    (59,160,544
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 199,288,237  
   

 

 

 
 
(a) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(b) 

Zero-coupon bond.

(c) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(d) 

Variable or floating rate security, which interest rate adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of period end.

(e) 

When-issued security.

(f) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(g) 

All or a portion of the security is subject to a recourse agreement. The aggregate maximum potential amount the Fund could ultimately be required to pay under the agreements, which expire December 15, 2020 to February 15, 2047 is $12,525,106. See Note 4 of the Notes to Financial Statements for details.

(h) 

Annualized 7-day yield as of period end.

(i) 

Investments in issuers considered to be an affiliate/affiliates of the Fund during the year ended July 31, 2020 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated    Shares
Held at
07/31/19
     Shares
Purchased
     Shares
Sold
    Shares
Held at
07/31/20
     Value at
07/31/20
     Income      Net
Realized
Gain (Loss)
 (a)
     Change in
Unrealized
Appreciation
(Depreciation)
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

     382,946               (152,079 )(b)      230,867      $ 230,913      $ 8,589      $ 2,147      $  
             

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Includes net capital gain distributions, if applicable.

 
  (b) 

Represents net shares purchased (sold).

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

Derivative Financial Instruments Categorized by Risk Exposure

For the year ended July 31, 2020, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from:

                    

Futures contracts

   $      $      $      $      $ (2,285,216    $      $ (2,285,216
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on:

                    

Futures contracts

   $      $      $      $      $ 89,723      $      $ 89,723  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

SCHEDULES OF INVESTMENTS

  27


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield Investment Fund (MYF)

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:

 

Average notional value of contracts — long

   $ (a) 

Average notional value of contracts — short

   $ 5,740,262  

 

  (a) 

Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments. For information about the Fund’s policy regarding valuation of investments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1        Level 2        Level 3        Total  

Assets:

 

Investments:

 

Long-Term Investments

   $        $ 317,584,955        $             —        $ 317,584,955  

Short-Term Securities

     230,913                            230,913  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 230,913        $ 317,584,955        $        $ 317,815,868  
  

 

 

      

 

 

      

 

 

      

 

 

 

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 for financial statement purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

      Level 1        Level 2        Level 3        Total  

Liabilities:

 

TOB Trust Certificates

   $             —        $ (59,392,855      $             —        $ (59,392,855

VRDP Shares at Liquidation Value

              (59,400,000                 (59,400,000
  

 

 

      

 

 

      

 

 

      

 

 

 
   $        $ (118,792,855      $        $ (118,792,855
  

 

 

      

 

 

      

 

 

      

 

 

 

See notes to financial statements.

 

 

28  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments

July 31, 2020

  

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  

Municipal Bonds — 131.2%

 

New Jersey — 119.7%

 

Corporate — 7.9%  

County of Middlesex New Jersey Improvement Authority, RB, Heldrich Center Hotel, Sub-Series B, 6.25%, 01/01/37

  $ 2,350     $ 47,000  

New Jersey Economic Development Authority, RB, State House Project, Series B, 5.00%, 06/15/35

    3,750       4,418,250  

New Jersey EDA, RB:

   

Continental Airlines, Inc. Project, Series A, AMT, 5.63%, 11/15/30

    1,730       1,794,200  

Continental Airlines, Inc. Project, Series B, AMT, 5.63%, 11/15/30

    7,195       7,490,858  

Motor Vehicle Surcharge, Series A (NPFGC), 5.25%, 07/01/25(a)

    415       513,210  

Motor Vehicle Surcharge, Series A (NPFGC), 5.25%, 07/01/25

    3,450       3,873,694  

Provident Group-Kean Properties, Series A, 5.00%, 07/01/47

    440       416,539  

New Jersey EDA, Refunding RB:

   

American Water Co., Inc, AMT, Series A, 2.20%, 10/01/39(b)

    2,130       2,180,396  

Cigarette Tax, 5.00%, 06/15/26

    1,250       1,296,125  

Duke Farms Foundation Project, 4.00%, 07/01/46

    2,255       2,578,322  

Provident Group-Monteclair Properties LLC (AGM), 5.00%, 06/01/37

    2,280       2,721,887  

Sub Series A, 5.00%, 07/01/33

    1,175       1,332,709  

Sub Series A, 4.00%, 07/01/34

    1,270       1,343,533  

Teaneck Community Charter School Project, Series A, 4.25%, 09/01/27(c)

    210       219,610  
   

 

 

 
    30,226,333  
County/City/Special District/School District — 21.6%  

Casino Reinvestment Development Authority, Inc., Refunding RB:

   

5.25%, 11/01/39

    2,280       2,359,686  

5.25%, 11/01/44

    12,000       12,339,120  

City of Bayonne New Jersey, GO, Refunding, Qualified General Improvement (BAM):

   

5.00%, 07/01/33

    1,565       1,912,086  

5.00%, 07/01/35

    2,425       2,951,419  

City of Margate New Jersey, GO, Refunding, Improvement 5.00%, 01/15/21(d)

    3,470       3,545,438  

County of Essex New Jersey Improvement Authority, RB, Covanta Project (AMT), 5.25%, 07/01/45(c)

    6,365       6,370,665  

County of Essex New Jersey Improvement Authority, Refunding RB, Project Consolidation (NPFGC):

   

5.50%, 10/01/28

    4,540       6,182,481  

5.50%, 10/01/29

    8,505       11,864,560  

County of Mercer New Jersey Improvement Authority, RB, Courthouse Annex Project, 5.00%, 09/01/40

    2,480       2,984,680  

County of Middlesex New Jersey, COP, Refunding, Civic Square IV Redevelopment, 5.00%, 10/15/31

    2,840       3,433,532  

County of Monmouth Improvement Authority, RB, Series B:

   

4.00%, 12/01/37

    500       611,935  

(GTD), 4.00%, 12/01/38

    510       622,032  

County of Union New Jersey Improvement Authority, LRB, Guaranteed Lease, Family Court Building Project, 5.00%, 05/01/42

    2,320       2,490,682  

County of Union New Jersey Utilities Authority, Refunding RB, Resources Recovery Facility, Covanta Union, Inc., AMT, Series A, 5.25%, 12/01/31

    670       707,694  

Essex County Improvement Authority, RB, Govermental Loan Revenue Bonds, 4.00%, 11/01/49

    465       525,613  
Security   Par
(000)
    Value  
County/City/Special District/School District (continued)  

Ewing Township Board of Education, GO:

   

4.00%, 07/15/38

  $ 1,190     $ 1,411,530  

4.00%, 07/15/39

    1,090       1,290,189  

Monroe Township Board of Education Middlesex County, GO, Refunding, 5.00%, 03/01/25(d)

    2,750       3,343,065  

New Jersey EDA, RB:

   

Kapkowski Road Landfill Project, Series B, AMT, 6.50%, 04/01/31

    4,590       4,909,693  

School Facilities Construction, Series EEE, 5.00%, 06/15/43

    4,450       5,108,689  

State House Project, Series B, Remark 10, 5.00%, 06/15/43

    2,235       2,565,825  

New Jersey EDA, Refunding RB, Special Assessment, Kapkowski Road Landfill Project, 6.50%, 04/01/28

    4,750       5,260,340  
   

 

 

 
    82,790,954  
Education — 19.1%  

County of Atlantic New Jersey Improvement Authority, RB, Stockton University Atlantic City, Series A (AGM), 4.00%, 07/01/46

    950       1,028,717  

New Jersey EDA, RB:

   

Beloved Community Charter School, Inc. Project, Series A, 5.00%, 06/15/49(c)

    970       996,850  

Beloved Community Charter School, Inc. Project, Series A, 5.00%, 06/15/54(c)

    730       745,549  

Foundation Academy Charter School Project, Series A, 5.00%, 07/01/38

    160       173,579  

Foundation Academy Charter School Project, Series A, 5.00%, 07/01/50

    410       442,320  

Friends of Vineland Public Charter School Projects, Series A, 5.25%, 11/01/54(c)

    1,805       1,799,296  

Golden Door Charter School Project, Series A, 5.13%, 11/01/29(c)

    150       162,489  

Golden Door Charter School Project, Series A, 6.25%, 11/01/38(c)

    440       492,804  

Golden Door Charter School Project, Series A, 6.50%, 11/01/52(c)

    2,490       2,768,980  

Hatikvah International Academy Charter School Project, Series A, 5.00%, 07/01/27(c)

    330       352,097  

Hatikvah International Academy Charter School Project, Series A, 5.25%, 07/01/37(c)

    1,030       1,080,625  

Hatikvah International Academy Charter School Project, Series A, 5.38%, 07/01/47(c)

    1,685       1,744,177  

School Facilities Construction, 4.00%, 06/15/49

    2,380       2,528,583  

Team Academy Charter School Project, 6.00%, 10/01/33

    4,745       5,174,090  

Team Academy Charter School Project, Series A, 5.00%, 12/01/48

    4,475       4,975,976  

New Jersey EDA, Refunding RB, Series A(c):

   

Greater Brunswick Charter School, Inc. Project, 5.63%, 08/01/34

    630       658,936  

Greater Brunswick Charter School, Inc. Project, 5.88%, 08/01/44

    1,070       1,113,506  

Greater Brunswick Charter School, Inc. Project, 6.00%, 08/01/49

    555       579,176  

Teaneck Community Charter School Project, 5.00%, 09/01/37

    805       849,195  

Teaneck Community Charter School Project, 5.13%, 09/01/52

    1,700       1,755,454  

New Jersey Educational Facilities Authority, RB:

   

Green Bond, Series A, 5.00%, 07/01/45

    1,075       1,270,209  

Higher Educational Capital Improvement Fund, Series A, 5.00%, 09/01/32

    4,000       4,456,840  
 

 

 

SCHEDULES OF INVESTMENTS

  29


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Education (continued)  

Series C, 3.25%, 07/01/49

  $ 475     $ 498,194  

Series C, 4.00%, 07/01/50

    400       451,272  

New Jersey Educational Facilities Authority, Refunding RB:

   

Montclair State University, Series A, 5.00%, 07/01/44

    12,960       14,452,992  

Ramapo College, Series B, 5.00%, 07/01/42

    690       735,050  

Seton Hall University, Series D, 5.00%, 07/01/38

    500       537,575  

Stevens Institute of Technology, Series A, 4.00%, 07/01/47

    955       1,014,831  

Stockton University, Series A, 5.00%, 07/01/28

    915       1,104,597  

New Jersey Higher Education Student Assistance Authority, RB, Student Loan, AMT:

   

Series 1A, 5.00%, 12/01/22

    915       981,969  

Sub-Series C, 4.00%, 12/01/48

    1,450       1,512,278  

New Jersey Higher Education Student Assistance Authority, Refunding RB, AMT:

   

Series 1, 5.75%, 12/01/29

    2,585       2,714,664  

Sub-Series C, 3.63%, 12/01/49

    1,925       1,959,708  

New Jersey Institute of Technology, RB, Series A:

   

5.00%, 07/01/22(d)

    2,455       2,681,891  

5.00%, 07/01/40

    3,000       3,545,160  

5.00%, 07/01/45

    4,500       5,275,350  

State of New Jersey Turnpike Authority, RB, Series E, 5.00%, 01/01/45

    720       815,299  
   

 

 

 
    73,430,278  
Health — 8.7%  

County of Camden Improvement Authority, Refunding RB, 5.00%, 02/15/34

    590       649,112  

New Jersey EDA, Refunding RB, Cranes Mill Project:

   

5.00%, 01/01/34

    555       562,143  

5.00%, 01/01/39

    555       551,975  

New Jersey Health Care Facilities Financing Authority, RB:

   

Inspira Health Obligated Group, 5.00%, 07/01/42

    1,685       1,981,796  

Robert Wood Johnson University Hospital, Series A, 5.50%, 07/01/43

    2,400       2,685,336  

Valley Health System Obligated Group, 4.00%, 07/01/44

    2,755       3,087,529  

New Jersey Health Care Facilities Financing Authority, Refunding RB:

   

AHS Hospital Corp., 6.00%, 07/01/21(d)

    4,990       5,255,318  

AHS Hospital Corp., 4.00%, 07/01/41

    1,400       1,568,294  

Princeton Healthcare System, 5.00%, 07/01/34

    860       1,034,468  

Princeton Healthcare System, 5.00%, 07/01/39

    2,530       3,011,914  

RWJ Barnabas Health Obligated Group, Series A, 4.00%, 07/01/43

    1,635       1,799,187  

RWJ Barnabas Health Obligated Group, Series A, 5.00%, 07/01/43

    3,305       3,889,357  

St. Barnabas Health Care System, Series A, 5.63%, 07/01/21(d)

    6,990       7,336,704  
   

 

 

 
    33,413,133  
Housing — 2.5%  

New Jersey Housing & Mortgage Finance Agency, Refunding RB:

   

M/F Housing, Series A, 4.00%, 11/01/48

    305       331,520  

M/F Housing, Series A, 4.10%, 11/01/53

    180       195,187  

M/F, Series D, AMT, 4.25%, 11/01/37

    1,260       1,377,167  

S/F Housing, Series A, 3.75%, 10/01/35

    2,665       3,011,050  

S/F Housing, Series E, 2.25%, 10/01/40(e)

    1,365       1,370,146  

S/F Housing, Series E, 2.40%, 10/01/45(e)

    1,050       1,053,959  

Newark Housing Authority Scholarship Foundation A New Jersey Non (The), RB, M/F Housing, Series A, 5.00%, 12/01/30

    2,000       2,277,480  
   

 

 

 
    9,616,509  
Security   Par
(000)
    Value  
State — 6.6%  

Garden State Preservation Trust, RB, CAB, Series B (AGM)(f):

   

0.00%, 11/01/23

  $ 1,460     $ 1,386,066  

0.00%, 11/01/26

    6,000       5,279,280  

0.00%, 11/01/27

    4,000       3,421,200  

0.00%, 11/01/28

    4,540       3,760,437  

New Jersey EDA, Refunding RB:

   

Cigarette Tax, 5.00%, 06/15/28

    975       1,009,993  

Cigarette Tax, 5.00%, 06/15/29

    2,260       2,341,428  

Cigarette Tax (AGM), 5.00%, 06/15/22

    3,690       3,877,599  

School Facilities Construction, Series GG, 5.25%, 09/01/27

    4,295       4,402,847  
   

 

 

 
    25,478,850  
Tobacco — 6.8%  

Tobacco Settlement Financing Corp., Refunding RB:

   

Series A, 5.00%, 06/01/46

    7,000       8,136,240  

Series A, 5.25%, 06/01/46

    1,595       1,884,157  

Sub-Series B, 5.00%, 06/01/46

    14,375       16,172,019  
   

 

 

 
    26,192,416  
Transportation — 42.1%  

Delaware River Port Authority of Pennsylvania & New Jersey, RB, 5.00%, 01/01/40

    4,000       4,530,800  

New Jersey EDA, RB, Goethals Bridge Replacement Project, AMT:

   

5.38%, 01/01/43

    15,780       17,386,720  

Private Activity Bond (AGM), 5.00%, 01/01/31

    1,000       1,115,980  

New Jersey EDA, Refunding RB, AMT, 5.00%, 10/01/37

    2,750       2,997,445  

New Jersey State Turnpike Authority, RB, Series A:

   

5.00%, 07/01/22(d)

    6,000       6,554,700  

5.00%, 07/01/22(d)

    1,015       1,108,776  

5.00%, 01/01/35

    1,060       1,277,703  

New Jersey State Turnpike Authority, Refunding RB:

   

Series A, 5.00%, 01/01/22(d)

    1,000       1,068,280  

Series B, 5.00%, 01/01/34

    1,150       1,418,651  

Series G, 4.00%, 01/01/43

    1,445       1,623,775  

New Jersey Transportation Trust Fund Authority, RB:

   

CAB, Transportation System, Series C (AGM), 0.00%, 12/15/32(f)

    5,250       3,742,462  

CAB, Transportation System, Series C (AMBAC), 0.00%, 12/15/35(f)

    4,140       2,488,595  

Federal Highway Reimbursement Revenue Notes, Series A, 5.00%, 06/15/30

    2,000       2,321,280  

Series BB, 4.00%, 06/15/50

    2,690       2,843,169  

Transportation Program Notes, Series BB, 5.00%, 06/15/33

    1,110       1,315,339  

Transportation Program, Series AA, 5.00%, 06/15/38

    9,490       10,362,321  

Transportation Program, Series AA, 5.25%, 06/15/41

    5,000       5,567,500  

Transportation System, Series A, 5.50%, 06/15/21(d)

    8,330       8,714,596  

Transportation System, Series A, 6.00%, 06/15/21(d)

    11,440       12,018,521  

Transportation System, Series A, 5.00%, 06/15/42

    6,885       7,230,902  

Transportation System, Series AA, 5.50%, 06/15/39

    8,205       8,959,696  

New Jersey Transportation Trust Fund Authority, Refunding RB:

   

Federal Highway Reimbursement, Series A, 5.00%, 06/15/31

    5,540       6,401,858  

Transportation System Bond, 4.00%, 12/15/39

    1,000       1,078,430  

Transportation System, Series A, 5.00%, 12/15/32

    3,530       4,194,487  

Transportation System, Series A, 5.00%, 12/15/35

    905       1,064,361  

Transportation System, Series A, 5.00%, 12/15/36

    500       585,670  

Port Authority of New York & New Jersey, ARB:

   

Consolidated Bonds, 218th Series, AMT, 4.00%, 11/01/34

    3,285       3,868,942  
 

 

 

30  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Transportation (continued)  

Consolidated Bonds, 218th Series, AMT, 4.00%, 11/01/47

  $ 4,970     $ 5,613,764  

Consolidated, 93rd Series, 6.13%, 06/01/94

    5,000       5,994,100  

JFK International Air Terminal, Series 8, 6.00%, 12/01/42

    4,580       4,644,807  

Port Authority of New York & New Jersey, Refunding ARB, Consolidated:

   

166th Series, 5.25%, 07/15/36

    8,500       8,673,315  

172nd Series, AMT, 5.00%, 10/01/34

    2,500       2,666,000  

206th Series, AMT, 5.00%, 11/15/47

    1,525       1,806,805  

South Jersey Port Corp., Refunding ARB, Marine Terminal, Series B, AMT, 5.00%, 01/01/48

    7,620       8,243,240  

State of New Jersey Turnpike Authority, RB, Series A, 4.00%, 01/01/48

    2,000       2,260,940  
   

 

 

 
    161,743,930  
Utilities — 4.4%  

New Jersey EDA, Refunding RB, New Jersey Natural Gas Company Project:

   

3.38%, 04/01/38

    1,810       1,904,518  

3.50%, 04/01/42

    1,355       1,421,192  

Passaic Valley Sewerage Commission, Refunding RB, Series J:

   

3.00%, 12/01/40

    920       995,863  

3.00%, 12/01/41

    940       1,014,392  

3.00%, 12/01/42

    965       1,038,716  

3.00%, 12/01/43

    985       1,057,289  

3.00%, 12/01/44

    1,005       1,075,873  

3.00%, 12/01/45

    1,030       1,100,627  

Rahway Valley Sewerage Authority, RB, CAB, Series A (NPFGC)(f):

   

0.00%, 09/01/31

    6,000       5,054,820  

0.00%, 09/01/33

    2,650       2,110,195  
   

 

 

 
    16,773,485  
   

 

 

 

Total Municipal Bonds in New Jersey

 

    459,665,888  
   

 

 

 

New York — 4.7%

 

Transportation — 4.7%  

Port Authority of New York & New Jersey, ARB:

   

Consolidated, 169th Series, 5.00%, 10/15/41

    250       261,278  

JFK International Air Terminal LLC, Special Project, Series 6, AMT (NPFGC), 5.75%, 12/01/22

    3,800       3,810,108  

Port Authority of New York & New Jersey, RB, Consolidated Bonds, 221th Series, AMT, 4.00%, 07/15/45

    2,165       2,472,776  

Port Authority of New York & New Jersey, Refunding ARB, Consolidated, 206th Series, AMT, 5.00%, 11/15/42

    1,365       1,634,151  

Port Authority of New York & New Jersey, Refunding RB, Consolidated Bonds:

   

200th Series, 5.00%, 09/01/36

    2,495       3,212,013  

212th Series, 4.00%, 09/01/37

    5,635       6,722,780  
   

 

 

 
    18,113,106  
   

 

 

 

Total Municipal Bonds in New York

 

    18,113,106  
   

 

 

 

Pennsylvania — 0.6%

 

Utilities — 0.6%  

Guam Government Waterworks Authority, RB, Series A, 5.00%, 01/01/50

    1,930       2,362,455  
   

 

 

 
Security   Par
(000)
    Value  
Puerto Rico — 6.2%  
State — 4.2%  

Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, RB, Restructured:

   

CAB, Series A-1, 0.00%, 07/01/46(f)

  $ 4,385     $ 1,278,096  

Series A-1, 4.75%, 07/01/53

    2,225       2,362,505  

Series A-1, 5.00%, 07/01/58

    8,535       9,192,366  

Series A-2, 4.33%, 07/01/40

    1,131       1,176,364  

Series A-2, 4.78%, 07/01/58

    2,028       2,159,719  
   

 

 

 
    16,169,050  
Tobacco — 0.4%  

Children’s Trust Fund, Refunding RB, Tobacco Settlement Asset-Backed Bonds:

   

5.50%, 05/15/39

    760       760,228  

5.63%, 05/15/43

    790       790,158  
   

 

 

 
    1,550,386  
Utilities — 1.6%  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, RB, Senior Lien, Series A:

   

5.00%, 07/01/33

    2,995       3,074,577  

5.13%, 07/01/37

    855       879,581  

Commonwealth of Puerto Rico Aqueduct & Sewer Authority, Refunding RB, Senior Lien, Series A, 6.00%, 07/01/38

    1,980       1,997,563  
   

 

 

 
    5,951,721  
   

 

 

 

Total Municipal Bonds in Puerto Rico

 

    23,671,157  
   

 

 

 

Total Municipal Bonds — 131.2%
(Cost — $467,145,284)

 

    503,812,606  
   

 

 

 

Municipal Bonds Transferred to Tender Option Bond Trusts(g) — 32.6%

 

New Jersey — 32.6%

 

County/City/Special District/School District — 8.3%  

County of Hudson New Jersey Improvement Authority, RB, Hudson County Vocational-Technical Schools Project, 5.25%, 05/01/51

    2,560       3,060,019  

County of Union New Jersey Utilities Authority, Refunding RB, Series A, AMT:

   

County Deficiency Agreement, 5.00%, 06/15/41

    6,982       7,242,528  

Resource Recovery Facility, Covanta Union, Inc., 5.25%, 12/01/31

    20,310       21,452,641  
   

 

 

 
    31,755,188  
Education — 8.1%  

New Jersey EDA, Refunding RB, New Jersey Natural Gas Company Project, AMT(h):

   

3.00%, 08/01/41

    7,879       8,034,928  

3.00%, 08/01/43

    11,331       11,555,852  

Rutgers — The State University of New Jersey, Refunding RB, Series L, 5.00%, 05/01/23(d)

    10,000       11,325,000  
   

 

 

 
    30,915,780  
Health — 1.6%  

New Jersey Health Care Facilities Financing Authority, RB, Inspira Health Obligated Group, 4.00%, 07/01/47

    5,555       6,086,446  
   

 

 

 
State — 4.1%  

Garden State Preservation Trust, RB, Election of 2005, Series A (AGM), 5.75%, 11/01/28

    5,460       6,977,825  

New Jersey EDA, Refunding RB, School Facilities Construction, Series NN, 5.00%, 03/01/29(h)

    8,017       8,706,355  
   

 

 

 
    15,684,180  
 

 

 

SCHEDULES OF INVESTMENTS

  31


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

(Percentages shown are based on Net Assets)

 

Security   Par
(000)
    Value  
Transportation — 10.5%  

New Jersey State Turnpike Authority, RB, Series A, 5.00%, 07/01/22(d)(h)

  $ 13,520     $ 14,769,924  

New Jersey Transportation Trust Fund Authority, RB, Transportation System, Series B, 5.25%, 06/15/36(h)

    8,502       8,747,329  

Port Authority of New York & New Jersey, Refunding ARB, Consolidated, 169th Series, AMT, 5.00%, 10/15/41

    16,255       16,987,954  
   

 

 

 
    40,505,207  
   

 

 

 

Total Municipal Bonds Transferred to Tender Option Bond Trusts — 32.6%
(Cost — $118,229,463)

 

    124,946,801  
   

 

 

 

Total Long-Term Investments — 163.8%
(Cost — $585,374,747)

 

    628,759,407  
   

 

 

 
     Shares         
Short-Term Securities — 1.0%  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.04%(i)(j)

    4,005,765       4,006,566  
   

 

 

 

Total Short-Term Securities — 1.0%
(Cost — $4,004,239)

 

    4,006,566  
   

 

 

 

Total Investments — 164.8%
(Cost — $589,378,986)

 

    632,765,973  

Other Assets Less Liabilities — 0.2%

 

    682,788  

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (18.2)%

 

    (69,828,374

VRDP Shares, at Liquidation Value, Net of Deferred Offering Costs — (46.8)%

 

    (179,692,458
   

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 383,927,929  
   

 

 

 
(a) 

Security is collateralized by municipal bonds or U.S. Treasury obligations.

(b) 

Variable or floating rate security, which interest rate adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of period end.

(c) 

Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(d) 

U.S. Government securities held in escrow, are used to pay interest on this security as well as to retire the bond in full at the date indicated, typically at a premium to par.

(e) 

When-issued security.

(f) 

Zero-coupon bond.

(g) 

Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(h) 

All or a portion of the security is subject to a recourse agreement. The aggregate maximum potential amount the Fund could ultimately be required to pay under the agreements, which expire between September 1, 2020 to February 1, 2037 is $32,540,735. See Note 4 of the Notes to Financial Statements for details.

(i) 

Annualized 7-day yield as of period end.

 
(j) 

Investments in issuers considered to be an affiliate/affiliates of the Fund during the year ended July 31, 2020 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated Issuer    Shares
Held at
07/31/19
     Shares
Purchased
     Shares
Sold
     Shares
Held at
07/31/20
     Value at
07/31/20
     Income      Net Realized
Gain (Loss)
 (a)
     Change in
Unrealized
Appreciation
(Depreciation)
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

     207        4,005,558 (b)              4,005,765      $ 4,006,566      $ 25,846      $ 21      $ 2,327  
              

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

Includes net capital gain distributions, if applicable.

 
  (b) 

Represents net shares purchased (sold).

 

For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

Derivative Financial Instruments Categorized by Risk Exposure

For the year ended July 31, 2020, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

      Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Currency
Exchange
Contracts
     Interest
Rate
Contracts
     Other
Contracts
     Total  

Net Realized Gain (Loss) from:

                    

Futures contracts

   $      $      $      $      $ (4,387,343    $      $ (4,387,343
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

   $      $      $      $      $ 218,650      $      $ 218,650  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

32  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Schedule of Investments  (continued)

July 31, 2020

  

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:

        

Average notional value of contracts – long

   $ (a) 

Average notional value of contracts – short

     13,013,938  

 

  (a) 

Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.

 

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments. For information about the Fund’s policy regarding valuation of investments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1        Level 2        Level 3        Total  

Assets:

 

Investments:

 

Long-Term Investments

   $        $ 628,759,407        $         —        $ 628,759,407  

Short-Term Securities

     4,006,566                            4,006,566  
  

 

 

      

 

 

      

 

 

      

 

 

 
   $ 4,006,566        $ 628,759,407        $        $ 632,765,973  
  

 

 

      

 

 

      

 

 

      

 

 

 

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 disclosure hierarchy as follows:

 

      Level 1      Level 2      Level 3      Total  

Liabilities:

 

TOB Trust Certificates

   $             —      $ (69,740,251    $         —      $ (69,740,251

VRDP Shares at Liquidation Value

            (180,000,000             (180,000,000
  

 

 

    

 

 

    

 

 

    

 

 

 
   $      $ (249,740,251    $      $ (249,740,251
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS

  33


 

Statements of Assets and Liabilities

July 31, 2020

 

     MZA      MYC      MYF      MYJ  

ASSETS

 

Investments at value — unaffiliated(a)

  $ 106,477,072      $ 550,357,256      $ 317,584,955      $ 628,759,407  

Investments at value — affiliated(b)

    2,704,950        3,424,210        230,913        4,006,566  

Receivables:

 

Investments sold

                  646,600         

Dividends — affiliated

    90        51        23        326  

Interest — unaffiliated

    683,782        5,796,394        2,935,993        4,793,195  

Prepaid expenses

    45,232        84,565        67,072        213,427  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

    109,911,126        559,662,476        321,465,556        637,772,921  
 

 

 

    

 

 

    

 

 

    

 

 

 

ACCRUED LIABILITIES

 

Bank overdraft

           60,895        35,968         

Payables:

 

Investments purchased

                  2,408,661        2,415,000  

Income dividend distributions — Common Shares

    236,468        921,038        767,981        1,461,565  

Interest expense and fees

    516        116,591        97,976        88,123  

Investment advisory fees

    45,843        233,861        133,270        264,708  

Directors’ and Officer’s fees

    566        2,211        1,454        36,215  

Other accrued expenses

    66,478        171,029        121,457        146,672  

Reorganization costs

    48,009               57,153         
 

 

 

    

 

 

    

 

 

    

 

 

 

Total accrued liabilities

    397,880        1,505,625        3,623,920        4,412,283  
 

 

 

    

 

 

    

 

 

    

 

 

 

OTHER LIABILITIES

 

TOB Trust Certificates

    3,500,000        104,690,676        59,392,855        69,740,251  

VRDP Shares, at liquidation value of $100,000 per share, net of deferred offering costs(c)(d)(e)

    37,127,895        105,667,064        59,160,544        179,692,458  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total other liabilities

    40,627,895        210,357,740        118,553,399        249,432,709  
 

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

    41,025,775        211,863,365        122,177,319        253,844,992  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

  $ 68,885,351      $ 347,799,111      $ 199,288,237      $ 383,927,929  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF

 

Paid-in capital(f)(g)

  $ 60,845,925      $ 303,321,072      $ 183,788,704      $ 347,568,815  

Accumulated earnings

    8,039,426        44,478,039        15,499,533        36,359,114  
 

 

 

    

 

 

    

 

 

    

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

  $ 68,885,351      $ 347,799,111      $ 199,288,237      $ 383,927,929  
 

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value per Common Share

  $ 14.86      $ 16.24      $ 14.53      $ 15.89  
 

 

 

    

 

 

    

 

 

    

 

 

 

(a) Investments at cost — unaffiliated

  $ 96,971,468      $ 504,929,705      $ 294,898,223      $ 585,374,747  

(b) Investments at cost — affiliated

  $ 2,704,213      $ 3,424,203      $ 230,913      $ 4,004,239  

(c) Preferred Shares outstanding, par value $0.10 per share

    373        1,059               1,800  

(d) Preferred Shares outstanding, par value $0.05 per share

                  594         

(e) Preferred Shares authorized

    1,985        8,059        1,000,000        5,782  

(f)  Common Shares outstanding, par value $0.10 per share

    4,636,620        21,419,494        13,713,952        24,158,105  

(g) Common Shares authorized

    199,998,015        199,991,941        Unlimited        199,994,218  

See notes to financial statements.

 

 

34  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


 

Statements of Operations

Year Ended July 31, 2020

 

     MZA     MYC     MYF     MYJ  

INVESTMENT INCOME

 

Dividends — affiliated

  $ 8,967     $ 35,077     $ 8,589     $ 25,846  

Interest — unaffiliated

    4,149,586       17,947,441       12,998,911       25,722,895  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    4,158,553       17,982,518       13,007,500       25,748,741  
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

 

Investment advisory

    543,130       2,770,635       1,566,386       3,150,685  

Professional

    48,658       93,359       75,230       85,459  

Reorganization costs

    48,009             57,153        

Rating agency

    47,209       47,209       47,209       47,209  

Accounting services

    28,774       90,397       58,684       99,102  

Transfer agent

    15,517       27,677       27,955       28,345  

Registration

    9,770       8,904       8,921       8,921  

Directors and Officer

    5,906       23,146       14,261       26,382  

Printing

    3,661       6,258       5,205       6,935  

Custodian

    2,897       26,354       10,971       42,153  

Liquidity fees

          767,329       430,399        

Remarketing fees on Preferred Shares

          44,377       24,891        

Miscellaneous

    11,655       14,571       14,150       13,989  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses excluding interest expense, fees and amortization of offering costs

    765,186       3,920,216       2,341,415       3,509,180  

Interest expense, fees and amortization of offering costs(a)

    739,958       3,126,362       1,656,679       4,457,485  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    1,505,144       7,046,578       3,998,094       7,966,665  

Less fees waived and/or reimbursed by the Manager

    (1,095     (1,907     (709     (5,195
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed

    1,504,049       7,044,671       3,997,385       7,961,470  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    2,654,504       10,937,847       9,010,115       17,787,271  
 

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS)

 

Net realized gain (loss) from:

       

Investments — unaffiliated

    (695,295     4,658,924       (400,373     38,035  

Investments — affiliated

    829       398       2,147       21  

Futures contracts

    (997,468     (4,053,595     (2,285,216     (4,387,343
 

 

 

   

 

 

   

 

 

   

 

 

 
    (1,691,934     605,727       (2,683,442     (4,349,287
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on:

 

Investments — unaffiliated

    1,893,219       13,718,743       3,443,906       (591,365

Investments — affiliated

    737       7             2,327  

Futures contracts

    91,271       324,166       89,723       218,650  
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,985,227       14,042,916       3,533,629       (370,388
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

    293,293       14,648,643       850,187       (4,719,675
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS

  $ 2,947,797     $ 25,586,490     $ 9,860,302     $ 13,067,596  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Related to TOB Trusts and/or VRDP Shares.

See notes to financial statements.

 

 

FINANCIAL STATEMENTS

  35


 

Statements of Changes in Net Assets

 

    MZA           MYC  
    Year Ended July 31,           Year Ended July 31,  
     2020     2019            2020     2019  

INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

 

     

OPERATIONS

 

     

Net investment income

  $ 2,654,504     $ 2,586,685       $ 10,937,847     $ 11,922,364  

Net realized gain (loss)

    (1,691,934     (108,631       605,727       174,630  

Net change in unrealized appreciation

    1,985,227       3,484,641         14,042,916       14,883,310  
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    2,947,797       5,962,695         25,586,490       26,980,304  
 

 

 

   

 

 

     

 

 

   

 

 

 

DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)

 

     

Decrease in net assets resulting from distributions to Common Shareholders

    (2,508,411     (2,689,234       (12,439,349     (16,073,381
 

 

 

   

 

 

     

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS

 

     

Reinvestment of common distributions

          19,555                
 

 

 

   

 

 

     

 

 

   

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

 

     

Total increase in net assets applicable to Common Shareholders

    439,386       3,293,016         13,147,141       10,906,923  

Beginning of year

    68,445,965       65,152,949         334,651,970       323,745,047  
 

 

 

   

 

 

     

 

 

   

 

 

 

End of year

  $ 68,885,351     $ 68,445,965       $ 347,799,111     $ 334,651,970  
 

 

 

   

 

 

     

 

 

   

 

 

 

 

(a)

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

 

36  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


 

Statements of Changes in Net Assets  (continued)

 

    MYF           MYJ  
    Year Ended July 31,           Year Ended July 31,  
     2020     2019            2020     2019  

INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

         

OPERATIONS

         

Net investment income

  $ 9,010,115     $ 10,029,486       $ 17,787,271     $ 17,449,927  

Net realized loss

    (2,683,442     (127,374       (4,349,287     (1,721,661

Net change in unrealized appreciation (depreciation)

    3,533,629       3,287,331         (370,388     14,031,712  
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    9,860,302       13,189,443         13,067,596       29,759,978  
 

 

 

   

 

 

     

 

 

   

 

 

 

DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)

         

Decrease in net assets resulting from distributions to Common Shareholders

    (9,241,727     (10,524,964       (17,538,784     (17,538,784
 

 

 

   

 

 

     

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS

         

Reinvestment of common distributions

    24,480       203,374                
 

 

 

   

 

 

     

 

 

   

 

 

 

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS

         

Total increase (decrease) in net assets applicable to Common Shareholders

    643,055       2,867,853         (4,471,188     12,221,194  

Beginning of year

    198,645,182       195,777,329         388,399,117       376,177,923  
 

 

 

   

 

 

     

 

 

   

 

 

 

End of year

  $ 199,288,237     $ 198,645,182       $ 383,927,929     $ 388,399,117  
 

 

 

   

 

 

     

 

 

   

 

 

 

 

(a) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

See notes to financial statements.

 

 

FINANCIAL STATEMENTS

  37


 

Statements of Cash Flows

Year Ended July 31, 2020

 

     MZA     MYC     MYF     MYJ  

CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

 

Net increase in net assets resulting from operations

  $ 2,947,797     $ 25,586,490     $ 9,860,302     $ 13,067,596  

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:

       

Proceeds from sales of long-term investments

    16,642,076       304,687,344       95,281,304       87,666,953  

Purchases of long-term investments

    (15,804,958     (284,479,852     (91,361,755     (92,100,122

Net proceeds from sales (purchases) of short-term securities

    (713,504     (3,423,805     154,256       (978,781

Amortization of premium and accretion of discount on investments and other fees

    571,025       5,452,343       789,226       1,710,482  

Net realized (gain) loss on investments

    694,466       (4,659,322     398,226       (38,056

Net unrealized (appreciation) depreciation on investments

    (1,893,956     (13,718,750     (3,443,906     589,038  

(Increase) Decrease in Assets:

 

Receivables:

 

Dividends — affiliated

    1,800       1,096       932       155  

Interest — unaffiliated

    (4,892     814,310       635,125       137,050  

Variation margin on futures contracts

    438       3,660       1,000       3,125  

Prepaid expenses

    (12,668     (10,544     (11,612     (16,165

Increase (Decrease) in Liabilities:

 

Payables:

 

Interest expense and fees

    (3,928     (456,245     (214,446     (113,291

Investment advisory fees

    (297     (4,258     (2,341     (1,200

Directors’ and Officer’s fees

    38       147       129       399  

Other accrued expenses

    (58,929     (90,284     (125,109     (43,253

Reorganization costs

    48,009             57,153        

Variation margin on futures contracts

    (24,688     (143,722     (53,359     (93,609
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    2,387,829       29,558,608       11,965,125       9,790,321  
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES

 

Cash dividends paid to Common Shareholders

    (2,471,318     (12,439,349     (9,217,153     (17,538,784

Repayments of TOB Trust Certificates

          (58,684,633     (25,893,811     (599,955

Repayments of Loan for TOB Trust Certificates

          (12,435,282     (2,691,631     (599,955

Proceeds from TOB Trust Certificates

          41,210,282       22,946,281       10,204,955  

Proceeds from Loan for TOB Trust Certificates

          12,435,282       2,691,631       599,955  

Increase (decrease) in bank overdraft

          (91,137     35,968       (2,186,673

Amortization of deferred offering costs

    6,489       10,729       8,337       20,986  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

    (2,464,829     (29,994,108     (12,120,378     (10,099,471
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH

 

Net decrease in restricted and unrestricted cash

    (77,000     (435,500     (155,253     (309,150

Restricted and unrestricted cash at beginning of year

    77,000       435,500       155,253       309,150  
 

 

 

   

 

 

   

 

 

   

 

 

 

Restricted and unrestricted cash at end of year

  $     $     $     $  
 

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

Cash paid during the year for interest expense

  $ 737,397     $ 3,571,878     $ 1,862,778     $ 4,549,790  
 

 

 

   

 

 

   

 

 

   

 

 

 

NON-CASH FINANCING ACTIVITIES

 

Capital shares issued in reinvestment of distributions paid to Common Shareholders

                24,480        
 

 

 

   

 

 

   

 

 

   

 

 

 

RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE BEGINNING OF YEAR TO THE STATEMENTS OF ASSETS AND LIABILITIES

       

Cash

  $ 5,000     $     $ 9,703     $  

Cash pledged for futures contracts

    72,000       435,500       145,550       309,150  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 77,000     $ 435,500     $ 155,253     $ 309,150  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

 

38  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Financial Highlights

(For a share outstanding throughout each period)

 

    MZA  
    Year Ended July 31,  
     2020     2019      2018      2017      2016  

Net asset value, beginning of year

  $ 14.76     $ 14.06      $ 14.56      $ 15.42      $ 14.72  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.57       0.56        0.66        0.72        0.77  

Net realized and unrealized gain (loss)

    0.07       0.72        (0.47      (0.84      0.75  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    0.64       1.28        0.19        (0.12      1.52  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.54     (0.58      (0.69      (0.74      (0.82
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 14.86     $ 14.76      $ 14.06      $ 14.56      $ 15.42  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 14.34     $ 14.03      $ 14.45      $ 16.59      $ 17.68  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

            

Based on net asset value

    4.70     9.62      1.22      (0.72 )%       10.11
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    6.29     1.38      (8.71 )%       (1.34 )%       9.96
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

            

Total expenses

    2.22 %(e)      2.63      2.28      2.00      1.64
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    2.22 %(e)      2.63      2.28      2.00      1.64
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense and fees, and amortization of offering costs(d)

    1.13 %(e)      1.08      1.05      1.03      1.02
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    3.91     3.96      4.62      4.94      5.15
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

            

Net assets applicable to Common Shareholders, end of year (000)

  $ 68,885     $ 68,446      $ 65,153      $ 67,346      $ 71,133  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 37,300     $ 37,300      $ 37,300      $ 37,300      $ 37,300  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 284,679     $ 283,501      $ 274,673      $ 280,553      $ 290,705  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 3,500     $ 3,500      $ 3,000      $ 3,000      $ 3,000  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    13     25      20      9      13
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

Includes non-recurring expenses of reorganization costs. Without these costs, total expenses, total expenses after fees waived and total expenses after fees waived and excluding interest expense would have been 2.15%, 2.15% and 1.06%, respectively.

See notes to financial statements.

 

 

FINANCIAL HIGHLIGHTS

  39


Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

    MYC  
    Year Ended July 31,  
     2020      2019      2018      2017      2016  

Net asset value, beginning of year

  $ 15.62      $ 15.11      $ 15.61      $ 17.07      $ 16.35  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.51        0.56        0.66        0.74        0.86  

Net realized and unrealized gain (loss)

    0.69        0.70        (0.41      (1.10      0.87  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    1.20        1.26        0.25        (0.36      1.73  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Distributions(b)

 

From net investment income

    (0.51      (0.60      (0.69      (0.80      (0.88

From net realized gain

    (0.07      (0.15      (0.06      (0.30      (0.13
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total distributions

    (0.58      (0.75      (0.75      (1.10      (1.01
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 16.24      $ 15.62      $ 15.11      $ 15.61      $ 17.07  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 14.46      $ 14.11      $ 13.19      $ 15.43      $ 17.43  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

 

Based on net asset value

    8.33      9.34      2.02      (1.83 )%       11.07
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    6.78      13.15      (9.91 )%       (4.96 )%       19.86
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

 

Total expenses

    2.11      2.64      2.26      2.08      1.55
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    2.11      2.64      2.26      2.08      1.55
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense and fees, and amortization of offering costs(d)(e)

    1.17      0.98      0.94      0.96      0.92
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    3.27      3.72      4.32      4.68      5.15
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

 

Net assets applicable to Common Shareholders, end of year (000)

  $ 347,799      $ 334,652      $ 323,745      $ 334,456      $ 364,594  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 105,900      $ 105,900      $ 105,900      $ 105,900      $ 105,900  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 428,422      $ 416,008      $ 405,708      $ 415,823      $ 444,282  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 104,691      $ 122,165      $ 114,108      $ 122,501      $ 141,734  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    50      45      37      34      27
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOBs and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

The total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees as follows:

 

    Year Ended July 31,  
     2020      2019      2018      2017      2016  

Expenses ratios

    0.93      0.95      0.94      0.96      0.92
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See notes to financial statements.

 

 

40  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

    MYF  
    Year Ended July 31,  
     2020     2019      2018      2017      2016  

Net asset value, beginning of year

  $ 14.49     $ 14.29      $ 14.94      $ 16.03      $ 15.61  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income(a)

    0.66       0.73        0.83        0.87        0.92  

Net realized and unrealized gain (loss)

    0.05       0.24        (0.61      (1.02      0.47  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) from investment operations

    0.71       0.97        0.22        (0.15      1.39  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.67     (0.77      (0.87      (0.94      (0.97
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of year

  $ 14.53     $ 14.49      $ 14.29      $ 14.94      $ 16.03  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Market price, end of year

  $ 13.79     $ 14.49      $ 13.69      $ 16.34      $ 17.02  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

            

Based on net asset value

    5.25     7.12      1.61      (0.88 )%       9.24
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Based on market price

    (0.11 )%      11.81      (11.00 )%       2.10      23.41
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

            

Total expenses

    2.04 %(f)      2.56      2.33      1.97      1.53
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    2.04 %(f)      2.56      2.32      1.97      1.53
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense and fees, and amortization of offering costs(d)(e)

    1.19 %(f)      1.01      0.98      0.97      0.94
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.59     5.18      5.72      5.76      5.86
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Supplemental Data

            

Net assets applicable to Common Shareholders, end of year (000)

  $ 199,288     $ 198,645      $ 195,777      $ 204,427      $ 218,740  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 59,400     $ 59,400      $ 59,400      $ 59,400      $ 59,400  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 435,502     $ 434,419      $ 429,591      $ 444,154      $ 468,250  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 59,393     $ 62,845      $ 81,012      $ 79,110      $ 77,759  
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Portfolio turnover rate

    27     27      15      12      11
 

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

(e) 

The total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees as follows:

 

    Year Ended July 31,  
     2020      2019      2018      2017      2016  

Expense ratios

    0.96      0.98      0.98      0.97      0.94
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(f) 

Includes non-recurring expenses of reorganization costs. Without these costs, total expenses, total expenses after fees waived and total expenses after fees waived and excluding interest expense would have been 2.01%, 2.01% and 1.16%, respectively

See notes to financial statements.

 

 

FINANCIAL HIGHLIGHTS

  41


Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

    MYJ  
    Year Ended July 31,  
     2020      2019      2018     2017      2016  

Net asset value, beginning of year

  $ 16.08      $ 15.57      $ 15.89     $ 16.93      $ 16.01  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net investment income(a)

    0.74        0.72        0.77       0.81        0.89  

Net realized and unrealized gain (loss)

    (0.20      0.52        (0.21     (0.95      0.94  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net increase (decrease) from investment operations

    0.54        1.24        0.56       (0.14      1.83  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Distributions to Common Shareholders from net investment income(b)

    (0.73      (0.73      (0.88     (0.90      (0.91
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net asset value, end of year

  $ 15.89      $ 16.08      $ 15.57     $ 15.89      $ 16.93  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Market price, end of year

  $ 14.28      $ 15.08      $ 13.51     $ 16.58      $ 17.49  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total Return Applicable to Common Shareholders(c)

            

Based on net asset value

    3.83      8.78      3.94     (0.68 )%       11.95
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Based on market price

    (0.50 )%       17.57      (13.57 )%      0.32      25.78
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ratios to Average Net Assets Applicable to Common Shareholders

            

Total expenses

    2.09      2.49      2.38 %(d)      1.93      1.55
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed

    2.09      2.47      2.25 %(d)      1.93      1.55
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses after fees waived and/or reimbursed and excluding interest expense, fees, and amortization of offering costs(e)

    0.92      0.91      0.94 %(d)      0.93      0.92
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net investment income to Common Shareholders

    4.67      4.65      4.93     5.11      5.43
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Supplemental Data

            

Net assets applicable to Common Shareholders, end of year (000)

  $ 383,928      $ 388,399      $ 376,178     $ 228,284      $ 242,134  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 180,000      $ 180,000      $ 180,000     $ 102,200      $ 102,200  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 313,293      $ 315,777      $ 308,988     $ 323,370      $ 336,922  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Borrowings outstanding, end of year (000)

  $ 69,740      $ 60,135      $ 70,288     $ 45,634      $ 40,642  
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Portfolio turnover rate

    14      14      11     6      10
 

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(a) 

Based on average Common Shares outstanding.

(b) 

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(c) 

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

(d) 

Includes reorganization costs associated with the Fund’s reorganization. Without these costs, total expenses, total expenses after fees waived and/or reimbursed and paid indirectly and total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees, and amortization of offering costs, would have been 2.26%, 2.25% and 0.94%, respectively, for the year ended July 31, 2018.

(e) 

Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VRDP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

See notes to financial statements.

 

 

42  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Notes to Financial Statements

 

1.

ORGANIZATION

The following are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as closed-end management investment companies and are referred to herein collectively as the “Funds”, or individually as a “Fund”:

 

Fund Name   Herein Referred To As    Organized   

Diversification

Classification

BlackRock MuniYield Arizona Fund, Inc.

  MZA    Maryland    Diversified

BlackRock MuniYield California Fund, Inc.

  MYC    Maryland    Non-diversified

BlackRock MuniYield Investment Fund

  MYF        Massachusetts    Diversified

BlackRock MuniYield New Jersey Fund, Inc.

  MYJ    Maryland        Non-diversified

The Boards of Directors of the Funds are collectively referred to throughout this report as the “Board,” and the directors thereof are collectively referred to throughout this report as “Directors”. The Funds determine and make available for publication the net asset values (“NAVs”) of their Common Shares on a daily basis.

The Funds, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, are included in a complex of non-index fixed-income mutual funds and all BlackRock-advised closed-end funds referred to as the BlackRock Fixed-Income Complex.

On June 16, 2020, the Board of Directors of MZA and MYF (the “Target Funds”) and the Board of Directors of BlackRock MuniYield Quality Fund, Inc. (the “Acquiring Fund”), each approved the merger of the Target Funds into the Acquiring Fund. Subject to approvals by each Fund’s shareholders and the satisfaction of customary closing conditions, the reorganization is expected to occur during the first quarter of 2021.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

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:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income and non-cash dividend income, if any, are recorded on the ex-dividend date. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on an accrual basis.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts) or certain borrowings (e.g.,TOB Trust transactions) that would be treated as “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments or borrowings. Doing so allows the investment or borrowings to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Distributions: Distributions from net investment income are declared monthly and paid monthly. Distributions of capital gains are recorded on the ex-dividend date and made at least annually. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Distributions to Preferred Shareholders are accrued and determined as described in Note 10.

Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by each Fund’s Board, the directors who are not “interested persons” of the Funds, as defined in the 1940 Act (“Independent Directors”), may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain funds in the BlackRock Fixed-Income Complex.

The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of each Fund, as applicable. Deferred compensation liabilities 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.

Recent Accounting Standards: The Funds have adopted Financial Accounting Standards Board Accounting Standards Update 2017-08 to amend the amortization period for certain purchased callable debt securities held at a premium. Under the new standard, the Funds have changed the amortization period for the premium on certain purchased callable debt securities with non-contingent call features to the earliest call date. In accordance with the transition provisions of the standard, the Funds applied the amendments on a modified retrospective basis beginning with the fiscal period ended July 31, 2020. The adjusted cost basis of securities at July 31, 2019, are as follows:

 

MZA

  $ 102,848,832  

MYC

    528,842,625  

MYF

    306,573,389  

MYJ

    583,224,462  

This change in accounting policy has been made to comply with the newly issued accounting standard and had no impact on accumulated earnings (loss) or the net asset value of the Funds.

 

 

NOTES TO FINANCIAL STATEMENTS

  43


Notes to Financial Statements  (continued)

 

Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against a Fund, which cannot be predicted with any certainty.

Other: Expenses directly related to a Fund are charged to that Fund. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.

 

3.

INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

Investment Valuation Policies: The Funds’ investments are valued at fair value (also referred to as “market value” within the financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their 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:

 

   

Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments.

 

   

Investments in open-end U.S. mutual funds are valued at NAV each business day.

 

   

Futures contracts are valued based on that day’s last reported settlement price on the exchange where the contract is traded.

If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such investments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee will 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 investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement 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)

 

   

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 investments and derivative 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. There may not be a secondary market, and/or there are a limited number of investors. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative 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: Certain 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

 

 

44  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Notes to Financial Statements  (continued)

 

may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, 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:

 

    

Interest

Expense

    

Liquidity

Fees

    

Other

Expenses

     Total  

MZA

  $ 39,441      $ 13,750      $ 5,950      $ 59,141  

MYC

    1,251,711        492,730        154,275        1,898,716  

MYF

    635,789        230,963        81,254        948,006  

MYJ

    774,472        233,572        174,319        1,182,363  

For the year ended July 31, 2020, the following table is a summary of each Fund’s TOB Trusts:

 

    

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

 

MZA

  $ 7,909,210      $ 3,500,000        0.19% — 0.22%      $ 3,500,000        1.69

MYC

    253,416,854        104,690,676        0.16 — 0.31        113,558,959        1.67  

MYF

    105,134,575        59,392,855        0.16 — 0.49        57,571,796        1.64  

MYJ

    124,946,801        69,740,251        0.15 — 0.36        69,194,078        1.71  

 

 

NOTES TO FINANCIAL STATEMENTS

  45


Notes to Financial Statements  (continued)

 

  (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.

 
  (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 July 31, 2020, 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 July 31, 2020.

 

For the year ended July 31, 2020, the following table is a summary of each Fund’s Loan for TOB Trust Certificates:

 

    

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

 

MYC

  $           $ 165,782        0.71

MYF

                  95,638        0.70  

MYJ

                  21,310        0.71  

 

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 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, 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 each Fund minus the sum of its accrued liabilities (which does not include liabilities represented by TOB Trusts and the liquidation preference of any outstanding preferred shares). 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 net asset value.

Expense 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. Prior to December 1, 2019, this waiver was voluntary. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the year ended July 31, 2020, the amounts waived were as follows:

 

     MZA      MYC      MYF      MYJ  

Amounts waived

  $ 1,095      $ 1,907      $ 709      $ 5,195  

 

 

46  

2020 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 July 31, 2020, 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.

 

7.

PURCHASES AND SALES

For the year ended July 31, 2020, purchases and sales of investments, excluding short-term securities, were as follows:

 

     MZA      MYC      MYF      MYJ  

Purchases

  $ 14,020,912      $ 274,306,600      $ 85,825,359      $ 94,515,122  

Sales

    16,642,076        297,426,101        95,927,904        87,666,953  

 

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 each of the four years ended July 31, 2020. 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 July 31, 2020, 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 non-deductible expenses were reclassified to the following accounts:

 

     MZA     MYC     MYF     MYJ  

Paid-in capital

  $ (54,498   $ (10,729   $ (65,490   $ (20,986

Accumulated earnings (loss)

    54,498       10,729       65,490       20,986  

The tax character of distributions paid was as follows:

 

             MZA      MYC      MYF      MYJ  

Tax-exempt income(a)

    07/31/20      $ 3,181,701      $ 12,053,854      $ 9,912,691      $ 20,780,957  
    07/31/19        3,595,347        15,019,810        11,925,691        21,914,132  

Ordinary income(b)

    07/31/20        1,038        524,623        29,371        11,963  
    07/31/19        1,033        70,732        1,870        2,107  

Long-term capital gains(c)

    07/31/20               1,077,787                
    07/31/19               3,663,521                
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

    07/31/20      $ 3,182,739      $ 13,656,264      $ 9,942,062      $ 20,792,920  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
    07/31/19      $ 3,596,380      $ 18,754,063      $ 11,927,561      $ 21,916,239  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) 

The Funds designate these amounts paid during the fiscal year ended July 31, 2020, as exempt-interest dividends.

 
  (b) 

Ordinary income consists primarily of taxable income recognized from market discount and net short-term capital gains. Additionally, all ordinary income distributions are comprised of interest related dividends and qualified short-term capital gain dividends for non-U.S. residents and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

 
  (c) 

The Fund designates these amounts paid during the fiscal year ended July 31, 2020, as capital gain dividends.

 

As of period end, the tax components of accumulated earnings (loss) were as follows:

 

     MZA     MYC     MYF     MYJ  

Undistributed tax-exempt income

  $ 314,334     $ 376,355     $     $ 649,925  

Undistributed ordinary income

    213       977       11,505       415  

Non-expiring capital loss carryforwards(a)

    (1,785,178           (6,700,967     (7,274,500

Net unrealized gains (losses)(b)

    9,510,057       45,249,652       22,188,995       42,983,274  

Qualified late-year losses(c)

          (1,148,945            
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 8,039,426     $ 44,478,039     $ 15,499,533     $ 36,359,114  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) 

Amounts available to offset future realized capital gains.

 

 

 

NOTES TO FINANCIAL STATEMENTS

  47


Notes to Financial Statements  (continued)

 

  (b) 

The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the tax deferral of losses on wash sales, amortization and accretion methods of premiums and discounts on fixed income securities, the deferral of compensation to directors and the treatment of residual interests in tender option bond trusts.

 
  (c) 

The Fund has elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.

 

During the year ended July 31, 2020, the Fund listed below utilized the following amounts of their respective capital loss carryforward:

 

     MYC  

Amount utilized

  $ 506,027  

As of July 31, 2020, gross unrealized appreciation and depreciation on investments based on cost for U.S. federal income tax purposes were as follows:

 

     MZA     MYC     MYF     MYJ  

Tax cost

  $ 96,171,965     $ 403,841,138     $ 235,833,396     $ 520,008,959  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross unrealized appreciation

  $ 9,522,786     $ 45,759,666     $ 23,118,931     $ 45,809,692  

Gross unrealized depreciation

    (12,729     (510,014     (529,314     (2,792,929
 

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized appreciation (depreciation)

  $ 9,510,057     $ 45,249,652     $ 22,589,617     $ 43,016,763  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

9.

PRINCIPAL RISKS

Many municipalities insure repayment of their bonds, which may reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the value of such insurance, and there is no guarantee that the insurer will meet its obligation.

Inventories of municipal bonds held by brokers and dealers may decrease, which would lessen their ability to make a market in these securities. Such a reduction in market making capacity could potentially decrease a Fund’s ability to buy or sell bonds. As a result, a Fund may sell a security at a lower price, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative impact on performance. If a Fund needed to sell large blocks of bonds, those sales could further reduce the bonds’ prices and impact performance.

In the normal course of business, certain 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.

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.

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.

 

 

48  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Notes to Financial Statements  (continued)

 

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. 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: Each Fund invests a substantial amount of its assets in issuers located in a single state or limited number of states, except for MYF. This may subject each Fund to the risk that economic, political or social issues impacting a particular state or group of states could have an adverse and disproportionate impact on the income from, or the value or liquidity of, the Funds’ respective portfolios. Investment percentages in specific states or U.S. territories are presented in the Schedules of Investments.

As of period end, MZA invested a significant portion of its assets in securities in the education sector. MYC invested a significant portion of its assets in securities in the county, city, special district and school district sector. MYF and MYJ invested a significant portion of their assets in securities in the transportation sector. MZA invested a significant portion of its assets in securities in the utilities sector. Changes in economic conditions affecting such sectors would have a greater impact on the Funds and could affect the value, income and/or liquidity of positions in such securities.

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”) by the end of 2021, and it is expected that LIBOR will cease to be published after that time. 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 (an unlimited number of shares for MYF), 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, except for MYF, which is $0.05. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders. MYF is authorized to issue 1 million Preferred Shares.

Common Shares

For the years shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:

 

Year ended July 31,   MZA      MYF  

2020

           1,685  

2019

    1,393        14,305  

For the years ended July 31, 2020 and July 31, 2019, shares issued and outstanding remained constant for MYC and MYJ.

 

 

NOTES TO FINANCIAL STATEMENTS

  49


Notes to Financial Statements  (continued)

 

The Funds participate in an open market share repurchase program (the “Repurchase Program”). From December 1, 2018 through November 30, 2019, 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, 2018, subject to certain conditions. 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. There is no assurance that the Funds will purchase shares in any particular amounts. For the year ended July 31, 2020, 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

MZA, MYC, MYF and MYJ (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:

 

     Issue
Date
     Shares
Issued
     Aggregate
Principal
     Maturity
Date
 

MZA

    05/19/11        373      $ 37,300,000        06/01/41  

MYC

    05/19/11        1,059        105,900,000        06/01/41  

MYF

    05/19/11        594        59,400,000        06/01/41  

MYJ

    04/21/11        1,022        102,200,000        05/01/41  

MYJ

    06/11/18        778        77,800,000        05/01/41  

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:

 

     MZA      MYC      MYF      MYJ  

Expiration Date

    07/02/21        07/02/21        07/02/21        07/02/21  

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.

 

 

50  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Notes to Financial Statements  (continued)

 

Ratings: As of period end, the VRDP Shares were assigned the following ratings:

 

    

Moody’s

Long-term

Rating

    

Fitch

Long-term

Rating

    

Fitch

Short-term

Rating

    

S&P Global Ratings’s

Short-term Rating

 

MZA

    Aa2        AAA        N/A        N/A  

MYC

    Aa2        AAA        F1+        A-1+  

MYF

    Aa1        AAA        F1+        A-1+  

MYJ

    Aa2        AAA        N/A        N/A  

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 Fitch and S&P Global Ratings. 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:

 

     Commencement Date    

Expiration Date

as of period ended

July 31, 2020

 

MZA

    06/21/2012     06/17/2021  

MYJ

    06/21/2012     06/17/2021  

 

  *

Issuance date of VRDP Shares

 

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 July 31, 2020, the annualized dividend rates for the VRDP Shares were as follows:

 

     MZA      MYC      MYF      MYJ  

Rate

    1.81      1.15      1.18      1.81

For the year ended July 31, 2020, VRDP Shares issued and outstanding of each VRDP Fund remained constant.

Offering Costs: The Funds incurred costs in connection with the issuance of VRDP 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 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 Shares are considered debt of the issuer; therefore, the liquidation preference, which approximates fair value of the VRDP 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 Shares are included as a component of interest expense, fees and amortization of offering costs in the Statements of Operations. The VRDP Shares are treated as equity for tax purposes. Dividends paid to holders of the VRDP Shares are generally

 

 

NOTES TO FINANCIAL STATEMENTS

  51


Notes to Financial Statements  (continued)

 

classified as tax-exempt income for tax-reporting purposes. Dividends and amortization of deferred offering costs on VRDP Shares are included in interest expense, fees and amortization of offering costs in the Statements of Operations:

 

    

Dividends

Accrued

    

Deferred

Offering Costs

Amortization

 

MZA

  $ 674,328      $ 6,489  

MYC

    1,216,917        10,729  

MYF

    700,336        8,337  

MYJ

    3,254,136        20,986  

 

11.

SUBSEQUENT EVENTS

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 distributions to Common Shareholders and Preferred Shareholders as follows:

 

     Dividend Per
Common Share
           Preferred Shares (c)  
     Paid (a)      Declared (b)            Shares      Series      Declared  

MZA

  $ 0.051000      $ 0.051000         VRDP        W-7      $ 25,397  

MYC

    0.043000        0.043000         VRDP        W-7        13,368  

MYF

    0.056000        0.056000         VRDP        W-7        9,381  

MYJ

    0.060500        0.060500               VRDP        W-7        122,557  

 

  (a) 

Net investment income dividend paid on September 1, 2020 to Common Shareholders of record on August 14, 2020.

 
  (b) 

Net investment income dividend declared on September 1, 2020 payable to Common Shareholders of record on September 15, 2020.

 
  (c) 

Dividends declared for period August 1, 2020 to August 31, 2020.

 

 

 

52  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors/Trustees of BlackRock MuniYield Arizona Fund, Inc., BlackRock MuniYield California Fund, Inc., BlackRock MuniYield Investment Fund, and BlackRock MuniYield New Jersey Fund, Inc.:

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statements of assets and liabilities of BlackRock MuniYield Arizona Fund, Inc., BlackRock MuniYield California Fund, Inc., BlackRock MuniYield Investment Fund, and BlackRock MuniYield New Jersey Fund, Inc. (the “Funds”), including the schedules of investments, as of July 31, 2020, 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 July 31, 2020, 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 July 31, 2020, 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

September 22, 2020

We have served as the auditor of one or more BlackRock investment companies since 1992.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING  FIRM

  53


Disclosure of Investment Advisory Agreements

 

The Boards of Directors/Trustees, as applicable (collectively, the “Board,” the members of which are referred to as “Board Members”) of BlackRock MuniYield Arizona Fund, Inc. (“MZA”), BlackRock MuniYield California Fund, Inc. (“MYC”), BlackRock MuniYield Investment Fund (“MYF”) and BlackRock MuniYield New Jersey Fund, Inc. (“MYJ” and together with MZA, MYC and MYF, the “Funds” and each, a “Fund”) met on April 16, 2020 (the “April Meeting”) and May 20-21, 2020 (the “May Meeting”) to consider the approval of the investment advisory agreements (the “Advisory Agreements” or the “Agreements”) between each Fund and BlackRock Advisors, LLC (the “Manager” or “BlackRock”), each Fund’s investment advisor.

Activities and Composition of the Board

On the date of the May Meeting, the Board consisted of ten individuals, eight of whom were not “interested persons” of each Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).    

The Agreements

Consistent with the requirements of the 1940 Act, the Board considers the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each typically extending for two days, and additional in-person and telephonic meetings throughout the year, as needed. While the Board also has a fifth one-day meeting to consider specific information surrounding the renewal of the Agreements, the Board’s consideration entails a year-long deliberative process whereby the Board and its committees assess BlackRock’s services to each Fund. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to each Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of each Fund’s service providers; risk management and oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various executive sessions outside of the presence of BlackRock’s management.

During the year, the Board, acting directly and through its committees, considers information that is relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to each Fund and its shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. This additional information is discussed further in the section titled “Board Considerations in Approving the Agreements.” Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and other performance metrics, as applicable, as well as BlackRock senior management’s and portfolio managers’ analyses of the reasons for any outperformance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) leverage management, as applicable; (c) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by each Fund for services; (d) Fund operating expenses and how BlackRock allocates expenses to each Fund; (e) the resources devoted to risk oversight of, and compliance reports relating to, implementation of each Fund’s investment objective, policies and restrictions, and meeting regulatory requirements; (f) BlackRock’s and each Fund’s adherence to applicable compliance policies and procedures; (g) the nature, character and scope of non-investment management services provided by BlackRock and its affiliates and the estimated cost of such services; (h) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (i) BlackRock’s implementation of the proxy voting policies approved by the Board; (j) execution quality of portfolio transactions; (k) BlackRock’s implementation of each Fund’s valuation and liquidity procedures; (l) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to each Fund; (m) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; (n) periodic updates on BlackRock’s business; and (o) each Fund’s market discount/premium compared to peer funds.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreements. The Independent Board Members are continuously engaged in a process with their independent legal counsel and BlackRock to review the nature and scope of the information provided to the Board to better assist its deliberations. The materials provided in connection with the April Meeting included, among other things: (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), based on Lipper classifications, regarding each Fund’s fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of each Fund as compared with a peer group of funds (“Performance Peers”); (b) information on the composition of the Expense Peers and Performance Peers and a description of Broadridge’s methodology; (c) information on the estimated profits realized by BlackRock and its affiliates pursuant to the Agreements and a discussion of fall-out benefits to BlackRock and its affiliates; (d) a general analysis provided by BlackRock concerning investment management fees received in connection with other types of investment products, such as institutional accounts, sub-advised mutual funds, closed-end funds, and open-end funds, under similar investment mandates, as applicable; (e) a review of non-management fees; (f) the existence, impact and sharing of potential economies of scale, if any, with each Fund; (g) a summary of aggregate amounts paid by each Fund to BlackRock; and (h) various additional information requested by the Board as appropriate regarding BlackRock’s and each Fund’s operations.

At the April Meeting, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these questions and requests with additional written information in advance of the May Meeting. Topics covered included: (a) the methodology for measuring estimated fund profitability; (b) fund expenses and potential fee waivers; (c) differences in services provided and management fees between closed-end funds and other product channels; and (d) BlackRock’s option overwrite strategy.

 

 

54  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Disclosure of Investment Advisory Agreements  (continued)

 

At the May Meeting, the Board concluded its assessment of, among other things: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund as compared to its Performance Peers and to other metrics, as applicable; (c) the advisory fee and the estimated cost of the services and estimated profits realized by BlackRock and its affiliates from their relationship with each Fund; (d) each Fund’s fees and expenses compared to its Expense Peers; (e) the existence and sharing of potential economies of scale; (f) any fall-out benefits to BlackRock and its affiliates as a result of BlackRock’s relationship with each Fund; and (g) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, and BlackRock’s services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRock’s personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services, and the resulting performance of each Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmarks, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing each Fund’s performance, investment strategies and outlook.

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each Fund’s portfolio management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRock’s overall risk management program, including the continued efforts of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRock’s Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services provided to each Fund. BlackRock and its affiliates provide each Fund with certain administrative, shareholder and other services (in addition to any such services provided to each Fund by third-parties) and officers and other personnel as are necessary for the operations of each Fund. In particular, BlackRock and its affiliates provide each Fund with administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of each Fund; (iii) oversight of daily accounting and pricing; (iv) responsibility for periodic filings with regulators and stock exchanges; (v) overseeing and coordinating the activities of third-party service providers including, among others, each Fund’s custodian, fund accountant, transfer agent, and auditor; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing or managing administrative functions necessary for the operation of each Fund, such as tax reporting, expense management, fulfilling regulatory filing requirements, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of each Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of each Fund’s performance as of December 31, 2019, as compared to its Performance Peers. The performance information is based on net asset value (NAV), and utilizes Lipper data. Lipper’s methodology calculates a fund’s total return assuming distributions are reinvested on the ex-date at a fund’s ex-date NAV. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to its Performance Peers and a custom peer group of funds as defined by BlackRock (“Customized Peer Group”) and a composite measuring a blend of total return and yield (“Composite”). The Board and its Performance Oversight Committee regularly review and meet with Fund management to discuss the performance of each Fund throughout the year.

In evaluating performance, the Board focused particular attention on funds with less favorable performance records. The Board also noted that while it found the data provided by Broadridge generally useful, it recognized the limitations of such data, including in particular, that notable differences may exist between a fund and its Performance Peers (for example, the investment objectives and strategies). Further, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. The Board also acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance, and that a single investment theme could have the ability to disproportionately affect long-term performance.

The Board noted that for each of the one-, three- and five-year periods reported, MZA ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MZA, and that BlackRock has explained its rationale for this belief to the Board.

The Board noted that for each of the one-, three- and five-year periods reported, MYC ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MYC, and that BlackRock has explained its rationale for this belief to the Board.

The Board noted that for the one-, three- and five-year periods reported, MYF ranked in the first, first and second quartiles, respectively, against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MYF, and that BlackRock has explained its rationale for this belief to the Board.

 

 

DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT

  55


Disclosure of Investment Advisory Agreements  (continued)

 

The Board noted that for each of the one-, three- and five-year periods reported, MYJ ranked in the first quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MYJ, and that BlackRock has explained its rationale for this belief to the Board.

C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services and Estimated Profits Realized by BlackRock and its Affiliates from their Relationship with each Fund: The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with those of its Expense Peers. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared each Fund’s total expense ratio, as well as its actual management fee rate as a percentage of managed assets, which is the total assets of each Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of each Fund’s accrued liabilities (other than money borrowed for investment purposes) to those of its Expense Peers. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers, and the actual management fee rate gives effect to any management fee reimbursements or waivers. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to each Fund. The Board reviewed BlackRock’s estimated profitability with respect to each Fund and other funds the Board currently oversees for the year ended December 31, 2019 compared to available aggregate estimated profitability data provided for the prior two years. The Board reviewed BlackRock’s estimated profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at the individual fund level is difficult.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

The Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing each Fund, including in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable.

The Board noted that MZA’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers. Given MZA’s relatively small size, the Board and BlackRock discussed potential strategic actions for MZA.

The Board noted that MYC’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers.

The Board noted that MYF’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers. Given MYF’s relatively small size, the Board and BlackRock discussed potential strategic actions for MYF.

The Board noted that MYJ’s contractual management fee rate ranked first out of four funds, and that the actual management fee rate and total expense ratio ranked first out of four funds and second out of four funds, respectively, relative to the Expense Peers.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase. The Board also considered the extent to which each Fund benefits from such economies of scale in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable each Fund to more fully participate in these economies of scale. The Board considered each Fund’s asset levels and whether the current fee was appropriate.

Based on the Board’s review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. Closed-end funds are typically priced at scale at a fund’s inception.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from BlackRock’s respective relationships with each Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and its risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to each Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts.

In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that each Fund’s fees and expenses are too high or if they are dissatisfied with the performance of each Fund.

 

 

56  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Disclosure of Investment Advisory Agreements  (continued)

 

The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communication efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreements between the Manager and each Fund for a one-year term ending June 30, 2021. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.

 

 

DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT

  57


Fund Investment Objectives, Policies and Risks

 

Recent Changes

The following information is a summary of certain changes since July 31, 2019. This information may not reflect all of the changes that have occurred since you purchased the relevant Fund.

Effective March 24, 2020, each of MYC and MYF may enter into reverse repurchase agreements. A Fund’s use of reverse repurchase agreements may generate taxable income for the Fund and may increase the amount of ordinary income distributions paid to shareholders. See “Risk Factors—Reverse Repurchase Agreements” below for a discussion of the risks associated with the use of reverse repurchase agreements to which MYC and MYF are now subject.

Except as noted above, 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 Arizona Fund, Inc. (MZA)

The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Arizona 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 the State of Arizona, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from Arizona income tax. The Fund also may invest in municipal obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that is excludable from gross income for federal income tax purposes, in the opinion of bond counsel to the issuer, but is not excludable from gross income for Arizona income tax purposes (“Municipal Bonds”). Unless otherwise noted, the term “Municipal Bonds” also includes Arizona 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 Arizona 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 1940 Act). 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.

Under normal market conditions, the Fund expects to invest at least 75% of its assets in a portfolio of Municipal Bonds that are commonly referred to as “investment grade” securities, which are obligations rated within the four highest quality ratings as determined by either Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings (“Fitch”) (currently AAA, AA, A and BBB), or are considered by BlackRock Advisors, LLC (the “Manager”) to be of comparable quality, at the time of investment. In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for 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, 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 which provided such credit enhancement. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its stockholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund 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 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 the Manager. The Fund’s portfolio at any given time may include both long-term and intermediate-term municipal bonds.

 

 

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The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

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. See “—Other Investment Policies.” 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 and, if applicable, exempt from Arizona income taxes (“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 regular U.S. federal income tax and Arizona personal 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 U.S. federal income tax exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund.

The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and over-the-counter (“OTC”) put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivatives may be used for duration management and other risk management purposes, subject to the Fund’s investment restrictions.

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 may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions. The Fund may enter into “dollar roll” transactions.

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. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

Other Investment Policies. The Fund may invest in Temporary Investments subject to the limitations set forth above. The tax-exempt money market securities may include municipal notes, municipal commercial paper, municipal bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. The taxable money market securities in which the Fund may invest as Temporary Investments consist of U.S. Government securities, U.S. Government agency securities, domestic bank or savings institution certificates of deposit and bankers’ acceptances, short-term corporate debt securities such as commercial paper and repurchase agreements. These Temporary Investments must have a stated maturity not in excess of one year from the date of purchase. The Fund may not invest in any security issued by a commercial bank or a savings institution unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation (“FDIC”), except that up to 10% of total assets may be invested in certificates of deposit of smaller institutions if such certificates are fully insured by the FDIC.

The Fund may invest in VRDOs and Participating VRDOs. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards. It is contemplated that the Fund will not invest more than 20% of its assets in Participating VRDOs.

The Temporary Investments, VRDOs and Participating VRDOs in which the Fund may invest will be in the following rating categories at the time of purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1 through Prime-3 for commercial paper (as determined by Moody’s), SP-1 through SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined by S&P), or F-1 through F-3 for notes, VRDOs and commercial paper (as determined by Fitch). Temporary Investments, if not rated, must be of comparable quality in the opinion of the Manager. In addition, the Fund reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Manager, market conditions warrant.

 

 

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Fund Investment Objectives, Policies and Risks  (continued)

 

The Fund may enter into credit default swap agreements for hedging purposes or to seek to increase its return.

The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities or an affiliate thereof.

The Fund may invest in restricted and illiquid securities.

BlackRock MuniYield California Fund, Inc. (MYC)

The Fund’s investment objective is to provide stockholders with as high a level of current income exempt from U.S. federal and California 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 the State of California, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from California income taxes (“California Municipal Bonds”). The Fund also may invest in municipal obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that is excludable from gross income for federal income tax purposes, in the opinion of bond counsel to the issuer, but is not excludable from gross income for California income tax purposes (“Municipal Bonds”). Unless otherwise noted, the term “Municipal Bonds” also includes California Municipal Bonds. The Fund may invest directly in such securities or synthetically through the use of derivatives. In general, the Fund does not intend for its investments to earn a large amount of interest income that is (i) includable in gross income for federal income tax purposes or (ii) not exempt from California income taxes. From time to time, the Fund may realize taxable capital gains.

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 California 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 1940 Act). 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. See “Certain U.S. Federal Income Tax Considerations.” The percentage of the Fund’s total assets invested in PABs will vary from time to time.

Under normal market conditions, the Fund expects to invest primarily 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), 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 F1+ through F3 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 F1+ through F3 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 F3 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. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its stockholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund may invest up to 20% of its total assets in securities that are rated below investment grade, which are securities rated at the time of purchase Ba or below by Moody’s, BB or below by S&P or Fitch, or securities determined by the Manager to be of comparable quality. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

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 the Manager. The Fund’s portfolio at any given time may include long-term, intermediate-term and short-term Municipal Bonds.

The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

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

 

 

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Fund Investment Objectives, Policies and Risks  (continued)

 

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. See “—Other Investment Policies.” 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 and, if applicable, exempt from California income taxes (“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.

The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and OTC put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivatives may be used for duration management and other risk management purposes, subject to the Fund’s investment restrictions.

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 may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions.

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. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

Other Investment Policies. The Fund may invest in Temporary Investments subject to the limitations set forth above. The tax-exempt money market securities may include municipal notes, municipal commercial paper, Municipal Bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. The Fund may not invest in any security issued by a commercial bank or a savings institution unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation (“FDIC”), except that up to 10% of total assets may be invested in certificates of deposit of smaller institutions if such certificates are fully insured by the FDIC. Short-term taxable fixed-income investments include, without limitation, the following: (i) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities, (ii) certificates of deposit issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed income securities are securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt fixed income securities include, without limitation, the following: (i) Bond Anticipation Notes (“BANs”), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds, (ii) Revenue Anticipation Notes (‘”RANs”), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iii) Construction Loan Notes, which are issued to provide construction financing for specific projects, (iv) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings, and (v) Tax-Exempt Commercial Paper (‘”municipal paper’”), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies.

The Fund may invest in VRDOs and Participating VRDOs. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards. It is contemplated that the Fund will not invest more than 20% of its assets in Participating VRDOs.

The Temporary Investments, VRDOs and Participating VRDOs in which the Fund may invest will be in the following rating categories at the time of purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1 through Prime-3 for commercial paper (as determined by Moody’s), SP-1 through SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined by S&P), or F1 through F3 for notes, VRDOs and commercial paper (as determined by Fitch). Temporary Investments, if not rated, must be of comparable quality in the opinion of the Manager. In addition, the Fund reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Manager, market conditions warrant.

 

 

FUND INVESTMENT OBJECTIVES, POLICIES AND RISKS

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Fund Investment Objectives, Policies and Risks  (continued)

 

In order to seek to hedge the value of the Fund against interest rate fluctuations, to hedge against increases in the Fund’s costs associated with the dividend payments on any preferred shares, including the VRDP Shares, or to seek to increase the Fund’s return, the Fund may enter into interest rate swap transactions such as Municipal Market Data AAA Cash Curve swaps (“MMD Swaps”) or Securities Industry and Financial Markets Association Municipal Swap Index swaps (“SIFMA Swaps”).

The Fund may enter into credit default swap agreements for hedging purposes or to seek to increase its return.

The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities.

BlackRock MuniYield Investment Fund (MYF)

The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes as is consistent with its investment policies and prudent investment management. The Fund also seeks to provide shareholders with the opportunity to own shares the value of which is exempt from Florida intangible personal property taxes. 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 shares) and the proceeds of any borrowings for investment purposes, in a portfolio of municipal obligations the interest on which, 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) and which enables shares of the Fund to be exempt from Florida intangible personal property taxes. The State of Florida repealed the Florida Intangible Tax as of January 2007. As a result, 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 shares) 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 (“Municipal Bonds”), regardless of geographic location. 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 shares) and the proceeds of any borrowings for investment purposes, in a portfolio of municipal obligations the interest on which, 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) and which enables shares of the Fund to be exempt from Florida intangible personal property taxes 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 1940 Act). 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. See “Certain U.S. Federal Income Tax Considerations.” The percentage of the Fund’s total assets invested in PABs will vary from time to time.

Under normal market conditions, the Fund invests primarily 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), 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 F1+ through F3 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 F1+ through F3 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 F3 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. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its shareholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund may invest up to 20% of its total assets in securities that are rated below investment grade, which are securities rated at the time of purchase Ba or below by Moody’s, BB or below by S&P or Fitch, or securities determined by the Manager to be of comparable quality. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

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 the Manager. The Fund’s portfolio at any given time may include long-term, intermediate-term and short-term Municipal Bonds.

The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in. response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

 

 

 

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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Investment Objectives, Policies and Risks  (continued)

 

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. See “—Other Investment Policies.” The Fund’s hedging strategies are not fundamental policies and may be modified by the Board of Trustees of the Fund without the approval of the Fund’s shareholders. 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 taxes. 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.

The State of Florida repealed the Florida Intangible Tax as of January 2007. As a result, on September 12, 2008, the Board of Trustees of the Fund voted unanimously to approve the Fund investing in Municipal Bonds regardless of geographic location. If Florida were to reinstate the Florida Intangible Tax or adopt a state income tax, however, the Fund would be required to realign its portfolio such that at least 80% of its assets would be invested in Florida Municipal Bonds or obtain shareholder approval to amend the foregoing fundamental investment policy to remove references to the Florida Intangible Tax. There can be no assurance that the State of Florida will not reinstate the Florida Intangible Tax or adopt a state income tax in the future. There can also be no assurance that the reinstatement of the Florida Intangible Tax or the adoption of a state income tax will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objectives.

The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and OTC put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivatives may be used for duration management and other risk management purposes, subject to the Fund’s investment restrictions.

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 may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Fund’s investment restrictions.

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. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

Other Investment Policies. The Fund may invest in Temporary Investments subject to the limitations set forth above. The tax-exempt money market securities may include municipal notes, municipal commercial paper, Municipal Bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. Short-term taxable fixed income investments include, without limitation, the following: (i) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities, (ii) certificates of deposit issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed income securities are securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt fixed income securities include, without limitation, the following: (i) Bond Anticipation Notes (“BANs”), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds, (ii) Revenue Anticipation Notes (“RANs”), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iii) Construction Loan Notes, which are issued to provide construction financing for specific projects, (iv) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings and (v) Tax-Exempt Commercial Paper (“municipal paper”), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies

The Fund may invest in VRDOs and Participating VRDOs. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards. It is contemplated that the Fund will not invest more than 20% of its assets in Participating VRDOs.

 

 

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Fund Investment Objectives, Policies and Risks  (continued)

 

The Temporary Investments, VRDOs and Participating VRDOs in which the Fund may invest will be in the following rating categories at the time of purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1 through Prime-3 for commercial paper (as determined by Moody’s), SP-1 through SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined by S&P), or F1 through F3 for notes, VRDOs and commercial paper (as determined by Fitch). Temporary Investments, if not rated, must be of comparable quality in the opinion of the Manager. In addition, the Fund reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Manager, market conditions warrant.

The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities.

In order to seek to hedge the value of the Fund against interest rate fluctuations, to hedge against increases in the Fund’s costs associated with the dividend payments on any preferred shares, including the VRDP Shares, or to seek to increase the Fund’s return, the Fund may enter into interest rate swap transactions such as Municipal Market Data AAA Cash Curve swaps (“MMD Swaps”) or Securities Industry and Financial Markets Association Municipal Swap Index swaps (“SIFMA Swaps”).

The Fund may enter into credit default swap agreements for hedging purposes or to seek to increase its return.

BlackRock MuniYield New Jersey Fund, Inc. (MYJ)

The Fund’s investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes and New Jersey personal income tax as is consistent with its investment policies and prudent investment management.

The 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 the State of New Jersey, its political subdivisions, agencies and instrumentalities and by other qualifying issuers, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes (except that the interest may be includable in taxable income for purposes of the federal alternative minimum tax) and exempt from New Jersey personal income tax (“New Jersey Municipal Bonds”). The Fund also may invest in municipal obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that, in the opinion of bond counsel to the issuer, is excludable from gross income for U.S. federal income tax purposes but is not exempt from gross income for New Jersey personal income tax purposes (“Municipal Bonds”). Unless otherwise noted, the term “Municipal Bonds” also includes New Jersey Municipal Bonds. The Fund may invest directly in such securities or synthetically through the use of derivatives. The Fund typically invests at least 80% of its total assets in New Jersey Municipal Bonds. 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 New Jersey 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 1940 Act). 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.

Under normal market conditions, the Fund expects to invest primarily in a portfolio of long-term Municipal Bonds that are commonly referred to as “investment grade” securities, which are obligations rated within the four highest quality ratings as determined by either Moody’s Investors Service, Inc. (“Moody’s”) (currently Aaa, Aa, A and Baa), S&P Global Ratings (“S&P”) (currently AAA, AA, A and BBB) or Fitch Ratings (“Fitch”) (currently AAA, AA, A and BBB), or are considered by the Manager to be of comparable quality, at the time of investment. In the case of short-term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for 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 which provided such credit enhancement. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However, insurance does not protect the Fund or its stockholders against losses caused by declines in a bond’s market value. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.

The Fund may invest up to 20% of its total assets in securities rated below investment grade, which are securities rated Ba or below by Moody’s, BB or below by S&P or Fitch or are considered by the Manager to be of comparable quality, at time of purchase. Below investment grade quality is regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Such securities commonly are referred to as “high yield” or “junk” bonds.

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 the Manager. The Fund’s portfolio at any given time may include both long-term and intermediate-term municipal bonds.

The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to interest rate changes than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.

 

 

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2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Investment Objectives, Policies and Risks  (continued)

 

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. See “—Other Investment Policies.” 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 and, if applicable, exempt from New Jersey personal income tax (“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 regular U.S. federal income tax and New Jersey personal 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 U.S. federal income tax exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund.

The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and over-the-counter (“OTC”) put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivatives may be used for duration management and other risk management purposes, subject to the Fund’s investment restrictions.

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 may enter into reverse repurchase agreements with respect to its portfolio investments subject to the investment restrictions set forth herein. The Fund may enter into “dollar roll” transactions.

The Fund may enter into derivative transactions that have economic leverage embedded in them.

The Fund may leverage its portfolio by entering into one or more credit facilities.

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. Certain short-term borrowings (such as for cash management purposes) are not subject to the 1940 Act’s limitations on leverage if (i) repaid within 60 days, and (ii) not in excess of 5% of the Fund’s total assets.

Other Investment Policies. The Fund may invest in Temporary Investments subject to the limitations set forth above. The tax-exempt money market securities may include municipal notes, municipal commercial paper, municipal bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. The taxable money market securities in which the Fund may invest as Temporary Investments consist of U.S. Government securities, U.S. Government agency securities, domestic bank or savings institution certificates of deposit and bankers’ acceptances, short-term corporate debt securities such as commercial paper and repurchase agreements. These Temporary Investments must have a stated maturity not in excess of one year from the date of purchase. The Fund may not invest in any security issued by a commercial bank or a savings institution unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation (“FDIC”), except that up to 10% of total assets may be invested in certificates of deposit of smaller institutions if such certificates are fully insured by the FDIC.

The Fund may invest in VRDOs and Participating VRDOs. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards. It is contemplated that the Fund will not invest more than 20% of its assets in Participating VRDOs.

The Temporary Investments, VRDOs and Participating VRDOs in which the Fund may invest will be in the following rating categories at the time of purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 for notes and VRDOs and Prime-1 through Prime-3 for commercial paper (as determined by Moody’s), SP-1 through SP-2 for notes and A-1 through A-3 for VRDOs and commercial paper (as determined by S&P), or F-1 through F-3 for notes, VRDOs and commercial paper (as determined by Fitch). Temporary Investments, if not rated, must be of comparable quality in the opinion of the Manager. In addition, the Fund reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Manager, market conditions warrant.

The Fund may enter into credit default swap agreements for hedging purposes or to seek to increase its return. The credit default swap agreement may have as reference obligations one or more securities that are not currently held by the Fund.

 

 

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Fund Investment Objectives, Policies and Risks  (continued)

 

The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities or an affiliate thereof.

The Fund may invest in restricted and illiquid securities.

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 the 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.

Non-Diversification Risk (MYC and MYJ) — The Fund is a non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, it may be more exposed to the risks associated with and developments affecting an individual issuer than a fund that invests more widely.

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.

Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise.

The 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. 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.

To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the 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.

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.

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.

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.

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:

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.

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.

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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Fund Investment Objectives, Policies and Risks  (continued)

 

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.

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.

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.

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.

State Specific Risk (MZA, MYC and MYJ) — The Fund invests primarily in municipal bonds issued by or on behalf of its designated state. As a result, the Fund is more exposed to risks affecting issuers of its designated state’s municipal securities than is a fund that invests more widely. Fund management does not believe that the current economic conditions will adversely affect the Fund’s ability to invest in high quality state municipal securities in its designated state.

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.

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.

Zero Coupon Securities Risk — While interest payments are not made on such securities, holders of such securities are deemed to have received income (“phantom income”) annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the zero coupon bond, but at the same time eliminates the holder’s ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero coupon bonds are more exposed to interest rate risk than shorter term zero coupon bonds. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash.

When-Issued and Delayed Delivery Securities and Forward Commitments Risk — 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.

Indexed and Inverse Securities Risk — 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.

U.S. Government Obligations Risk — Certain securities in which the Fund may invest, including securities issued by certain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.

Variable Rate Demand Obligations Risks — 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.

Repurchase Agreements and Purchase and Sale Contracts Risk — 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.

 

 

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  67


Fund Investment Objectives, Policies and Risks  (continued)

 

Leverage Risk — The Fund uses leverage for investment purposes through the issuance of VRDP Shares. The Fund also utilizes leverage for investment purposes by entering into reverse repurchase agreements, derivative instruments with leverage embedded in then, such as TOB Residuals, and, if applicable, dollar rolls. The Trust’s use of leverage may increase or decrease from time to time in its discretion and the Trust 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:

 

 

the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a comparable portfolio without leverage;

 

 

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;

 

 

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;

 

 

leverage may increase operating costs, which may reduce total return.

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.

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 special purpose trusts formed for the purpose of holding municipal bonds contributed by one or more funds (“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.

Reverse Repurchase Agreements Risk — 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.

Dollar Rolls Risk (MZA and MYJ) — Dollar rolls involve the risk that the market value of the securities that the Fund is committed to buy may decline below the price of the securities the Fund has sold. These transactions may involve leverage.

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.

Investment Companies and ETFs Risk — Subject to the limitations set forth in the 1940 Act or as otherwise limited by the SEC, the Fund may acquire shares in other investment companies and in exchange-traded funds (“ETFs”), some of which may be affiliated investment companies. The market value of the shares of other investment companies and ETFs may differ from their net asset value. As an investor in investment companies and ETFs, the Fund would bear its ratable share of that entity’s expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and administration fees and other expenses (to the extent not offset by the Manager through waivers). As a result, shareholders will be absorbing duplicate levels of fees with respect to investments in other investment companies and ETFs (to the extent not offset by the Manager through waivers).

The securities of other investment companies and ETFs in which the Fund may invest may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities. An investment in securities of other investment companies and ETFs that use leverage may expose the Fund to higher volatility in the market value of such securities and the possibility that the Fund’s long-term returns on such securities (and, indirectly, the long-term returns of shares of the Fund) will be diminished.

As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies may be limited.

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:

 

 

 

68  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Fund Investment Objectives, Policies and Risks  (continued)

 

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.

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.

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.

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.

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.

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.

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.

In November 2019, the SEC proposed new regulations governing the use of derivatives by registered investment companies. If adopted as proposed, new Rule 18f-4 would impose limits on the amount of derivatives a fund could enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities so that a failure to comply with the proposed limits would result in a statutory violation 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.

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.

 

 

FUND INVESTMENT OBJECTIVES, POLICIES AND RISKS

  69


Automatic Dividend Reinvestment Plans

 

Pursuant to each Fund’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 the Funds 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 MZA, MYC, MYF and MYJ 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 http://www.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.

 

 

70  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Director and Officer Information

 

Independent Directors (a)
         
Name
Year of Birth 
(b)
   Position(s) Held
(Length of Service) 
(c)
   Principal Occupation(s) During Past Five Years    Number of BlackRock-Advised
Registered Investment Companies
(“RICs”)  Consisting of Investment
Portfolios (“Portfolios”) Overseen 
(d)
   Public Company and
Other Investment Company
Directorships Held During
Past Five Years
Richard E. Cavanagh
1946
   Co-Chair of the Board and Director
(Since 2007)
   Director, The Guardian Life Insurance Company of America since 1998; Board Chair, Volunteers of America (a not-for-profit organization) from 2015 to 2018 (board member since 2009); Director, Arch Chemicals (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007 and Executive Dean from 1987 to 1995; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007.    86 RICs consisting of 110 Portfolios    None
Karen P. Robards
1950
   Co-Chair of the Board and Director
(Since 2007)
   Principal of Robards & Company, LLC (consulting and private investing) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Director of Enable Injections, LLC (medical devices) since 2019; Investment Banker at Morgan Stanley from 1976 to 1987.    86 RICs consisting of 110 Portfolios    Greenhill & Co., Inc.; AtriCure, Inc. (medical devices) from 2000 until 2017
Michael J. Castellano
1946
   Director
(Since 2011)
   Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015 and since 2017; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) since 2015.    86 RICs consisting of 110 Portfolios    None
Cynthia L. Egan
1955
   Director
(Since 2016)
   Advisor, U.S. Department of the Treasury from 2014 to 2015; President, Retirement Plan Services, for T. Rowe Price Group, Inc. from 2007 to 2012; executive positions within Fidelity Investments from 1989 to 2007.    86 RICs consisting of 110 Portfolios    Unum (insurance); The Hanover Insurance Group (insurance); Envestnet (investment platform) from 2013 until 2016
Frank J. Fabozzi (d)
1948
   Director
(Since 2007)
   Editor of The Journal of Portfolio Management since 1986; Professor of Finance, EDHEC Business School (France) since 2011; Visiting Professor, Princeton University for the 2013 to 2014 academic year and Spring 2017 semester; Professor in the Practice of Finance, Yale University School of Management from 1994 to 2011 and currently a Teaching Fellow in Yale’s Executive Programs; Board Member, BlackRock Equity-Liquidity Funds from 2014 to 2016; affiliated professor Karlsruhe Institute of Technology from 2008 to 2011; Visiting Professor, Rutgers University for the Spring 2019 semester; Visiting Professor, New York University for the 2019 academic year.    87 RICs consisting of 111 Portfolios    None
R. Glenn Hubbard
1958
   Director
(Since 2007)
   Dean, Columbia Business School from 2004 to 2019; Faculty member, Columbia Business School since 1988.    86 RICs consisting of 110 Portfolios    ADP (data and information services); Metropolitan Life Insurance Company (insurance); KKR Financial Corporation (finance) from 2004 until 2014

 

 

DIRECTOR AND OFFICER INFORMATION

  71


Director and Officer Information (continued)

 

Independent Directors (a) (continued)
         
Name
Year of Birth 
(b)
   Position(s) Held
(Length of Service) 
(c)
   Principal Occupation(s) During Past Five Years    Number of BlackRock-Advised
Registered Investment Companies
(“RICs”)  Consisting of Investment
Portfolios (“Portfolios”) Overseen 
(d)
   Public Company and
Other Investment Company
Directorships Held During
Past Five Years
W. Carl Kester (d)
1951
   Director
(Since 2007)
   George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008; Deputy Dean for Academic Affairs from 2006 to 2010; Chairman of the Finance Unit, from 2005 to 2006; Senior Associate Dean and Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981.    87 RICs consisting of 111 Portfolios    None
Catherine A. Lynch (d)
1961
   Director
(Since 2016)
   Chief Executive Officer, Chief Investment Officer and various other positions, National Railroad Retirement Investment Trust from 2003 to 2016; Associate Vice President for Treasury Management, The George Washington University from 1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.    87 RICs consisting of 111 Portfolios    None

 

Interested Directors (a)(e)
         
Name
Year of Birth 
(b)
   Position(s) Held
(Length of Service) 
(c)
   Principal Occupation(s) During Past Five Years    Number of BlackRock-Advised
Registered Investment Companies
(“RICs”)  Consisting of Investment
Portfolios (“Portfolios”) Overseen 
(d)
   Public Company and
Other Investment Company
Directorships Held During
Past Five Years
Robert Fairbairn
1965
   Director
(Since 2018)
   Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s Global Executive and Global Operating Committees; Co-Chair of BlackRock’s Human Capital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRock’s Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retail and iShares® businesses from 2012 to 2016.    122 RICs consisting of 265 Portfolios    None
John M. Perlowski (d)
1964
   Director
(Since 2015);
President and Chief Executive Officer
(Since 2010)
   Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009.    123 RICs consisting of 266 Portfolios    None

(a) The address of each Director is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.

(b) Each Independent Director holds office until his or her successor is duly elected and qualifies or until his or her earlier death, resignation, retirement or removal as provided by the Fund’s by-laws or charter or statute, or until December 31 of the year in which he or she turns 75. Directors who are “interested persons,” as defined in the Investment Company Act serve until their successor is duly elected and qualifies or until their earlier death, resignation, retirement or removal as provided by the Fund’s by-laws or statute, or until December 31 of the year in which they turn 72. The Board may determine to extend the terms of Independent Directors on a case-by-case basis, as appropriate.

(c) Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. Certain Independent Directors first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; R. Glenn Hubbard, 2004; W. Carl Kester, 1995; and Karen P. Robards, 1998.

(d) Dr. Fabozzi, Dr. Kester, Ms. Lynch and Mr. Perlowski are also trustees of the BlackRock Credit Strategies Fund.

(e) Mr. Fairbairn and Mr. Perlowski are both “interested persons,” as defined in the Investment 1940 Act, of the Fund based on their positions with BlackRock, Inc. and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the BlackRock Multi-Asset Complex.

 

 

72  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Director and Officer Information (continued)

 

Officers Who Are Not Directors (a)
     
Name
Year of Birth 
(b)
   Position(s) Held
(Length of Service)
   Principal Occupation(s) During Past Five Years
Jonathan Diorio
1980
   Vice President
(Since 2015)
   Managing Director of BlackRock, Inc. since 2015; Director of BlackRock, Inc. from 2011 to 2015.
Neal J. Andrews
1966
   Chief Financial Officer
(Since 2007)
   Chief Financial Officer of the iShares® exchange traded funds from 2019 to 2020; Managing Director of BlackRock, Inc. since 2006.
Jay M. Fife
1970
   Treasurer
(Since 2007)
   Managing Director of BlackRock, Inc. since 2007.
Charles Park
1967
   Chief Compliance Officer
(Since 2014)
   Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012.
Janey Ahn
1975
   Secretary
(Since 2012)
   Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017.

(a) The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055.

(b) Officers of the Fund serve at the pleasure of the Board.

 

The portfolio managers of MZA are Michael Kalinoski and Walter O’Connor.

 

Investment Adviser

BlackRock Advisors, LLC

Wilmington, DE 19809

Accounting Agent and Custodian

State Street Bank and Trust Company

Boston, MA 02111

Transfer Agent

Computershare Trust
 Company, N.A.

Canton, MA 02021

VRDP Tender and Paying Agent

The Bank of New York Mellon

New York, NY 10286

VRDP Remarketing Agent

TD Securities (USA) LLC(a)

New York, NY 10019

Wells Fargo Securities, LLC(b)

Charlotte, NC 28202

VRDP Liquidity Provider

The Toronto-Dominion Bank(a)

New York, NY 10019

Wells Fargo Bank, N.A.(b)

Charlotte, NC 28202

Legal Counsel

Willkie Farr & Gallagher LLP

New York, NY 10019

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Boston, MA 02116

Address of the Funds

100 Bellevue Parkway

Wilmington, DE 19809

 

 

(a) 

For MYC and MYF.

(b) 

For MZA and MYJ.

 

 

DIRECTOR AND OFFICER INFORMATION

  73


Additional Information

 

Proxy Results

The Annual Meeting of Shareholders was held on July 27, 2020 for shareholders of record on May 29, 2020, to elect director nominees for each Fund. There were no broker non-votes with regard to any of the Funds.

Shareholders elected the Directors as follows:

 

      Michael J. Castellano      Richard E. Cavanagh      Cynthia L. Egan  
  

 

 

    

 

 

    

 

 

 
      Votes For      Votes Withheld              Votes For      Votes Withheld              Votes For      Votes Withheld          

MZA

     3,792,975        181,475           3,799,589        174,861           3,806,568        167,882     

MYC

     18,229,238        712,703           18,218,904        723,037           18,304,079        637,862     

MYJ

     20,857,384        591,916           20,804,331        644,969           20,774,369        674,931     
            Votes Against      Abstain             Votes Against      Abstain             Votes Against      Abstain  
     

 

 

    

 

 

       

 

 

    

 

 

       

 

 

    

 

 

 

MYF

     11,747,755        617,874        0        11,868,106        497,523        0        11,889,330        476,299        0  
                                                                                  
     Robert Fairbairn      R. Glenn Hubbard      Catherine A. Lynch  
  

 

 

    

 

 

    

 

 

 
      Votes For      Votes Withheld              Votes For      Votes Withheld              Votes For      Votes Withheld          

MZA

     3,799,207        175,243           3,779,605        194,845           3,806,568        167,882     

MYC

     18,260,594        681,347           18,258,806        683,135           18,304,694        637,247     

MYJ

     20,786,708        662,592           20,741,068        708,232           20,838,111        611,189     
            Votes Against      Abstain             Votes Against      Abstain             Votes Against      Abstain  
     

 

 

    

 

 

       

 

 

    

 

 

       

 

 

    

 

 

 

MYF

     11,876,364        489,265        0        11,770,560        595,069        0        11,869,096        496,533        0  
                                                                                  
     John M. Perlowski      Karen P. Robards      Frank J. Fabozzi(a)  
  

 

 

    

 

 

    

 

 

 
      Votes For      Votes Withheld              Votes For      Votes Withheld              Votes For      Votes Withheld          

MZA

     3,799,207        175,243           3,806,568        167,882           373        0     

MYC

     18,265,216        676,725           18,265,444        676,497           1,059        0     

MYJ

     20,860,805        588,495           20,742,904        706,396           1,800        0     
            Votes Against      Abstain             Votes Against      Abstain             Votes Against      Abstain  
     

 

 

    

 

 

       

 

 

    

 

 

       

 

 

    

 

 

 

MYF

     11,856,347        509,282        0        11,799,158        566,471        0        594        0        0  
     W. Carl Kester(a)                                                   
  

 

 

       
      Votes For      Votes Withheld                                                    

MZA

     373        0                       

MYC

     1,059        0                       

MYJ

     1,800        0                       
            Votes Against      Abstain                                            
     

 

 

    

 

 

                   

MYF

     594        0        0                    

 

  (a) 

Voted on by holders of preferred shares only.

 

Fund Certification

The Funds are listed for trading on the NYSE and have filed with the NYSE their annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Funds filed with the SEC the certification of its chief executive officer and chief financial officer required by section 302 of the Sarbanes-Oxley Act.

Dividend Policy

Each Fund’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of distributions, the Funds may at times pay out less than the entire amount of net investment income earned in any particular month/quarter and may at times in any particular month/quarter pay out such accumulated but undistributed income in addition to net investment income earned in that month/quarter. As a result, the distributions paid by the Funds for any particular month/quarter may be more or less than the amount of net investment income earned by the Funds during such month/quarter. The Funds’ current accumulated but undistributed net investment income, if any, is disclosed as accumulated earnings (loss) in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.

 

 

74  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Additional Information  (continued)

 

General Information

The Funds do not make available copies of their Statements of Additional Information because the Funds’ shares are not continuously offered, which means that the Statement of Additional Information of each Fund has not been updated after completion of the respective Fund’s offerings and the information contained in each Fund’s Statement of Additional Information may have become outdated.

Except if noted otherwise herein, there were no changes to the Funds’ charters or by-laws that would delay or prevent a change of control of the Funds that were not approved by the shareholders. Except if noted otherwise herein, there have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds’ portfolios.

In accordance with Section 23(c) of the Investment Company Act of 1940, each Fund may from time to time purchase shares of its common stock in the open market or in private transactions.

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Funds may be found on BlackRock’s website, which can be accessed at blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRock’s website in this report.

Electronic Delivery

Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.

To enroll in electronic delivery:

Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisers, banks or brokerages may offer this service.

Householding

The Funds will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds’ Forms N-PORT and N-Q are available on the SEC’s website at sec.gov.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 882-0052; (2) at blackrock.com; and (3) on the SEC’s website at sec.gov.

Availability of Proxy Voting Record

Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at blackrock.com; or by calling (800) 882-0052; and (2) on the SEC’s website at sec.gov.

Availability of Fund Updates

BlackRock will update performance and certain other data for the Funds on a monthly basis on its website in the “Closed-end Funds” section of blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to check the website for updated performance information and the release of other material information about the Funds. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRock’s website in this report.

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

 

 

ADDITIONAL INFORMATION

  75


Additional Information  (continued)

 

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

 

76  

2020 BLACKROCK ANNUAL REPORT TO SHAREHOLDERS


Glossary of Terms Used in this Report  

 

Portfolio Abbreviations
AGM    Assured Guaranty Municipal Corp.
AMBAC    American Municipal Bond Assurance Corp.
AMT    Alternative Minimum Tax (subject to)
ARB    Airport Revenue Bonds
BAM    Build America Mutual Assurance Co.
BHAC    Berkshire Hathaway Assurance Corp.
CAB    Capital Appreciation Bonds
COP    Certificates of Participation
EDA    Economic Development Authority
ERB    Education Revenue Bonds
FHA    Federal Housing Administration
GARB    General Airport Revenue Bonds
GO    General Obligation Bonds
HFA    Housing Finance Agency
IDA    Industrial Development Authority
IDB    Industrial Development Board
LRB    Lease Revenue Bonds
M/F    Multi-Family
NPFGC    National Public Finance Guarantee Corp.
RB    Revenue Bonds
S/F    Single-Family
 

 

 

GLOSSARY OF TERMS USED IN THIS REPORT

  77


 

Want to know more?

blackrock.com    |    800-882-0052

This report is intended for current holders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Funds have leveraged their Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and other information herein are as dated and are subject to change.

MY5-7/20-AR

 

 

LOGO    LOGO


Item 2 –

Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, the code of ethics was amended to update certain information and to make other non-material changes. During the period covered by this report, there have been no waivers granted under the code of ethics. The registrant undertakes to provide a copy of the code of ethics to any person upon request, without charge, who calls 1-800-882-0052, option 4.

 

Item 3 –

Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent:

Michael Castellano

Frank J. Fabozzi

Catherine A. Lynch

Karen P. Robards

The registrant’s board of directors has determined that Karen P. Robards qualifies as an audit committee financial expert pursuant to Item 3(c)(4) of Form N-CSR.

Ms. Robards has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Ms. Robards has been President of Robards & Company, a financial advisory firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years where she was responsible for evaluating and assessing the performance of companies based on their financial results. Ms. Robards has over 30 years of experience analyzing financial statements. She also is a member of the audit committee of one publicly held company and a non-profit organization.

Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.

 

Item 4 –

Principal Accountant Fees and Services

The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:

 

2


      (a) Audit Fees    (b) Audit-Related Fees1   

 

(c) Tax Fees2

   (d) All Other Fees
Entity Name    Current
Fiscal Year
End
   Previous
Fiscal Year
End
   Current
Fiscal Year
End
   Previous
Fiscal Year
End
   Current
Fiscal Year
End
   Previous
Fiscal Year
End
   Current
Fiscal Year
End
   Previous
Fiscal Year
End

BlackRock

MuniYield Arizona Fund,

Inc.

   $28,050    $28,050    $0    $0    $8,700    $9,000    $0    $0

The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Affiliated Service Providers”):

 

    

 

        Current Fiscal Year End        

          Previous Fiscal Year End        
(b) Audit-Related Fees1   $0   $0
(c) Tax Fees2   $0   $0
(d) All Other Fees3   $1,984,000   $2,050,500

1 The nature of the services includes assurance and related services reasonably related to the performance of the audit or review of financial statements not included in Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators.

2 The nature of the services includes tax compliance and/or tax preparation, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, taxable income and tax distribution calculations.

3 Non-audit fees of $1,984,000 and $2,050,500 for the current fiscal year and previous fiscal year, respectively, were paid to the Fund’s principal accountant in their entirety by BlackRock, in connection with services provided to the Affiliated Service Providers of the Fund and of certain other funds sponsored and advised by BlackRock or its affiliates for a service organization review and an accounting research tool subscription. These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Affiliated Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved

 

3


subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees, defined as the sum of the fees shown under “Audit-Related Fees,” “Tax Fees” and “All Other Fees,” paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Affiliated Service Providers were:

 

                                 Entity Name   

Current Fiscal Year

End

  

Previous Fiscal Year

End

    
 

BlackRock MuniYield

Arizona Fund, Inc.

   $8,700    $9,000   

Additionally, the amounts billed by D&T in connection with services provided to the Affiliated Service Providers of the Fund and of other funds sponsored or advised by BlackRock or its affiliates during the current and previous fiscal years for a service organization review and an accounting research tool subscription were:

 

   

Current Fiscal

Year End

 

Previous Fiscal

Year End

   
  $1,984,000   $2,050,500  

These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Affiliated Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

 

Item 5 –

Audit Committee of Listed Registrant

 

  (a)

The following individuals are members of the registrant’s separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):

Michael Castellano

Frank J. Fabozzi

Catherine A. Lynch

Karen P. Robards

 

4


  (b)

Not Applicable

 

Item 6 –

Investments

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.

(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

 

Item 7 –

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – The board of directors has delegated the voting of proxies for the Fund’s portfolio securities to the Investment Adviser pursuant to the Investment Adviser’s proxy voting guidelines. Under these guidelines, the Investment Adviser will vote proxies related to Fund securities in the best interests of the Fund and its stockholders. From time to time, a vote may present a conflict between the interests of the Fund’s stockholders, on the one hand, and those of the Investment Adviser, or any affiliated person of the Fund or the Investment Adviser, on the other. In such event, provided that the Investment Adviser’s Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Oversight Committee”) is aware of the real or potential conflict or material non-routine matter and if the Oversight Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Oversight Committee may retain an independent fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the Investment Adviser’s clients. If the Investment Adviser determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Oversight Committee shall determine how to vote the proxy after consulting with the Investment Adviser’s Portfolio Management Group and/or the Investment Adviser’s Legal and Compliance Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the Fund’s Proxy Voting Policy and Procedures are attached as Exhibit 99.PROXYPOL, a copy of the Fund’s Global Corporate Governance  & Engagement Principles are attached as Exhibit 99.GLOBAL.CORP.GOV and a copy of the Fund’s Corporate Governance and Proxy Voting Guidelines for U.S. Securities are attached as Exhibit 99.US.CORP.GOV. Information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at http://www.sec.gov.

 

Item 8 –

Portfolio Managers of Closed-End Management Investment Companies

(a)(1) As of the date of filing this Report:

The registrant is managed by a team of investment professionals comprised of Michael Kalinoski, CFA, Director at BlackRock, and Walter O’Connor, CFA, Managing Director at BlackRock. Each is a member of BlackRock’s municipal tax-exempt management group. Each is jointly responsible for the day-to-day management of the registrant’s portfolio, which includes setting the registrant’s overall investment strategy, overseeing the management of the registrant and/or selection of its investments. Messrs. Kalinoski and O’Connor have been members of the registrant’s portfolio management team since 1999 and 2006, respectively.

 

5


Portfolio Manager    Biography
Michael Kalinoski, CFA    Director of BlackRock since 2006; Director of Merrill Lynch Investment Managers, L.P. (“MLIM”) from 1999 to 2006.
Walter O’Connor, CFA    Managing Director of BlackRock since 2006; Managing Director of MLIM from 2003 to 2006; Director of MLIM from 1998 to 2003.

(a)(2) As of July 31, 2020:

 

     

(ii) Number of Other Accounts Managed

and Assets by Account Type

  

(iii) Number of Other Accounts and

 

Assets for Which Advisory Fee is

Performance-Based

(i) Name of

Portfolio Manager

  

Other

Registered

Investment

 

Companies

  

Other Pooled

Investment

Vehicles

  

Other

Accounts

  

Other

Registered

Investment

 

Companies

  

Other Pooled

Investment

 

Vehicles

  

Other

Accounts

Michael Kalinoski, CFA

   16    0    0    0    0    0
    

$34.40 Billion

 

   $0    $0    $0    $0    $0

Walter O’Connor, CFA

   29    0    0    0    0    0
    

$29.85 Billion

 

 

   $0    $0    $0    $0    $0

 

  (iv)

Portfolio Manager Potential Material Conflicts of Interest

BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock, Inc.’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for a fund.    It should also be noted that a portfolio manager may be managing hedge fund and/or long only accounts, or may be part of a team managing

 

6


hedge fund and/or long only accounts, subject to incentive fees. Such portfolio managers may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of this Fund are not entitled to receive a portion of incentive fees of other accounts.

As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base, as appropriate.

(a)(3) As of July 31, 2020:

Portfolio Manager Compensation Overview

  The discussion below describes the portfolio managers’ compensation as of July 31, 2020.

BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.

Base Compensation.   Generally, portfolio managers receive base compensation based on their position with the firm.

Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock.    In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation based on the performance of the Funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are: a combination of market-based indices (e.g., Standard & Poor’s Municipal Bond Index), certain customized indices and certain fund industry peer groups.

Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash, deferred BlackRock,

 

7


Inc. stock awards, and/or deferred cash awards that notionally track the return of certain BlackRock investment products.

  Portfolio managers receive their annual discretionary incentive compensation in the form of cash. Portfolio managers whose total compensation is above a specified threshold also receive deferred BlackRock, Inc. stock awards annually as part of their discretionary incentive compensation. Paying a portion of discretionary incentive compensation in the form of deferred BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key employees as part of a long-term incentive award to aid in retention, align interests with long-term shareholders and motivate performance. Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have deferred BlackRock, Inc. stock awards.

For certain portfolio managers, a portion of the discretionary incentive compensation is also distributed in the form of deferred cash awards that notionally track the returns of select BlackRock investment products they manage, which provides direct alignment of portfolio manager discretionary incentive compensation with investment product results. Deferred cash awards vest ratably over a number of years and, once vested, settle in the form of cash. Only portfolio managers who manage specified products and whose total compensation is above a specified threshold are eligible to participate in the deferred cash award program.

  Other Compensation Benefits.  In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:

Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($285,000 for 2020). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.

 

8


(a)(4) Beneficial Ownership of Securities – As of July 31, 2020.

 

Portfolio Manager  

Dollar Range of Equity

Securities of the Fund

Beneficially Owned

Michael Kalinoski, CFA

  None

Walter O’Connor, CFA

  None

(b) Not Applicable

 

Item 9

    Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report.

Item 10

   –   Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

Item 11

 

 –

  Controls and Procedures

(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12

   –   Disclosure of Securities Lending Activities for Closed-End Management Investment Companies – Not Applicable

Item 13

   –  

Exhibits attached hereto

(a)(1) – Code of Ethics – See Item 2

(a)(2) – Section 302 Certifications are attached

(a)(3) – Not Applicable

(a)(4) – Not Applicable

(b) – Section 906 Certifications are attached

 

 

9


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

BlackRock MuniYield Arizona Fund, Inc.   
By:    /s/ John M. Perlowski                               
   John M. Perlowski   
   Chief Executive Officer (principal executive officer) of   
   BlackRock MuniYield Arizona Fund, Inc.   

Date: October 2, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:    /s/ John M. Perlowski                                   
   John M. Perlowski   
   Chief Executive Officer (principal executive officer) of   
   BlackRock MuniYield Arizona Fund, Inc.   
Date: October 2, 2020   
By:    /s/ Neal J. Andrews                                   
   Neal J. Andrews   
   Chief Financial Officer (principal financial officer) of   
   BlackRock MuniYield Arizona Fund, Inc.   
Date: October 2, 2020   

 

10

EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, John M. Perlowski, Chief Executive Officer (principal executive officer) of BlackRock MuniYield Arizona Fund, Inc., certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock MuniYield Arizona Fund, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 2, 2020
/s/ John M. Perlowski            
John M. Perlowski
Chief Executive Officer (principal executive officer) of BlackRock MuniYield Arizona Fund, Inc.


EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, Neal J. Andrews, Chief Financial Officer (principal financial officer) of BlackRock MuniYield Arizona Fund, Inc., certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock MuniYield Arizona Fund, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 2, 2020
/s/ Neal J. Andrews            
Neal J. Andrews
Chief Financial Officer (principal financial officer) of BlackRock MuniYield Arizona Fund, Inc.

Exhibit 99.906CERT

Certification Pursuant to Rule 30a-2(b) under the 1940 Act and

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock MuniYield Arizona Fund, Inc. (the “Registrant”), hereby certifies, to the best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended July 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Date: October 2, 2020

/s/ John M. Perlowski            

John M. Perlowski

Chief Executive Officer (principal executive officer) of

BlackRock MuniYield Arizona Fund, Inc.

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock MuniYield Arizona Fund, Inc. (the “Registrant”), hereby certifies, to the best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended July 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Date: October 2, 2020

/s/ Neal J. Andrews            

Neal J. Andrews

Chief Financial Officer (principal financial officer) of

BlackRock MuniYield Arizona Fund, Inc.

 

This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission.

Closed-End Fund Proxy Voting Policy

October 1, 2020

 

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Closed-End Fund Proxy Voting Policy

 

Procedures Governing Delegation of Proxy Voting to Fund Adviser

 

 

Effective Date: October 1, 2020

 

 

 

 

Appliesto the following types of Funds registered under the 1940 Act:

☐ Open-End Mutual Funds (including money market funds)

☐ Money Market Funds Only

☐ iShares and BlackRock ETFs

☒ Closed-End Funds

☐ Other

 

 

 

 

The Boards of Trustees/Directors (the “Directors”) of the closed-end funds advised by BlackRock Advisors, LLC (“BlackRock”) (the “Funds”) have the responsibility for the oversight of voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to delegate that responsibility to BlackRock as part of BlackRock’s authority to manage, acquire and dispose of account assets, all as contemplated by the Funds’ respective investment management agreements.

BlackRock has adopted guidelines and procedures (together and as from time to time amended, the “BlackRock Proxy Voting Guidelines”) governing proxy voting by accounts managed by BlackRock. BlackRock will cast votes on behalf of each of the Funds on specific proxy issues in respect of securities held by each such Fund in accordance with the BlackRock Proxy Voting Guidelines; provided, however, that in the case of underlying closed-end funds (including business development companies and other similarly-situated asset pools) held by the Funds that have, or are proposing to adopt, a classified board structure, BlackRock will typically (a) vote in favor of proposals to adopt classification and against proposals to eliminate classification, and (b) not vote against directors as a result of their adoption of a classified board structure.

BlackRock will report on an annual basis to the Directors on (1) a summary of all proxy votes that BlackRock has made on behalf of the Funds in the preceding year together with a representation that all votes were in accordance with the BlackRock Proxy Voting Guidelines (as modified pursuant to the immediately preceding paragraph), and (2) any changes to the BlackRock Proxy Voting Guidelines that have not previously been reported.

 

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  Public   Page 1 of 1

 

  BlackRock

  Investment

  Stewardship

  Global Corporate Governance &

  Engagement Principles

 

  January 2020

 

 

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  Contents   
 

Introduction to BlackRock

     3  
 

Philosophy on corporate governance

     3  
 

Corporate governance, engagement and voting

     4  
 

Boards and directors

     5  
 

Auditors and audit-related issues

     6  
 

Capital structure, mergers, asset sales and other special transactions

     6  
 

Compensation and benefits

     7  
 

Environmental and social issues

     7  
 

General corporate governance matters and shareholder protections

     9  
 

BlackRock’s oversight of our investment stewardship activities

     9  
 

Vote execution

     10  
 

Conflicts management policies and procedures

     10  
 

Voting guidelines

     11  
 

Reporting and vote transparency

     12  

 

 

If you would like additional information, please contact:

ContactStewardship@blackrock.com

           

 

 

BLACKROCK


Introduction to BlackRock

BlackRock’s purpose is to help more and more people experience financial well-being. As a fiduciary to our clients, we provide the investment and technology solutions they need when planning for their most important goals. We manage assets on behalf of institutional and individual clients, across a full spectrum of investment strategies, asset classes and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers and other financial institutions, as well as individuals around the world.

Philosophy on corporate governance

BlackRock Investment Stewardship (“BIS”) activities are focused on maximizing long-term value for our clients. BIS does this through engagement with boards and management of investee companies and, for those clients who have given us authority, through voting at shareholder meetings.

We believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders’ best interests. Effective voting rights are central to the rights of ownership and there should be one vote for one share. Shareholders should have the right to elect, remove and nominate directors, approve the appointment of the auditor and to amend the corporate charter or by-laws. Shareholders should be able to vote on matters that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and pre-emptive rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information.

Our primary focus is on the performance of the board of directors. As the agent of shareholders, the board should set the company’s strategic aims within a framework of prudent and effective controls, which enables risk to be assessed and managed. The board should provide direction and leadership to management and oversee management’s performance. Our starting position is to be supportive of boards in their oversight efforts on shareholders’ behalf and we would generally expect to support the items of business they put to a vote at shareholder meetings. Votes cast against or withheld from resolutions proposed by the board are a signal that we are concerned that the directors or management have either not acted in the best interests of shareholders or have not responded adequately to shareholder concerns. We assess voting matters on a case-by-case basis and in light of each company’s unique circumstances taking into consideration regional best practices and long-term value creation.

These principles set out our approach to engaging with companies, provide guidance on our position on corporate governance and outline how our views might be reflected in our voting decisions. Corporate governance practices can vary internationally, so our expectations in relation to individual companies are based on the legal and regulatory framework of each local market. However, we believe there are overarching principles of corporate governance that apply globally and provide a framework for more detailed, market-specific assessments.

We believe BlackRock has a responsibility in relation to monitoring and providing feedback to companies, sometimes known as “stewardship.” These ownership responsibilities include engaging with management or board members on corporate governance matters, voting proxies in the best long-term economic interests of our clients, and engaging with regulatory bodies to ensure a sound policy framework consistent with promoting long-term shareholder value creation. We also believe in the responsibility to our clients to have appropriate resources and oversight structures. Our approach is set out in the section below titled “BlackRock’s oversight of its investment stewardship activities” and is further detailed in a team profile on our website.

 

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Corporate governance, engagement and voting

We recognize that accepted standards of corporate governance differ between markets, but we believe there are sufficient common threads globally to identify an overarching set of principles. The objective of our investment stewardship activities is the protection and enhancement of the value of our clients’ investments in public corporations. Thus, these principles focus on practices and structures that we consider to be supportive of long-term value creation. We discuss below the principles under six key themes. In our regional and market-specific voting guidelines we explain how these principles inform our voting decisions in relation to specific resolutions that may appear on the agenda of a shareholder meeting in the relevant market.

The six key themes are:

 

 

Boards and directors

 

 

Auditors and audit-related issues

 

 

Capital structure, mergers, asset sales and other special transactions

 

 

Compensation and benefits

 

 

Environmental and social issues

 

 

General corporate governance matters and shareholder protections

At a minimum, we expect companies to observe the accepted corporate governance standards in their domestic market or to explain why doing so is not in the interests of shareholders. Where company reporting and disclosure is inadequate or the approach taken is inconsistent with our view of what is in the best interests of shareholders, we will engage with the company and/or use our vote to encourage a change in practice. In making voting decisions, we perform independent research and analysis, such as reviewing relevant information published by the company and apply our voting guidelines to achieve the outcome we believe best protects our clients’ long-term economic interests. We also work closely with our active portfolio managers, and may take into account internal and external research.

BlackRock views engagement as an important activity; engagement provides us with the opportunity to improve our understanding of the challenges and opportunities that investee companies are facing and their governance structures. Engagement also allows us to share our philosophy and approach to investment and corporate governance with companies to enhance their understanding of our objectives. Our engagements often focus on providing our feedback on company disclosures, particularly where we believe they could be enhanced. There are a range of approaches we may take in engaging companies depending on the nature of the issue under consideration, the company and the market.

BlackRock’s engagements emphasize direct dialogue with corporate leadership on the governance issues identified in these principles that have a material impact on financial performance. These engagements enable us to cast informed votes aligned with clients’ long-term economic interests. We generally prefer to engage in the first instance where we have concerns and give management time to address or resolve the issue. As a long-term investor, we are patient and persistent in working with our portfolio companies to have an open dialogue and develop mutual understanding of governance matters, to promote the adoption of best practices and to assess the merits of a company’s approach to its governance. We monitor the companies in which we invest and engage with them constructively and privately where we believe doing so helps protect shareholders’ interests. We do not try to micro-manage companies, or tell management and boards what to do. We present our views as a long-term shareholder and listen to companies’ responses. The materiality and immediacy of a given issue will generally determine the level of our engagement and whom we seek to engage at the company, which could be management representatives or board directors.

 

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Boards and directors

The performance of the board is critical to the economic success of the company and to the protection of shareholders’ interests. Board members serve as agents of shareholders in overseeing the strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most important responsibilities in the proxy voting context.

We expect the board of directors to promote and protect shareholder interests by:

 

 

establishing an appropriate corporate governance structure

 

 

supporting and overseeing management in setting long-term strategic goals, applicable measures of value-creation and milestones that will demonstrate progress, and steps taken if any obstacles are anticipated or incurred

 

 

ensuring the integrity of financial statements

 

 

making independent decisions regarding mergers, acquisitions and disposals

 

 

establishing appropriate executive compensation structures

 

 

addressing business issues, including environmental and social issues, when they have the potential to materially impact company reputation and performance

There should be clear definitions of the role of the board, the committees of the board and senior management such that the responsibilities of each are well understood and accepted. Companies should report publicly the approach taken to governance (including in relation to board structure) and why this approach is in the best interest of shareholders. We will seek to engage with the appropriate directors where we have concerns about the performance of the board or the company, the broad strategy of the company, or the performance of individual board members. We believe that when a company is not effectively addressing a material issue, its directors should be held accountable.

BlackRock believes that directors should stand for re-election on a regular basis. We assess directors nominated for election or re-election in the context of the composition of the board as a whole. There should be detailed disclosure of the relevant credentials of the individual directors in order for shareholders to assess the caliber of an individual nominee. We expect there to be a sufficient number of independent directors on the board to ensure the protection of the interests of all shareholders. Common impediments to independence may include but are not limited to:

 

 

current or former employment at the company or a subsidiary within the past several years

 

 

being, or representing, a shareholder with a substantial shareholding in the company

 

 

interlocking directorships

 

 

having any other interest, business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company

BlackRock believes that the operation of the board is enhanced when there is a clearly independent, senior non-executive director to chair it or, where the chairman is also the CEO (or is otherwise not independent), an independent lead director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board and encouraging independent participation in board deliberations. The lead independent board director should be available to shareholders in those situations where a director is best placed to explain and justify a company’s approach.

To ensure that the board remains effective, regular reviews of board performance should be carried out and assessments made of gaps in skills or experience amongst the members. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the group’s thinking and to ensure both continuity and adequate succession planning. In identifying potential candidates, boards should take into consideration the multiple dimensions of diversity, including personal factors such as gender, ethnicity, and age; as well as professional characteristics, such as a director’s industry, area of expertise, and geographic location. The board should review these dimensions of the current directors and

 

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how they might be augmented by incoming directors. We believe that directors are in the best position to assess the optimal size for the board, but we would be concerned if a board seemed too small to have an appropriate balance of directors or too large to be effective.

There are matters for which the board has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock believes that shareholders’ interests are best served when the board forms committees of fully independent directors to deal with such matters. In many markets, these committees of the board specialize in audit, director nominations and compensation matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one with a related party or to investigate a significant adverse event.

Auditors and audit-related issues

Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.

BlackRock recognizes the critical importance of financial statements, which should provide a true and fair picture of a company’s financial condition. We will hold the members of the audit committee or equivalent responsible for overseeing the management of the audit function. We take particular note of cases involving significant financial restatements or ad hoc notifications of material financial weakness.

The integrity of financial statements depends on the auditor being free of any impediments to being an effective check on management. To that end, we believe it is important that auditors are, and are seen to be, independent. Where the audit firm provides services to the company in addition to the audit, the fees earned should be disclosed and explained. Audit committees should have in place a procedure for assessing annually the independence of the auditor.

Capital structure, mergers, asset sales and other special transactions

The capital structure of a company is critical to its owners, the shareholders, as it impacts the value of their investment and the priority of their interest in the company relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests.

Effective voting rights are central to the rights of ownership and we believe strongly in one vote for one share as a guiding principle that supports good corporate governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting power should match economic exposure.

We are concerned that the creation of a dual share class may result in an over-concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying the potential conflict of interest, which the one share, one vote principle is designed to mitigate. However, we recognize that in certain circumstances, companies may have a valid argument for dual-class listings, at least for a limited period of time. We believe that such companies should review these dual-class structures on a regular basis or as company circumstances change. Additionally, they should receive shareholder approval of their capital structure on a periodic basis via a management proposal in the company’s proxy. The proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.

In assessing mergers, asset sales or other special transactions, BlackRock’s primary consideration is the long-term economic interests of shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it enhances long-term shareholder value. We would prefer that proposed transactions have the unanimous support of the board and have been negotiated at arm’s length. We may seek reassurance from the board that executives’ and/or board members’ financial interests in a given transaction have not adversely affected their ability to place shareholders’ interests before their own. Where the transaction involves related parties, we would expect the recommendation to support it to come from the independent directors and it is good practice to be approved by a separate vote of the non-conflicted shareholders.

BlackRock believes that shareholders have a right to dispose of company shares in the open market without unnecessary restriction. In our view, corporate mechanisms designed to limit shareholders’ ability to sell their shares are contrary to

 

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basic property rights. Such mechanisms can serve to protect and entrench interests other than those of the shareholders. We believe that shareholders are broadly capable of making decisions in their own best interests. We expect any so-called ‘shareholder rights plans’ proposed by a board to be subject to shareholder approval upon introduction and periodically thereafter for continuation.

Compensation and benefits

BlackRock expects a company’s board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately and is aligned with shareholder interests, particularly generating sustainable long-term shareholder returns. We would expect the compensation committee to take into account the specific circumstances of the company and the key individuals the board is trying to incentivize. We encourage companies to ensure that their compensation plans incorporate appropriate and challenging performance conditions consistent with corporate strategy and market practice. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee or equivalent board members accountable for poor compensation practices or structures.

BlackRock believes that there should be a clear link between variable pay and company performance that drives shareholder returns. We are not supportive of one-off or special bonuses unrelated to company or individual performance. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when increases in total compensation at a company are justified solely on peer benchmarking rather than outperformance. We support incentive plans that foster the sustainable achievement of results relative to competitors. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. We believe consideration should be given to building claw back provisions into incentive plans such that executives would be required to forgo rewards when they are not justified by actual performance. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.

Non-executive directors should be compensated in a manner that is commensurate with the time and effort expended in fulfilling their professional responsibilities. Additionally, these compensation arrangements should not risk compromising their independence or aligning their interests too closely with those of the management, whom they are charged with overseeing.

Environmental and social issues

Our fiduciary duty to clients is to protect and enhance their economic interest in the companies in which we invest on their behalf. It is within this context that we undertake our corporate governance activities. We believe that well-managed companies will deal effectively with the material environmental and social (“E&S”) factors relevant to their businesses. Robust disclosure is essential for investors to effectively gauge companies’ business practices and planning related to E&S risks and opportunities.

BlackRock expects companies to issue reports aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards put forward by the Sustainability Accounting Standards Board (SASB). We view the SASB and TCFD frameworks as complementary in achieving the goal of disclosing more financially material information, particularly as it relates to industry-specific metrics and target setting. TCFD’s recommendations provide an overarching framework for disclosure on the business implications of climate change, and potentially other E&S factors. We find SASB’s industry-specific guidance (as identified in its materiality map) beneficial in helping companies identify and discuss their governance, risk assessments, and performance against these key performance indicators (KPIs). Any global standards adopted, peer group benchmarking undertaken, and verification processes in place should also be disclosed and discussed in this context.

BlackRock has been engaging with companies for several years on disclosure of material E&S factors. Given the increased understanding of sustainability risks and opportunities, and the need for better information to assess them, we specifically ask companies to:

 

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  1)

publish a disclosure in line with industry-specific SASB guidelines by year-end, if they have not already done so, or disclose a similar set of data in a way that is relevant to their particular business; and

 

  2)

disclose climate-related risks in line with the TCFD’s recommendations, if they have not already done so. This should include the company’s plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, as expressed by the TCFD guidelines.

See our commentary on our approach to engagement on TCFD and SASB aligned reporting for greater detail of our expectations.

We will use these disclosures and our engagements to ascertain whether companies are properly managing and overseeing these risks within their business and adequately planning for the future. In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.

We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. We will generally engage directly with the board or management of a company when we identify issues. We may vote against the election of directors where we have concerns that a company might not be dealing with E&S factors appropriately. Sometimes we may reflect such concerns by supporting a shareholder proposal on the issue, where there seems to be either a significant potential threat or realized harm to shareholders’ interests caused by poor management of material E&S factors.

In deciding our course of action, we will assess the company’s disclosures and the nature of our engagement with the company on the issue over time, including whether:

 

 

The company has already taken sufficient steps to address the concern

 

 

The company is in the process of actively implementing a response

 

 

There is a clear and material economic disadvantage to the company in the near-term if the issue is not addressed in the manner requested by the shareholder proposal

We do not see it as our role to make social or political judgments on behalf of clients. Our consideration of these E&S factors is consistent with protecting the long-term economic interest of our clients’ assets. We expect investee companies to comply, at a minimum, with the laws and regulations of the jurisdictions in which they operate. They should explain how they manage situations where local laws or regulations that significantly impact the company’s operations are contradictory or ambiguous to global norms.

Climate risk

Within the framework laid out above, as well as our guidance on “How BlackRock Investment Stewardship engages on climate risk,” we believe that climate presents significant investment risks and opportunities that may impact the long-term financial sustainability of companies. We believe that the reporting frameworks developed by TCFD and SASB provide useful guidance to companies on identifying, managing, and reporting on climate-related risks and opportunities.

We expect companies to help their investors understand how the company may be impacted by climate risk, in the context of its ability to realize a long-term strategy and generate value over time. We expect companies to convey their governance around this issue through their corporate disclosures aligned with TCFD and SASB. For companies in sectors that are significantly exposed to climate-related risk, we expect the whole board to have demonstrable fluency in how climate risk affects the business and how management approaches assessing, adapting to, and mitigating that risk.

Where a company receives a shareholder proposal related to climate risk, in addition to the factors laid out above, our assessment will take into account the robustness of the company’s existing disclosures as well as our understanding of its management of the issues as revealed through our engagements with the company and board members over time. In certain instances, we may disagree with the details of a climate-related shareholder proposal but agree that the company in question has not made sufficient progress on climate-related disclosures. In these instances, we may not support the proposal, but may vote against the election of relevant directors.

 

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General corporate governance matters and shareholder protections

BlackRock believes that shareholders have a right to timely and detailed information on the financial performance and viability of the companies in which they invest. In addition, companies should also publish information on the governance structures in place and the rights of shareholders to influence these. The reporting and disclosure provided by companies help shareholders assess whether their economic interests have been protected and the quality of the board’s oversight of management. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms, to submit proposals to the shareholders’ meeting and to call special meetings of shareholders.

BlackRock’s oversight of its investment

stewardship activities

Oversight

We hold ourselves to a very high standard in our investment stewardship activities, including proxy voting. This function is executed by a team called BlackRock Investment Stewardship (“BIS”) which is comprised of BlackRock employees who do not have other responsibilities other than their roles in BIS. BIS is considered an investment function. The team does not have sales responsibilities.

BlackRock maintains three regional advisory committees (“Stewardship Advisory Committees”) for (a) the Americas; (b) Europe, the Middle East and Africa (“EMEA”); and (c) Asia-Pacific, generally consisting of senior BlackRock investment professionals and/or senior employees with practical boardroom experience. The regional Stewardship Advisory Committees review and advise on amendments to the proxy voting guidelines covering markets within each respective region (“Guidelines”).

In addition to the regional Stewardship Advisory Committees, the Investment Stewardship Global Oversight Committee (“Global Committee”) is a risk-focused committee, comprised of senior representatives from various BlackRock investment teams, BlackRock’s Deputy General Counsel, the Global Head of Investment Stewardship (“Global Head”), and other senior executives with relevant experience and team oversight.

The Global Head has primary oversight of the activities of BIS, including voting in accordance with the Guidelines, which require the application of professional judgment and consideration of each company’s unique circumstances. The Global Committee reviews and approves amendments to these Global Corporate Governance & Engagement Principles. The Global Committee also reviews and approves amendments to the regional Guidelines, as proposed by the regional Stewardship Advisory Committees.

In addition, the Global Committee receives and reviews periodic reports regarding the votes cast by BIS, as well as regular updates on material process issues, procedural changes and other risk oversight considerations. The Global Committee reviews these reports in an oversight capacity as informed by the BIS corporate governance engagement program and Guidelines.

BIS carries out engagement with companies, monitors and executes proxy votes, and conducts vote operations (including maintaining records of votes cast) in a manner consistent with the relevant Guidelines. BIS also conducts research on corporate governance issues and participates in industry discussions to keep abreast of important developments in the corporate governance field. BIS may utilize third parties for certain of the foregoing activities and performs oversight of those third parties. BIS may raise complicated or particularly controversial matters for internal discussion with the relevant investment teams and/or refer such matters to the appropriate regional Stewardship Advisory Committees for review, discussion and guidance prior to making a voting decision.

 

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Vote execution

We carefully consider proxies submitted to funds and other fiduciary account(s) (“Fund” or “Funds”) for which we have voting authority. BlackRock votes (or refrains from voting) proxies for each Fund for which we have voting authority based on our evaluation of the best long-term economic interests of shareholders, in the exercise of our independent business judgment, and without regard to the relationship of the issuer of the proxy (or any shareholder proponent or dissident shareholder) to the Fund, the Fund’s affiliates (if any), BlackRock or BlackRock’s affiliates, or BlackRock employees (see “Conflicts management policies and procedures”, below).

When exercising voting rights, BlackRock will normally vote on specific proxy issues in accordance with the Guidelines for the relevant market. The Guidelines are reviewed regularly and are amended consistent with changes in the local market practice, as developments in corporate governance occur, or as otherwise deemed advisable by BlackRock’s Stewardship Advisory Committees. BIS may, in the exercise of their professional judgment, conclude that the Guidelines do not cover the specific matter upon which a proxy vote is required or that an exception to the Guidelines would be in the best long-term economic interests of BlackRock’s clients.

In the uncommon circumstance of there being a vote with respect to fixed income securities or the securities of privately held issuers, the decision generally will be made by a Fund’s portfolio managers and/or BIS based on their assessment of the particular transactions or other matters at issue.

In certain markets, proxy voting involves logistical issues which can affect BlackRock’s ability to vote such proxies, as well as the desirability of voting such proxies. These issues include but are not limited to: (i) untimely notice of shareholder meetings; (ii) restrictions on a foreigner’s ability to exercise votes; (iii) requirements to vote proxies in person; (iv) “share-blocking” (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); (v) potential difficulties in translating the proxy; (vi) regulatory constraints; and (vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as shareblocking or overly burdensome administrative requirements.

As a consequence, BlackRock votes proxies on a “best-efforts” basis. In addition, BIS may determine that it is generally in the best interests of BlackRock’s clients not to vote proxies if the costs (including but not limited to opportunity costs associated with shareblocking constraints) associated with exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal.

Portfolio managers have full discretion to vote the shares in the Funds they manage based on their analysis of the economic impact of a particular ballot item. Portfolio managers may from time to time reach differing views on how best to maximize economic value with respect to a particular investment. Therefore, portfolio managers may, and sometimes do, vote shares in the Funds under their management differently from one another. However, because BlackRock’s clients are mostly long-term investors with long-term economic goals, ballots are frequently cast in a uniform manner.

Conflicts management policies and procedures

BIS maintains the following policies and procedures that seek to prevent undue influence on BlackRock’s proxy voting activity. Such influence might stem from any relationship between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRock’s affiliates, a Fund or a Fund’s affiliates, or BlackRock employees. The following are examples of sources of perceived or potential conflicts of interest:

 

 

BlackRock clients who may be issuers of securities or proponents of shareholder resolutions

 

 

BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder resolutions

 

 

BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock

 

 

Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock

 

 

Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock

 

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BlackRock, Inc. board members who serve as senior executives of public companies held in Funds managed by BlackRock

BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to, the following:

 

 

Adopted the Guidelines which are designed to protect and enhance the economic value of the companies in which BlackRock invests on behalf of clients.

 

 

Established a reporting structure that separates BIS from employees with sales, vendor management or business partnership roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRock’s relationship with such parties. Clients or business partners are not given special treatment or differentiated access to BIS. BIS prioritizes engagements based on factors including but not limited to our need for additional information to make a voting decision or our view on the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BIS may engage directly with BlackRock clients, business partners and/or third parties, and/or with employees with sales, vendor management or business partnership roles, in discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to otherwise ensure that proxy-related client service levels are met.

 

 

Determined to engage, in certain instances, an independent fiduciary to vote proxies as a further safeguard to avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent fiduciary provides BlackRock’s proxy voting agent with instructions, in accordance with the Guidelines, as to how to vote such proxies, and BlackRock’s proxy voting agent votes the proxy in accordance with the independent fiduciary’s determination. BlackRock uses an independent fiduciary to vote proxies of (i) any company that is affiliated with BlackRock, Inc., (ii) any public company that includes BlackRock employees on its board of directors, (iii) The PNC Financial Services Group, Inc., (iv) any public company of which a BlackRock, Inc. board member serves as a senior executive, and (v) companies when legal or regulatory requirements compel BlackRock to use an independent fiduciary. In selecting an independent fiduciary, we assess several characteristics, including but not limited to: independence, an ability to analyze proxy issues and vote in the best economic interest of our clients, reputation for reliability and integrity, and operational capacity to accurately deliver the assigned votes in a timely manner. We may engage more than one independent fiduciary, in part in order to mitigate potential or perceived conflicts of interest at an independent fiduciary. The Global Committee appoints and reviews the performance of the independent fiduciar(ies), generally on an annual basis.

When so authorized, BlackRock acts as a securities lending agent on behalf of Funds. With regard to the relationship between securities lending and proxy voting, BlackRock’s approach is driven by our clients’ economic interests. The decision whether to recall securities on loan to vote is based on a formal analysis of the revenue producing value to clients of loans, against the assessed economic value of casting votes. Generally, we expect that the likely economic value to clients of casting votes would be less than the securities lending income, either because, in our assessment, the resolutions being voted on will not have significant economic consequences or because the outcome would not be affected by BlackRock recalling loaned securities in order to vote. BlackRock also may, in our discretion, determine that the value of voting outweighs the cost of recalling shares, and thus recall shares to vote in that instance.

Periodically, BlackRock reviews our process for determining whether to recall securities on loan in order to vote and may modify it as necessary.

Voting guidelines

The issue-specific Guidelines published for each region/country in which we vote are intended to summarize BlackRock’s general philosophy and approach to issues that may commonly arise in the proxy voting context in each market where we invest. These Guidelines are not intended to be exhaustive. BIS applies the Guidelines on a case-by-case basis, in the context of the individual circumstances of each company and the specific issue under review. As such, these Guidelines do not indicate how BIS will vote in every instance. Rather, they share our view about corporate governance issues generally, and provide insight into how we typically approach issues that commonly arise on corporate ballots.

 

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Reporting and vote transparency

We inform clients about our engagement and voting policies and activities through direct communication and through disclosure on our website. Each year we publish an annual report, an annual engagement and voting statistics report, and our full voting record to our website. On a quarterly basis, we publish regional reports which provide an overview of our investment stewardship engagement and voting activities during the quarter, including market developments, speaking engagements, and engagement and voting statistics. Additionally, we make public our market-specific voting guidelines for the benefit of clients and companies with whom we engage.

 

 

 

This document is provided for information purposes only and must not be relied upon as a forecast, research, or investment advice. BlackRock is not making any recommendation or soliciting any action based upon the information contained herein and nothing in this document should be construed as constituting an offer to sell, or a solicitation of any offer to buy, securities in any jurisdiction to any person. This information provided herein does not constitute financial, tax, legal or accounting advice, you should consult your own advisers on such matters.

The information and opinions contained in this document are as of January 2020 unless it is stated otherwise and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Although such information is believed to be reliable for the purposes used herein, BlackRock does not assume any responsibility for the accuracy or completeness of such information. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein represents or is based upon forward-looking statements or information. BlackRock and its affiliates believe that such statements and information are based upon reasonable estimates and assumptions. However, forward-looking statements are inherently uncertain, and factors may cause events or results to differ from those projected. Therefore, undue reliance should not be placed on such forward-looking statements and information.

Prepared by BlackRock, Inc.

©2020 BlackRock, Inc. All rights reserved.

 

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BlackRock

Investment

Stewardship

Corporate governance and proxy voting

guidelines for U.S. securities

January 2020

 

 

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Contents   

Introduction

     3  

Voting guidelines

     3  

Boards and directors

     3  

Auditors and audit-related issues

     8  

Capital structure proposals

     9  

Mergers, asset sales, and other special transactions

     10  

Executive Compensation

     10  

Environmental and social issues

     13  

General corporate governance matters

     14  

Shareholder Protections

     16  

If you would like additional information, please contact:

ContactStewardship@blackrock.com

 

 

 

BLACKROCK


These guidelines should be read in conjunction with the BlackRock Investment Stewardship Global Corporate Governance Guidelines & Engagement Principles.

Introduction

BlackRock, Inc. and its subsidiaries (collectively, “BlackRock”) seek to make proxy voting decisions in the manner most likely to protect and enhance the economic value of the securities held in client accounts. The following issue-specific proxy voting guidelines (the “Guidelines”) are intended to summarize BlackRock Investment Stewardship’s general philosophy and approach to corporate governance issues that most commonly arise in proxy voting for U.S. securities. These Guidelines are not intended to limit the analysis of individual issues at specific companies and are not intended to provide a guide to how BlackRock will vote in every instance. Rather, they share our view about corporate governance issues generally, and provide insight into how we typically approach issues that commonly arise on corporate ballots, as well as our expectations of boards of directors. They are applied with discretion, taking into consideration the range of issues and facts specific to the company and the individual ballot item.

Voting guidelines

These guidelines are divided into eight key themes which group together the issues that frequently appear on the agenda of annual and extraordinary meetings of shareholders:

 

 

Boards and directors

 

 

Auditors and audit-related issues

 

 

Capital structure

 

 

Mergers, asset sales, and other special transactions

 

 

Executive compensation

 

 

Environmental and social issues

 

 

General corporate governance matters

 

 

Shareholder protections

Boards and directors

Director elections

In general, BlackRock supports the election of directors as recommended by the board in uncontested elections. However, we believe that when a company is not effectively addressing a material issue, its directors should be held accountable. We may withhold votes from directors or members of particular board committees in certain situations, as indicated below.

Independence

We expect a majority of the directors on the board to be independent. In addition, all members of key committees, including audit, compensation, and nominating / governance committees, should be independent. Our view of independence may vary slightly from listing standards.

In particular, common impediments to independence in the U.S. may include:

 

 

Employment as a senior executive by the company or a subsidiary within the past five years

 

 

An equity ownership in the company in excess of 20%

 

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Having any other interest, business, or relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company

We may vote against directors serving on key committees that we do not consider to be independent.

When evaluating controlled companies, as defined by the U.S. stock exchanges, we will only vote against insiders or affiliates who sit on the audit committee, but not other key committees.

Oversight

We expect the board to exercise appropriate oversight over management and business activities of the company. We will consider voting against committee members and / or individual directors in the following circumstances:

 

 

Where the board has failed to exercise oversight with regard to accounting practices or audit oversight, we will consider voting against the current audit committee, and any other members of the board who may be responsible. For example, this may apply to members of the audit committee during a period when the board failed to facilitate quality, independent auditing if substantial accounting irregularities suggest insufficient oversight by that committee

 

 

Members of the compensation committee during a period in which executive compensation appears excessive relative to performance and peers, and where we believe the compensation committee has not already substantially addressed this issue

 

 

The chair of the nominating / governance committee, or where no chair exists, the nominating / governance committee member with the longest tenure, where the board is not comprised of a majority of independent directors. However, this would not apply in the case of a controlled company

 

 

Where it appears the director has acted (at the company or at other companies) in a manner that compromises his / her reliability to represent the best long-term economic interests of shareholders

 

 

Where a director has a pattern of poor attendance at combined board and applicable key committee meetings. Excluding exigent circumstances, BlackRock generally considers attendance at less than 75% of the combined board and applicable key committee meetings by a board member to be poor attendance

 

 

Where a director serves on an excess number of boards, which may limit his / her capacity to focus on each board’s requirements. The following illustrates the maximum number of boards on which a director may serve, before he / she is considered to be over-committed:

 

     
    

 

Public Company CEO  

 

  

 

  # Outside Public Boards*  

 

  

 

  Total # of Public Boards  

 

       

Director A

 

  

    

 

  

1

 

  

2

 

       

Director B

 

       

3

 

  

4

 

  *In addition to the company under review   

Responsiveness to shareholders

We expect a board to be engaged and responsive to its shareholders. Where we believe a board has not substantially addressed shareholder concerns, we may vote against the appropriate committees and / or individual directors. The following illustrates common circumstances:

 

 

The independent chair or lead independent director, members of the nominating / governance committee, and / or the longest tenured director(s), where we observe a lack of board responsiveness to shareholders, evidence of board entrenchment, and / or failure to promote adequate board succession planning

 

 

The chair of the nominating / governance committee, or where no chair exists, the nominating / governance committee member with the longest tenure, where board member(s) at the most recent election of directors have

 

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received withhold votes from more than 30% of shares voted and the board has not taken appropriate action to respond to shareholder concerns. This may not apply in cases where BlackRock did not support the initial withhold vote

 

 

The independent chair or lead independent director and / or members of the nominating / governance committee, where a board fails to implement shareholder proposals that receive a majority of votes cast at a prior shareholder meeting, and the proposals, in our view, have a direct and substantial impact on shareholders’ fundamental rights or long-term economic interests

Shareholder rights

We expect a board to act with integrity and to uphold governance best practices. Where we believe a board has not acted in the best interests of its shareholders, we may vote against the appropriate committees and / or individual directors. The following illustrates common circumstances:

 

 

The independent chair or lead independent director and members of the governance committee, where a board implements or renews a poison pill without shareholder approval

 

 

The independent chair or lead independent director and members of the governance committee, where a board amends the charter / articles / bylaws such that the effect may be to entrench directors or to significantly reduce shareholder rights

 

 

Members of the compensation committee where the company has repriced options without shareholder approval

 

 

If a board maintains a classified structure, it is possible that the director(s) with whom we have a particular concern may not be subject to election in the year that the concern arises. In such situations, if we have a concern regarding a committee or committee chair that is not up for re-election, we will generally register our concern by withholding votes from all available members of the relevant committee

Board composition and effectiveness

We encourage boards to periodically renew their membership to ensure relevant skills and experience within the boardroom. To this end, regular performance reviews and skills assessments should be conducted by the nominating / governance committee.

Furthermore, we expect boards to be comprised of a diverse selection of individuals who bring their personal and professional experiences to bear in order to create a constructive debate of competing views and opinions in the boardroom. We recognize that diversity has multiple dimensions. In identifying potential candidates, boards should take into consideration the full breadth of diversity including personal factors, such as gender, ethnicity, and age; as well as professional characteristics, such as a director’s industry, area of expertise, and geographic location. In addition to other elements of diversity, we encourage companies to have at least two women directors on their board. Our publicly available commentary explains our approach to engaging on board diversity.

We encourage boards to disclose their views on:

 

 

The mix of competencies, experience, and other qualities required to effectively oversee and guide management in light of the stated long-term strategy of the company

 

 

The process by which candidates are identified and selected, including whether professional firms or other sources outside of incumbent directors’ networks have been engaged to identify and / or assess candidates

 

 

The process by which boards evaluate themselves and any significant outcomes of the evaluation process, without divulging inappropriate and / or sensitive details

 

 

The consideration given to board diversity, including, but not limited to, gender, ethnicity, race, age, experience, geographic location, skills, and perspective in the nomination process

 

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While we support regular board refreshment, we are not opposed in principle to long-tenured directors, nor do we believe that long board tenure is necessarily an impediment to director independence. A variety of director tenures within the boardroom can be beneficial to ensure board quality and continuity of experience.

Our primary concern is that board members are able to contribute effectively as corporate strategy evolves and business conditions change, and that all directors, regardless of tenure, demonstrate appropriate responsiveness to shareholders. We acknowledge that no single person can be expected to bring all relevant skill sets to a board; at the same time, we generally do not believe it is necessary or appropriate to have any particular director on the board solely by virtue of a singular background or specific area of expertise.

Where boards find that age limits or term limits are the most efficient and objective mechanism for ensuring periodic board refreshment, we generally defer to the board’s determination in setting such limits.

To the extent that we believe that a company has not adequately accounted for diversity in its board composition within a reasonable timeframe, we may vote against the nominating / governance committee for an apparent lack of commitment to board effectiveness.

Board size

We typically defer to the board in setting the appropriate size and believe directors are generally in the best position to assess the optimal board size to ensure effectiveness. However, we may oppose boards that appear too small to allow for effective shareholder representation or too large to function efficiently.

CEO and management succession planning

There should be a robust CEO and senior management succession plan in place at the board level that is reviewed and updated on a regular basis. We expect succession planning to cover both long-term planning consistent with the strategic direction of the company and identified leadership needs over time, as well as short-term planning in the event of an unanticipated executive departure. We encourage the company to explain its executive succession planning process, including where accountability lies within the boardroom for this task, without prematurely divulging sensitive information commonly associated with this exercise.

Classified board of directors / staggered terms

We believe that directors should be re-elected annually and that classification of the board generally limits shareholders’ rights to regularly evaluate a board’s performance and select directors. While we will typically support proposals requesting board de-classification, we may make exceptions, should the board articulate an appropriate strategic rationale for a classified board structure, such as when a company needs consistency and stability during a time of transition, e.g. newly public companies or companies undergoing a strategic restructuring. A classified board structure may also be justified at non-operating companies, e.g. closed-end funds or business development companies (BDC)1, in certain circumstances. We would, however, expect boards with a classified structure to periodically review the rationale for such structure and consider when annual elections might be appropriate.

Without a voting mechanism to immediately address concerns of a specific director, we may choose to vote against or withhold votes from the available slate of directors by default (see “Shareholder rights” for additional detail).

Contested director elections

The details of contested elections, or proxy contests, are assessed on a case-by-case basis. We evaluate a number of factors, which may include: the qualifications of the dissident and management candidates; the validity of the concerns identified by the dissident; the viability of both the dissident’s and management’s plans; the likelihood that the dissident’s

 

 

1A business development company (BDC) is a special investment vehicle under the Investment Company Act of 1940 that is designed to facilitate capital formation for small and middle-market companies.

 

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solutions will produce the desired change; and whether the dissident represents the best option for enhancing long-term shareholder value.

Cumulative voting

We believe that a majority vote standard is in the best long-term interest of shareholders. It ensures director accountability via the requirement to be elected by more than half of the votes cast. As such, we will generally oppose proposals requesting the adoption of cumulative voting, which may disproportionately aggregate votes on certain issues or director candidates.

Director compensation and equity programs

We believe that compensation for directors should be structured to attract and retain the best possible directors, while also aligning their interests with those of shareholders. We believe director compensation packages that are based on the company’s long-term value creation and include some form of long-term equity compensation are more likely to meet this goal. In addition, we expect directors to build meaningful share ownership over time.

Majority vote requirements

BlackRock believes that directors should generally be elected by a majority of the shares voted and will normally support proposals seeking to introduce bylaws requiring a majority vote standard for director elections. Majority voting standards assist in ensuring that directors who are not broadly supported by shareholders are not elected to serve as their representatives. Some companies with a plurality voting standard have adopted a resignation policy for directors who do not receive support from at least a majority of votes cast. Where we believe that the company already has a sufficiently robust majority voting process in place, we may not support a shareholder proposal seeking an alternative mechanism.

Risk oversight

Companies should have an established process for identifying, monitoring, and managing key risks. Independent directors should have ready access to relevant management information and outside advice, as appropriate, to ensure they can properly oversee risk management. We encourage companies to provide transparency around risk measurement, mitigation, and reporting to the board. We are particularly interested in understanding how risk oversight processes evolve in response to changes in corporate strategy and / or shifts in the business and related risk environment. Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.

Separation of chairman and CEO

We believe that independent leadership is important in the boardroom. In the U.S. there are two commonly accepted structures for independent board leadership: 1) an independent chairman; or 2) a lead independent director when the roles of chairman and CEO are combined.

In the absence of a significant governance concern, we defer to boards to designate the most appropriate leadership structure to ensure adequate balance and independence.

In the event that the board chooses a combined chair / CEO model, we generally support the designation of a lead independent director if they have the power to: 1) provide formal input into board meeting agendas; 2) call meetings of the independent directors; and 3) preside at meetings of independent directors. Furthermore, while we anticipate that most directors will be elected annually, we believe an element of continuity is important for this role for an extended period of time to provide appropriate leadership balance to the chair / CEO.

 

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The following table illustrates examples of responsibilities under each board leadership model:

 

   
   Combined Chair / CEO Model    Separate Chair Model
     
                           Chair  /CEO                            Lead Director    Chair
       
Board Meetings   

Authority to call full meetings

of the board of directors

  

Attends full meetings of the board of directors

 

Authority to call meetings of independent directors

 

Briefs CEO on issues arising from executive sessions

 

   Authority to call full meetings of the board of directors
       
Agenda   

Primary responsibility for shaping board agendas, consulting with the lead director  

 

   Collaborates with chair / CEO to set board agenda and board information    Primary responsibility for shaping board agendas, in conjunction with CEO
       

Board

Communications

   Communicates with all directors on key issues and concerns outside of full board meetings   

Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession planning

 

  

Facilitates discussion among independent directors on key issues and concerns outside of full board meetings, including contributing to the oversight of CEO and management succession planning

 

Auditors and audit-related issues

BlackRock recognizes the critical importance of financial statements to provide a complete and accurate portrayal of a company’s financial condition. Consistent with our approach to voting on boards of directors, we seek to hold the audit committee of the board responsible for overseeing the management of the audit function at a company, and may withhold votes from the audit committee members where the board has failed to facilitate quality, independent auditing. We look to the audit committee report for insight into the scope of the audit committee responsibilities, including an overview of audit committee processes, issues on the audit committee agenda, and key decisions taken by the audit committee. We take particular note of cases involving significant financial restatements or material weakness disclosures, and we expect timely disclosure and remediation of accounting irregularities.

The integrity of financial statements depends on the auditor effectively fulfilling its role. To that end, we favor an independent auditor. In addition, to the extent that an auditor fails to reasonably identify and address issues that eventually lead to a significant financial restatement, or the audit firm has violated standards of practice that protect the interests of shareholders, we may also vote against ratification.

From time to time, shareholder proposals may be presented to promote auditor independence or the rotation of audit firms. We may support these proposals when they are consistent with our views as described above.

 

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Capital structure proposals

Equal voting rights

BlackRock believes that shareholders should be entitled to voting rights in proportion to their economic interests. We believe that companies that look to add or already have dual or multiple class share structures should review these structures on a regular basis or as company circumstances change. Companies should receive shareholder approval of their capital structure on a periodic basis via a management proposal on the company’s proxy. The proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.

Blank check preferred stock

We frequently oppose proposals requesting authorization of a class of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (“blank check” preferred stock) because they may serve as a transfer of authority from shareholders to the board and as a possible entrenchment device. We generally view the board’s discretion to establish voting rights on a when-issued basis as a potential anti-takeover device, as it affords the board the ability to place a block of stock with an investor sympathetic to management, thereby foiling a takeover bid without a shareholder vote.

Nonetheless, we may support the proposal where the company:

 

 

Appears to have a legitimate financing motive for requesting blank check authority

 

 

Has committed publicly that blank check preferred shares will not be used for anti-takeover purposes

 

 

Has a history of using blank check preferred stock for financings

 

 

Has blank check preferred stock previously outstanding such that an increase would not necessarily provide further anti-takeover protection but may provide greater financing flexibility

Increase in authorized common shares

BlackRock considers industry-specific norms in our analysis of these proposals, as well as a company’s history with respect to the use of its common shares. Generally, we are predisposed to support a company if the board believes additional common shares are necessary to carry out the firm’s business. The most substantial concern we might have with an increase is the possibility of use of common shares to fund a poison pill plan that is not in the economic interests of shareholders.

Increase or issuance of preferred stock

We generally support proposals to increase or issue preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock where the terms of the preferred stock appear reasonable.

Stock splits

We generally support stock splits that are not likely to negatively affect the ability to trade shares or the economic value of a share. We generally support reverse stock splits that are designed to avoid delisting or to facilitate trading in the stock, where the reverse split will not have a negative impact on share value (e.g. one class is reduced while others remain at pre-split levels). In the event of a proposal for a reverse split that would not also proportionately reduce the company’s authorized stock, we apply the same analysis we would use for a proposal to increase authorized stock.

 

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Mergers, asset sales, and other special transactions

BlackRock’s primary concern is the best long-term economic interests of shareholders. While merger, asset sales, and other special transaction proposals vary widely in scope and substance, we closely examine certain salient features in our analyses, such as:

 

 

The degree to which the proposed transaction represents a premium to the company’s trading price. We consider the share price over multiple time periods prior to the date of the merger announcement. In most cases, business combinations should provide a premium. We may consider comparable transaction analyses provided by the parties’ financial advisors and our own valuation assessments. For companies facing insolvency or bankruptcy, a premium may not apply

 

 

There should be clear strategic, operational, and / or financial rationale for the combination

 

 

Unanimous board approval and arm’s-length negotiations are preferred. We will consider whether the transaction involves a dissenting board or does not appear to be the result of an arm’s-length bidding process. We may also consider whether executive and / or board members’ financial interests in a given transaction appear likely to affect their ability to place shareholders’ interests before their own

 

 

We prefer transaction proposals that include the fairness opinion of a reputable financial advisor assessing the value of the transaction to shareholders in comparison to recent similar transactions

Poison pill plans

Where a poison pill is put to a shareholder vote by management, our policy is to examine these plans individually. Although we oppose most plans, we may support plans that include a reasonable “qualifying offer clause.” Such clauses typically require shareholder ratification of the pill and stipulate a sunset provision whereby the pill expires unless it is renewed. These clauses also tend to specify that an all cash bid for all shares that includes a fairness opinion and evidence of financing does not trigger the pill, but forces either a special meeting at which the offer is put to a shareholder vote, or the board to seek the written consent of shareholders where shareholders could rescind the pill at their discretion. We may also support a pill where it is the only effective method for protecting tax or other economic benefits that may be associated with limiting the ownership changes of individual shareholders.

We generally vote in favor of shareholder proposals to rescind poison pills.

Reimbursement of expenses for successful shareholder campaigns

We generally do not support shareholder proposals seeking the reimbursement of proxy contest expenses, even in situations where we support the shareholder campaign. We believe that introducing the possibility of such reimbursement may incentivize disruptive and unnecessary shareholder campaigns.

Executive Compensation

We note that there are both management and shareholder proposals related to executive compensation. We generally vote on these proposals as described below, except that we typically oppose shareholder proposals on issues where the company already has a reasonable policy in place that we believe is sufficient to address the issue. We may also oppose a shareholder proposal regarding executive compensation if the company’s history suggests that the issue raised is not likely to present a problem for that company.

Advisory resolutions on executive compensation (“Say on Pay”)

In cases where there is a Say on Pay vote, BlackRock will respond to the proposal as informed by our evaluation of compensation practices at that particular company and in a manner that appropriately addresses the specific question

 

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posed to shareholders. In a commentary on our website, entitled “BlackRock Investment Stewardship’s approach to executive compensation,” we explain our beliefs and expectations related to executive compensation practices, our Say on Pay analysis framework, and our typical approach to engagement and voting on Say on Pay.

Advisory votes on the frequency of Say on Pay resolutions

BlackRock will generally support triennial pay frequency votes, but we defer to the board to determine the appropriate timeframe upon which pay should be reviewed. In evaluating pay, we believe that the compensation committee is responsible for constructing a plan that appropriately incentivizes executives for long-term value creation, utilizing relevant metrics and structure to ensure overall pay and performance alignment. In a similar vein, we defer to the board to establish the most appropriate timeframe for review of pay structure, absent a change in strategy that would suggest otherwise.

However, we may support an annual pay frequency vote in some situations, for example, where we conclude that a company has failed to align pay with performance. In these circumstances, we will also consider voting against the compensation committee members.

Claw back proposals

We generally favor recoupment from any senior executive whose compensation was based on faulty financial reporting or deceptive business practices. In addition to fraudulent acts, we also favor recoupment from any senior executive whose behavior caused direct financial harm to shareholders, reputational risk to the company, or resulted in a criminal investigation, even if such actions did not ultimately result in a material restatement of past results. This includes, but is not limited to, settlement agreements arising from such behavior and paid for directly by the company. We typically support shareholder proposals on these matters unless the company already has a robust claw back policy that sufficiently addresses our concerns.

Employee stock purchase plans

We believe these plans can provide performance incentives and help align employees’ interests with those of shareholders. The most common form of employee stock purchase plan (“ESPP”) qualifies for favorable tax treatment under Section 423 of the Internal Revenue Code. We will typically support qualified ESPP proposals.

Equity compensation plans

BlackRock supports equity plans that align the economic interests of directors, managers, and other employees with those of shareholders. We believe that boards should establish policies prohibiting the use of equity awards in a manner that could disrupt the intended alignment with shareholder interests (e.g. the use of stock as collateral for a loan; the use of stock in a margin account; the use of stock [or an unvested award] in hedging or derivative transactions). We may support shareholder proposals requesting the establishment of such policies.

Our evaluation of equity compensation plans is based on a company’s executive pay and performance relative to peers and whether the plan plays a significant role in a pay-for-performance disconnect. We generally oppose plans that contain “evergreen” provisions, which allow for the unlimited increase of shares reserved without requiring further shareholder approval after a reasonable time period. We also generally oppose plans that allow for repricing without shareholder approval. We may also oppose plans that provide for the acceleration of vesting of equity awards even in situations where an actual change of control may not occur. We encourage companies to structure their change of control provisions to require the termination of the covered employee before acceleration or special payments are triggered.

Golden parachutes

We generally view golden parachutes as encouragement to management to consider transactions that might be beneficial to shareholders. However, a large potential pay-out under a golden parachute arrangement also presents the risk of motivating a management team to support a sub-optimal sale price for a company.

 

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When determining whether to support or oppose an advisory vote on a golden parachute plan, we normally support the plan unless it appears to result in payments that are excessive or detrimental to shareholders. In evaluating golden parachute plans, BlackRock may consider several factors, including:

 

 

Whether we believe that the triggering event is in the best interest of shareholders

 

 

Whether management attempted to maximize shareholder value in the triggering event

 

 

The percentage of total premium or transaction value that will be transferred to the management team, rather than shareholders, as a result of the golden parachute payment

 

 

Whether excessively large excise tax gross-up payments are part of the pay-out

 

 

Whether the pay package that serves as the basis for calculating the golden parachute payment was reasonable in light of performance and peers

 

 

Whether the golden parachute payment will have the effect of rewarding a management team that has failed to effectively manage the company

It may be difficult to anticipate the results of a plan until after it has been triggered; as a result, BlackRock may vote against a golden parachute proposal even if the golden parachute plan under review was approved by shareholders when it was implemented.

We may support shareholder proposals requesting that implementation of such arrangements require shareholder approval. We generally support proposals requiring shareholder approval of plans that exceed 2.99 times an executive’s current salary and bonus, including equity compensation.

Option exchanges

We believe that there may be legitimate instances where underwater options create an overhang on a company’s capital structure and a repricing or option exchange may be warranted. We will evaluate these instances on a case-by-case basis. BlackRock may support a request to reprice or exchange underwater options under the following circumstances:

 

 

The company has experienced significant stock price decline as a result of macroeconomic trends, not individual company performance

 

 

Directors and executive officers are excluded; the exchange is value neutral or value creative to shareholders; tax, accounting, and other technical considerations have been fully contemplated

 

 

There is clear evidence that absent repricing, the company will suffer serious employee incentive or retention and recruiting problems

BlackRock may also support a request to exchange underwater options in other circumstances, if we determine that the exchange is in the best interest of shareholders.

Pay-for-Performance plans

In order for executive compensation exceeding $1 million USD to qualify for federal tax deductions, related to Section 162(m) of the Internal Revenue Code of 1986, the Omnibus Budget Reconciliation Act (“OBRA”) requires companies to link compensation for the company’s top five executives to disclosed performance goals and submit the plans for shareholder approval. The law further requires that a compensation committee comprised solely of outside directors administer these plans. Because the primary objective of these proposals is to preserve the deductibility of such compensation, we generally favor approval in order to preserve net income.

 

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Supplemental executive retirement plans

BlackRock may support shareholder proposals requesting to put extraordinary benefits contained in Supplemental Executive Retirement Plans (“SERP”) agreements to a shareholder vote unless the company’s executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans.

Environmental and social issues

Our fiduciary duty to clients is to protect and enhance their economic interest in the companies in which we invest on their behalf. It is within this context that we undertake our corporate governance activities. We believe that well-managed companies will deal effectively with the material environmental and social (“E&S”) factors relevant to their businesses. Robust disclosure is essential for investors to effectively gauge companies’ business practices and planning related to E&S risks and opportunities.

BlackRock expects companies to issue reports aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards put forward by the Sustainability Accounting Standards Board (SASB). We view the SASB and TCFD frameworks as complementary in achieving the goal of disclosing more financially material information, particularly as it relates to industry-specific metrics and target setting. TCFD’s recommendations provide an overarching framework for disclosure on the business implications of climate change, and potentially other E&S factors. We find SASB’s industry-specific guidance (as identified in its materiality map) beneficial in helping companies identify and discuss their governance, risk assessments, and performance against these key performance indicators (KPIs). Any global standards adopted, peer group benchmarking undertaken, and verification process in place should also be disclosed and discussed in this context.

BlackRock has been engaging with companies for several years on disclosure of material E&S factors. Given the increased understanding of sustainability risks and opportunities, and the need for better information to assess them, we specifically ask companies to:

 

  1)

Publish disclosures in line with industry specific SASB guidelines by year-end, if they have not already done so, or disclose a similar set of data in a way that is relevant to their particular business; and

 

  2)

Disclose climate-related risks in line with the TCFD’s recommendations, if they have not already done so. This should include the company’s plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, as expressed by the TCFD guidelines.

See our commentary on our approach to engagement on TCFD and SASB aligned reporting for greater detail of our expectations.

We will use these disclosures and our engagements to ascertain whether companies are properly managing and overseeing these risks within their business and adequately planning for the future. In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.

We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. We will generally engage directly with the board or management of a company when we identify issues. We may vote against the election of directors where we have concerns that a company might not be dealing with E&S factors appropriately. Sometimes we may reflect such concerns by supporting a shareholder proposal on the issue, where there seems to be either a significant potential threat or realized harm to shareholders’ interests caused by poor management of material E&S factors. In deciding our course of action, we will assess the nature of our engagement with the company on the issue over time, including whether:

 

 

The company has already taken sufficient steps to address the concern

 

 

The company is in the process of actively implementing a response

 

 

There is a clear and material economic disadvantage to the company in the near-term if the issue is not addressed in the manner requested by the shareholder proposal

 

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We do not see it as our role to make social, ethical, or political judgments on behalf of clients, but rather, to protect their long-term economic interests as shareholders. We expect investee companies to comply, at a minimum, with the laws and regulations of the jurisdictions in which they operate. They should explain how they manage situations where such laws or regulations are contradictory or ambiguous.

Climate risk

Within the framework laid out above, as well as our guidance on “How BlackRock Investment Stewardship engages on climate risk,” we believe that climate presents significant investment risks and opportunities that may impact the long-term financial sustainability of companies. We believe that the reporting frameworks developed by TCFD and SASB provide useful guidance to companies on identifying, managing, and reporting on climate-related risks and opportunities.

We expect companies to help their investors understand how the company may be impacted by climate risk, in the context of its ability to realize a long-term strategy and generate value over time. We expect companies to convey their governance around this issue through their corporate disclosures aligned with TCFD and SASB. For companies in sectors that are significantly exposed to climate-related risk, we expect the whole board to have demonstrable fluency in how climate risk affects the business and how management approaches assessing, adapting to, and mitigating that risk.

Where a company receives a shareholder proposal related to climate risk, in addition to the factors laid out above, our assessment will take into account the robustness of the company’s existing disclosures as well as our understanding of its management of the issues as revealed through our engagements with the company and board members over time. In certain instances, we may disagree with the details of a climate-related shareholder proposal but agree that the company in question has not made sufficient progress on climate-related disclosures. In these instances, we may not support the proposal, but may vote against the election of relevant directors.

Corporate political activities

Companies may engage in certain political activities, within legal and regulatory limits, in order to influence public policy consistent with the companies’ values and strategies, and thus serve shareholders’ best long-term economic interests. These activities can create risks, including: the potential for allegations of corruption; the potential for reputational issues associated with a candidate, party, or issue; and risks that arise from the complex legal, regulatory, and compliance considerations associated with corporate political activity. We believe that companies which choose to engage in political activities should develop and maintain robust processes to guide these activities and to mitigate risks, including a level of board oversight.

When presented with shareholder proposals requesting increased disclosure on corporate political activities, we may consider the political activities of that company and its peers, the existing level of disclosure, and our view regarding the associated risks. We generally believe that it is the duty of boards and management to determine the appropriate level of disclosure of all types of corporate activity, and we are generally not supportive of proposals that are overly prescriptive in nature. We may decide to support a shareholder proposal requesting additional reporting of corporate political activities where there seems to be either a significant potential threat or actual harm to shareholders’ interests, and where we believe the company has not already provided shareholders with sufficient information to assess the company’s management of the risk.

Finally, we believe that it is not the role of shareholders to suggest or approve corporate political activities; therefore we generally do not support proposals requesting a shareholder vote on political activities or expenditures.

General corporate governance matters

Adjourn meeting to solicit additional votes

We generally support such proposals unless the agenda contains items that we judge to be detrimental to shareholders’ best long-term economic interests.

 

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Bundled proposals

We believe that shareholders should have the opportunity to review substantial governance changes individually without having to accept bundled proposals. Where several measures are grouped into one proposal, BlackRock may reject certain positive changes when linked with proposals that generally contradict or impede the rights and economic interests of shareholders.

Exclusive forum provisions

BlackRock generally supports proposals to seek exclusive forum for certain shareholder litigation. In cases where a board unilaterally adopts exclusive forum provisions that we consider unfavorable to the interests of shareholders, we will vote against the independent chair or lead independent director and members of the governance committee.

Multi-jurisdictional companies

Where a company is listed on multiple exchanges or incorporated in a country different from its primary listing, we will seek to apply the most relevant market guideline(s) to our analysis of the company’s governance structure and specific proposals on the shareholder meeting agenda. In doing so, we typically consider the governance standards of the company’s primary listing, the market standards by which the company governs itself, and the market context of each specific proposal on the agenda. If the relevant standards are silent on the issue under consideration, we will use our professional judgment as to what voting outcome would best protect the long-term economic interests of investors. We expect that companies will disclose the rationale for their selection of primary listing, country of incorporation, and choice of governance structures, in particular where there is conflict between relevant market governance practices.

Other business

We oppose giving companies our proxy to vote on matters where we are not given the opportunity to review and understand those measures and carry out an appropriate level of shareholder oversight.

Reincorporation

Proposals to reincorporate from one state or country to another are most frequently motivated by considerations of anti-takeover protections, legal advantages, and / or cost savings. We will evaluate, on a case-by-case basis, the economic and strategic rationale behind the company’s proposal to reincorporate. In all instances, we will evaluate the changes to shareholder protection under the new charter / articles / bylaws to assess whether the move increases or decreases shareholder protections. Where we find that shareholder protections are diminished, we may support reincorporation if we determine that the overall benefits outweigh the diminished rights.

IPO governance

We expect boards to consider and disclose how the corporate governance structures adopted upon initial public offering (“IPO”) are in shareholders’ best long-term interests. We also expect boards to conduct a regular review of corporate governance and control structures, such that boards might evolve foundational corporate governance structures as company circumstances change, without undue costs and disruption to shareholders. In our letter on unequal voting structures, we articulate our view that “one vote for one share” is the preferred structure for publicly-traded companies. We also recognize the potential benefits of dual class shares to newly public companies as they establish themselves; however, we believe that these structures should have a specific and limited duration. We will generally engage new companies on topics such as classified boards and supermajority vote provisions to amend bylaws, as we believe that such arrangements may not be in the best interest of shareholders in the long-term.

We will typically apply a one-year grace period for the application of certain director-related guidelines (including, but not limited to, director independence and over-boarding considerations), during which we expect boards to take steps to bring corporate governance standards in line with our expectations.

 

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Further, if a company qualifies as an emerging growth company (an “EGC”) under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we will give consideration to the NYSE and NASDAQ governance exemptions granted under the JOBS Act for the duration such a company is categorized as an EGC. We expect an EGC to have a totally independent audit committee by the first anniversary of its IPO, with our standard approach to voting on auditors and audit-related issues applicable in full for an EGC on the first anniversary of its IPO.

Shareholder Protections

Amendment to charter / articles / bylaws

We believe that shareholders should have the right to vote on key corporate governance matters, including on changes to governance mechanisms and amendments to the charter / articles / bylaws. We may vote against certain directors where changes to governing documents are not put to a shareholder vote within a reasonable period of time, in particular if those changes have the potential to impact shareholder rights (see “Director elections” herein). In cases where a board’s unilateral adoption of changes to the charter / articles / bylaws promotes cost and operational efficiency benefits for the company and its shareholders, we may support such action if it does not have a negative effect on shareholder rights or the company’s corporate governance structure.

When voting on a management or shareholder proposal to make changes to the charter / articles / bylaws, we will consider in part the company’s and / or proponent’s publicly stated rationale for the changes, the company’s governance profile and history, relevant jurisdictional laws, and situational or contextual circumstances which may have motivated the proposed changes, among other factors. We will typically support changes to the charter / articles / bylaws where the benefits to shareholders, including the costs of failing to make those changes, demonstrably outweigh the costs or risks of making such changes.

Proxy access

We believe that long-term shareholders should have the opportunity, when necessary and under reasonable conditions, to nominate directors on the company’s proxy card.

In our view, securing the right of shareholders to nominate directors without engaging in a control contest can enhance shareholders’ ability to meaningfully participate in the director election process, stimulate board attention to shareholder interests, and provide shareholders an effective means of directing that attention where it is lacking. Proxy access mechanisms should provide shareholders with a reasonable opportunity to use this right without stipulating overly restrictive or onerous parameters for use, and also provide assurances that the mechanism will not be subject to abuse by short-term investors, investors without a substantial investment in the company, or investors seeking to take control of the board.

In general, we support market-standardized proxy access proposals, which allow a shareholder (or group of up to 20 shareholders) holding three percent of a company’s outstanding shares for at least three years the right to nominate the greater of up to two directors or 20% of the board. Where a standardized proxy access provision exists, we will generally oppose shareholder proposals requesting outlier thresholds.

Right to act by written consent

In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. We therefore believe that shareholders should have the right to solicit votes by written consent provided that: 1) there are reasonable requirements to initiate the consent solicitation process (in order to avoid the waste of corporate resources in addressing narrowly supported interests); and 2) shareholders receive a minimum of 50% of outstanding shares to effectuate the action by written consent. We may oppose shareholder proposals requesting the right to act by written consent in cases where the proposal is structured for the benefit of a dominant shareholder to the exclusion of others, or if the proposal is written to discourage the board from incorporating appropriate mechanisms to avoid the waste of corporate resources when establishing a right to act by written consent. Additionally, we may oppose shareholder proposals requesting the right to act by written consent if the company already provides a shareholder right to call a special meeting that we believe offers

 

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shareholders a reasonable opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting.

Right to call a special meeting

In exceptional circumstances and with sufficiently broad support, shareholders should have the opportunity to raise issues of substantial importance without having to wait for management to schedule a meeting. We therefore believe that shareholders should have the right to call a special meeting in cases where a reasonably high proportion of shareholders (typically a minimum of 15% but no higher than 25%) are required to agree to such a meeting before it is called, in order to avoid the waste of corporate resources in addressing narrowly supported interests. However, we may oppose this right in cases where the proposal is structured for the benefit of a dominant shareholder to the exclusion of others. We generally believe that a right to act via written consent is not a sufficient alternative to the right to call a special meeting.

Simple majority voting

We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved. Nonetheless, in situations where there is a substantial or dominant shareholder, supermajority voting may be protective of public shareholder interests and we may support supermajority requirements in those situations.

 

This document is provided for information or educational purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

The information and opinions contained in this document are as of January 2020 unless it is stated otherwise and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy.

 

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