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: 811-08573

Name of Fund:  BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

Fund Address:   100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock MuniHoldings California Quality Fund, Inc., 55 East 52^nd Street, New York, NY 10055

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

Date of fiscal year end: 07/31/2019

Date of reporting period: 01/31/2019

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Item 1 –

Report to Stockholders

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JANUARY 31, 2019

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

BlackRock MuniYield Investment Quality Fund (MFT)

BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

 

 

Not FDIC Insured • May Lose Value • No Bank Guarantee

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2		THIS PAGE IS NOT PART OF YOUR FUND REPORT

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Table of Contents

 

		Page
The Markets in Review			2
Semi-Annual Report:
Municipal Market Overview			4
The Benefits and Risks of Leveraging			5
Derivative Financial Instruments			5
Fund Summaries			6
Financial Statements:
Schedules of Investments			16
Statements of Assets and Liabilities			42
Statements of Operations			43
Statements of Changes in Net Assets			44
Statements of Cash Flows			49
Financial Highlights			50
Notes to Financial Statements			55
Director and Officer Information			65
Additional Information			66
Glossary of Terms Used in this Report			67

 

 

			3

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Municipal Market Overview  For the Reporting Period Ended January 31, 2019

 

Municipal Market Conditions

Municipal bonds experienced positive performance during the period, despite challenged total returns during most of 2018 as interest rates moved higher on the back of continued Fed policy normalization, fiscal stimulus, strong economic growth, and increased U.S. Treasury issuance. Performance turned particularly strong late in the year, with interest rates rallying as the Fed began to indicate a pivot from forecast based to data driven policy and the potential for a slower pace of future rate hikes. During the period, demand for the asset class remained firm, although displayed some bouts of volatility. Broadly, investors favored the tax-exempt income, diversification, quality, and value of municipal bonds given that tax reform ultimately lowered the top individual tax rate just 2.6% while eliminating deductions. During the 12 months ended January 31, 2019, municipal bond funds experienced net inflows of approximately $2.7 billion (based on data from the Investment Company Institute).

 

For the same 12-month period, total new issuance underwhelmed from a historical perspective at $315 billion (below the $394 billion issued in the prior 12-month period), a direct result of the elimination of advanced refundings through the 2017 Tax Cuts and Jobs Act. This shift transitioned the market from an existing net positive supply environment to a much more favorable net negative supply environment in which reinvestment income (coupons, calls, and maturities) largely outstripped gross issuance and provided a powerful technical tailwind.		S&P Municipal Bond Index
		Total Returns as of January 31, 2019
		6 months: 1.86%
		12 months: 3.08%

A Closer Look at Yields

 

From January 31, 2018 to January 31, 2019, yields on AAA-rated 30-year municipal bonds increased by 11 basis points (“bps”) from 2.91% to 3.02%, while 10-year rates decreased by 18 bps from 2.35% to 2.17% and 5-year rates decreased by 7 bps from 1.83% to 1.76% (as measured by Thomson Municipal Market Data). The municipal yield curve was nearly unchanged over the 12-month period with the spread between 2- and 30-year maturities bear steepening just 1 bp, which is significant given that the corresponding U.S. Treasury curve bear flattened 26 bps. (Bear steepening is the widening of the yield curve caused by long-term rates increasing at a faster rate than short-term rates. Bear flattened is a yield-rate environment in which short-term interest rates are increasing at a faster rate than long-term interest rates.) The municipal yield curve is now more than 2.5 times steeper than the U.S. Treasury curve.

During the same time period, on a relative basis, tax-exempt municipal bonds strongly outperformed U.S. Treasuries, driven by the front and intermediate portions of the yield curve. The relative positive performance of municipal bonds was driven largely by a supply/demand imbalance within the municipal market as investors sought income, incremental yield, and tax shelter in an environment where opportunities became increasingly scarce. The asset class is known for its lower relative volatility and preservation of principal with an emphasis on income as tax rates rise.

Financial Conditions of Municipal Issuers

The majority of municipal credits remain strong, despite well-publicized problems among a few issuers. Four of the five states with the largest amount of debt outstanding — California, New York, Texas and Florida — continue to exhibit improved credit fundamentals. However, several states with the largest unfunded pension liabilities are faced with elevated borrowing costs and difficult budgetary decisions. Across the country on the local level, property values support credit stability. Standard & Poor’s recent decision to remove its “negative” outlook on New Mexico underscores the improvement in state finances as it was the only remaining state with the designation. Revenue bonds continue to drive performance as investors continue to seek higher yield bonds in the tobacco sector. BlackRock maintains the view that municipal bond defaults will remain minimal and in the periphery while the overall market is fundamentally sound. We continue to advocate careful credit research and believe that a thoughtful approach to structure and security selection remains imperative amid uncertainty in a modestly improving economic environment.

The opinions expressed are those of BlackRock as of January 31, 2019, 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 Standard & Poor’s 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.

 

 

4		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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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 the Funds (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Funds’ shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings 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 the Funds’ return on assets purchased with leverage proceeds, income to shareholders is lower than if the Funds 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 the Funds’ obligations under their respective leverage arrangements 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 the Funds’ 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 the Funds’ 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 Variable Rate Muni Term Preferred Shares (“VMTP Shares”) (collectively, “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.

 

 

THE BENEFITS AND RISKS OF LEVERAGING / DERIVATIVE FINANCIAL INSTRUMENTS			5

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Fund Summary  as of January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc.

 

Fund Overview

BlackRock MuniHoldings California Quality Fund, Inc.’s (MUC) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income taxes and California personal income taxes. The Fund seeks to achieve its investment objective by investing primarily in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and California personal income taxes. Under normal market conditions, the Fund invests at least 80% of its assets in investment grade municipal obligations with remaining maturities of one year or more at the time of investment. The municipal obligations in which the Fund primarily invests are either rated 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 such 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 New York Stock Exchange (“NYSE”)		MUC
Initial Offering Date		February 27, 1998
Yield on Closing Market Price as of January 31, 2019 ($12.80)(a)		4.45%
Tax Equivalent Yield(b)		9.69%
Current Monthly Distribution per Common Share(c)		$0.0475
Current Annualized Distribution per Common Share(c)		$0.5700
Economic Leverage as of January 31, 2019(d)		41%

 

(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 54.1%, 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 VMTP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VMTP Shares and TOB Trusts, minus the sum of accrued liabilities. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 5.

Performance

Returns for the six months ended January 31, 2019 were as follows:

 

		Returns Based On
		Market Price				NAV
MUC(a)(b)			0.23	%			0.71	%
Lipper California Municipal Debt Funds(c)			2.77				0.80

 

(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 not indicative of future results.

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

After performing poorly through the first half of the period, municipal bonds recovered to post a positive total return for the full six months. The initial downturn was largely brought about by concerns that the Fed would raise interest rates aggressively in 2019. However, subsequent signs of slowing growth prompted investors to adjust their expectations in favor of more accommodative Fed policy, sparking a rally across the bond market from early November onward.

California municipal bonds lagged the national market. However, the state’s debt gained a measure of support from strong demand among retail investors looking for tax-exempt income in a state with the country’s most punitive income tax regime. The credit quality of state and local authorities remained consistent, but investors were alert for any changes in fiscal responsibility demonstrated by the new governor and his administration.

The Fund’s positions in the school district, local tax-backed and transportation sectors contributed to performance. An overweight in the higher-grade AA and A rated credit categories, which outperformed BBB rated debt, also contributed to performance. The Fund’s quality mandate restricts it from holding issues rated lower than BBB.

Income made a meaningful contribution to performance relative to price appreciation. The Fund’s use of leverage augmented the contribution from income.

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

The Fund maintained exposure to bonds with longer maturities and shorter call dates that it purchased when yields were higher. While these bonds have above-average income, their lower interest-rate sensitivity hurt their performance in the past six months given the decline in prevailing yields. (Prices and yields move in opposite directions.)

An overweight to the long end of the yield curve detracted from performance, as bonds with maturities of 10 years and less generally outperformed longer-dated securities.

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.

 

 

6		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of January 31, 2019 (continued)		BlackRock MuniHoldings California Quality Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		01/31/19				07/31/18				Change				High				Low
Market Price		$	12.80			$	13.07				(2.07	)%		$	13.26			$	12.10
Net Asset Value			14.79				15.03				(1.60	)			15.03				14.45

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

 

Overview of the Fund’s Total Investments *

 

 

 

FUND SUMMARY			7

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Fund Summary  as of January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc.

 

Fund Overview

BlackRock MuniHoldings New Jersey Quality Fund, Inc.’s (MUJ) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income tax and New Jersey personal income taxes. The Fund seeks to achieve its investment objective by investing primarily in long-term, investment grade municipal obligations exempt from U.S federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and New Jersey personal income taxes. The municipal obligations in which the Fund primarily invests are either rated investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. Under normal market conditions, the Fund invests at least 80% of its assets in municipal obligations with remaining maturities of one year or more at the time of investment. The Fund may invest directly in such 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		MUJ
Initial Offering Date		March 11, 1998
Yield on Closing Market Price as of January 31, 2019 ($12.99)(a)		4.85%
Tax Equivalent Yield(b)		10.01%
Current Monthly Distribution per Common Share(c)		$0.0525
Current Annualized Distribution per Common Share(c)		$0.6300
Economic Leverage as of January 31, 2019(d)		40%

 

(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. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 5.

Performance

Returns for the six months ended January 31, 2019 were as follows:

 

		Returns Based On
		Market Price				NAV
MUJ(a)(b)			3.21	%			1.89	%
Lipper New Jersey Municipal Debt Funds(c)			4.02				1.61

 

(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 not indicative of future results.

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

After performing poorly through the first half of the period, municipal bonds recovered to post a positive total return for the full six months. The initial downturn was largely brought about by concerns that the Fed would raise interest rates aggressively in 2019. However, subsequent signs of slowing growth prompted investors to adjust their expectations in favor of more accommodative Fed policy, sparking a rally across the bond market from early November onward.

The credit ratings and yield spreads on New Jersey’s debt continued to reflect the state’s high unfunded pension liabilities. In addition, slowing revenues created challenges in balancing the state’s budget for the 2020 fiscal year.

The Fund’s positions in the state tax-backed, transportation and education sectors contributed to performance, while its allocation to the tobacco sector, while limited, detracted.

The Fund’s allocation to higher-rated issues, which outpaced lower-quality bonds, aided results.

Income made a meaningful contribution to performance relative to price appreciation. The Fund’s use of leverage augmented the contribution from income.

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 the Fund’s return.

Reinvestment had an adverse effect on the Fund’s income, as the proceeds of higher-yielding bonds that matured or were called needed to be reinvested at lower prevailing rates.

 

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.

 

 

8		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of January 31, 2019 (continued)		BlackRock MuniHoldings New Jersey Quality Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		01/31/19				07/31/18				Change				High				Low
Market Price		$	12.99			$	12.90				0.70	%		$	13.07			$	12.25
Net Asset Value			15.19				15.28				(0.59	)			15.28				14.75

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

 

Overview of the Fund’s Total Investments *

 

 

 

FUND SUMMARY			9

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Fund Summary  as of January 31, 2019		BlackRock MuniYield Investment Quality Fund

 

Fund Overview

BlackRock MuniYield Investment Quality Fund’s (MFT) (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 U.S. federal alternative minimum tax). 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 directly in such 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		MFT
Initial Offering Date		October 30, 1992
Yield on Closing Market Price as of January 31, 2019 ($13.10)(a)		5.40%
Tax Equivalent Yield(b)		9.12%
Current Monthly Distribution per Common Share(c)		$0.0590
Current Annualized Distribution per Common Share(c)		$0.7080
Economic Leverage as of January 31, 2019(d)		43%

 

(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 40.8%, 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 VMTP Shares and TOB Trusts as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to VMTP Shares and TOB Trusts, minus the sum of accrued liabilities. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 5.

Performance

Returns for the six months ended January 31, 2019 were as follows:

 

		Returns Based On
		Market Price				NAV
MFT(a)(b)			3.41	%			1.15	%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			2.46				0.94

 

(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 not indicative of future results.

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

After performing poorly through the first half of the period, municipal bonds recovered to post a positive total return for the full six months. The initial downturn was largely brought about by concerns that the Fed would raise interest rates aggressively in 2019. However, subsequent signs of slowing growth prompted investors to adjust their expectations in favor of more accommodative Fed policy, sparking a rally across the bond market from early November onward.

Income, which was enhanced by leverage, was the largest contributor to Fund performance. However, the cost of leverage became more expensive during the period due to the Fed’s two interest rate increases.

Positions in short-dated maturities were top performers on a price basis, as yields fell the most for bond with maturities of ten years and below. (Prices and yields move in opposite directions.) Longer-dated maturities, while experiencing less price appreciation than short-term issues, provided the Fund with an attractive level of income.

At the sector level, positions in transportation issues — particularly higher-quality debt — were contributors. Conversely, an allocation to the tobacco sector was a slight detractor. The sector experienced yield spread widening, which led to poor performance relative to other market segments.

The Fund’s higher-quality mandate proved beneficial given that higher-rated bonds outperformed in the period.

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 the Fund’s return.

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.

 

 

10		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of January 31, 2019 (continued)		BlackRock MuniYield Investment Quality Fund

 

Market Price and Net Asset Value Per Share Summary

 

		01/31/19				07/31/18				Change				High				Low
Market Price		$	13.10			$	13.03				0.54	%		$	13.15			$	11.84
Net Asset Value			13.67				13.90				(1.65	)			13.90				13.41

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

 

Overview of the Fund’s Total Investments *

 

 

 

FUND SUMMARY			11

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Fund Summary  as of January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc.

 

Fund Overview

BlackRock MuniYield Michigan Quality Fund, Inc.’s (MIY) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Michigan 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 U.S. federal alternative minimum tax) and Michigan 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 directly in such 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		MIY
Initial Offering Date		October 30, 1992
Yield on Closing Market Price as of January 31, 2019 ($12.81)(a)		4.87%
Tax Equivalent Yield(b)		8.86%
Current Monthly Distribution per Common Share(c)		$0.0520
Current Annualized Distribution per Common Share(c)		$0.6240
Economic Leverage as of January 31, 2019(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 45.05%, 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. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 5.

Performance

Returns for the six months ended January 31, 2019 were as follows:

 

		Returns Based On
		Market Price				NAV
MIY(a)(b)			1.85	%			1.95	%
Lipper Other States Municipal Debt Funds(c)			1.42				1.34

 

(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 not indicative of future results.

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

After performing poorly through the first half of the period, municipal bonds recovered to post a positive total return for the full six months. The initial downturn was largely brought about by concerns that the Fed would raise interest rates aggressively in 2019. However, subsequent signs of slowing growth prompted investors to adjust their expectations in favor of more accommodative Fed policy, sparking a rally across the bond market from early November onward.

Michigan municipal bonds outperformed the national market due to the state’s improving economy and modest amount of new-issue supply. Michigan’s economy continued to improve, and its unemployment rate was only slightly above the national average. In addition, its budget for the 2019 fiscal year was structurally balanced and featured a conservative revenue forecast.

Portfolio income, enhanced by leverage, made the largest contribution to Fund’s return. The Fund’s position in bonds with five- to 10-year maturities also contributed, as yields in this area declined. In contrast, yields for both short- and long-term issues were largely unchanged. (Prices and yields move in opposite directions.)

At the sector level, positions in transportation issues were key contributors to performance.

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 the Fund’s return.

The Fund’s allocation to lower-rated securities also hurt results given that yield spreads generally widened in the period.

 

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.

 

 

12		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of January 31, 2019 (continued)		BlackRock MuniYield Michigan Quality Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		01/31/19				07/31/18				Change				High				Low
Market Price		$	12.81			$	12.89				(0.62	)%		$	12.91			$	12.15
Net Asset Value			14.96				15.04				(0.53	)			15.04				14.54

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

 

Overview of the Fund’s Total Investments *

 

 

 

FUND SUMMARY			13

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Fund Summary  as of January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund

 

Fund Overview

BlackRock MuniYield Pennsylvania Quality Fund’s (MPA) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal and Pennsylvania 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 U.S. federal alternative minimum tax) and Pennsylvania 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 directly in such 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		MPA
Initial Offering Date		October 30, 1992
Yield on Closing Market Price as of January 31, 2019 ($13.19)(a)		4.82%
Tax Equivalent Yield(b)		8.59%
Current Monthly Distribution per Common Share(c)		$0.0530
Current Annualized Distribution per Common Share(c)		$0.6360
Economic Leverage as of January 31, 2019(d)		41%

 

(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 43.87%, 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. For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 5.

Performance

Returns for the six months ended January 31, 2019 were as follows:

 

		Returns Based On
		Market Price				NAV
MPA(a)(b)			2.03	%			1.97	%
Lipper Pennsylvania Municipal Debt Funds(c)			2.64				1.68

 

(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 not indicative of future results.

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

After performing poorly through the first half of the period, municipal bonds recovered to post a positive total return for the full six months. The initial downturn was largely brought about by concerns that the Fed would raise interest rates aggressively in 2019. However, subsequent signs of slowing growth prompted investors to adjust their expectations in favor of more accommodative Fed policy, sparking a rally across the bond market from early November onward.

Pennsylvania bonds outperformed the national index as improving fundamentals and a decrease in new-issue supply led to tighter yield spreads. The budget season was less acrimonious than in years past, and the state made the first significant deposit into its rainy day fund since 2009.

The Fund’s positions in the health care, school district and education sectors contributed to Fund performance. The Fund’s allocation to higher-rated issues, which outpaced lower-quality bonds, also aided results.

Income made a meaningful contribution to performance relative to price appreciation. The Fund’s use of leverage augmented the contribution from income.

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 the Fund’s return.

Reinvestment had an adverse effect on the Fund’s income, as the proceeds of higher-yielding bonds that matured or were called needed to be reinvested at lower prevailing rates.

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.

 

 

14		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of January 31, 2019 (continued)		BlackRock MuniYield Pennsylvania Quality Fund

 

Market Price and Net Asset Value Per Share Summary

 

		01/31/19				07/31/18				Change				High				Low
Market Price		$	13.19			$	13.26				(0.53	)%		$	13.34			$	12.30
Net Asset Value			15.18				15.27				(0.59	)			15.27				14.70

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

 

Overview of the Fund’s Total Investments *

 

 

 

FUND SUMMARY			15

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Schedule of Investments  (unaudited) January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc. (MUC) (Percentages shown are based on Net Assets)

 

 

 

16		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc. (MUC) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			17

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc. (MUC) (Percentages shown are based on Net Assets)

 

 

 

18		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

(a)	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.

(b)	Zero-coupon bond.

(c)	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.

(d)	All or a portion of security is subject to a recourse agreement. The aggregate maximum potential amount the Fund could ultimately be required to pay under the agreement, which expires on April 1, 2025, is $6,875,658. See Note 4 of the Notes to Financial Statements for details.

(e)	Annualized 7-day yield as of period end.

(f)	During the six months ended January 31, 2019, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares at 07/31/18				Net Activity				Shares at 01/31/19				Value at 01/31/19				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds California Money Fund, Institutional Class			—				1,364,058				1,364,058			$	1,364,331			$	23,416			$	—			$	—
BlackRock Liquidity Funds, MuniCash, Institutional Class*			—				—				—				—				9,013				(1	)			—
														$	1,364,331			$	32,429			$	(1	)		$	—

 

*

No longer held by the Fund as of period end.

(a)

Includes net capital gain distributions, if applicable.

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 Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			117				03/20/19			$	14,329			$	(127,266	)
Long U.S. Treasury Bond			275				03/20/19				40,339				(1,742,733	)
5-Year U.S. Treasury Note			47				03/29/19				5,398				(58,065	)
														$	(1,928,064	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

		Commodity Contract				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Liabilities — Derivative Financial Instruments
Futures contracts
Net unrealized depreciation(a) . . . . . . . . . . . . . .. . . .		$	—			$	—			$	—			$	—			$	1,928,064			$	—			$	1,928,064

 

(a)

Includes cumulative appreciation (depreciation) on futures contracts if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

For the six months ended January 31, 2019, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

		Commodity Contract				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Net Realized Gain (Loss) from:
Futures contracts		$	—			$	—			$	—			$	—			$	593,924			$	—			$	593,924
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	(2,308,745	)		$	—			$	(2,308,745	)

 

 

SCHEDULES OF INVESTMENTS			19

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings California Quality Fund, Inc. (MUC)

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts — short		$	45,623,090

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 and derivative financial instruments, For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	1,014,755,810			$	—			$	1,014,755,810
Short-Term Securities			1,364,331				—				—				1,364,331
		$	1,364,331			$	1,014,755,810			$	—			$	1,016,120,141
Derivative Financial Instruments(b)
Liabilities:
Interest rate contracts		$	(1,928,064	)		$	—			$	—			$	(1,928,064	)

 

(a)

See above Schedule of Investments for values in each sector.

(b)

Derivative financial instruments are futures contracts which are valued at the unrealized appreciation (depreciation) on the instrument.

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		$	—			$	(167,017,593	)		$	—			$	(167,017,593	)
VMTP Shares at Liquidation Value			—				(254,000,000	)			—				(254,000,000	)
		$	—			$	(421,017,593	)		$	—			$	(421,017,593	)

During the six months ended January 31, 2019, there were no transfers between levels.

See notes to financial statements.

 

 

20		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited)  January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			21

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ) (Percentages shown are based on Net Assets)

 

 

 

22		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			23

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

 

(a)	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.

(b)	Zero-coupon bond.

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

(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)

All or a portion of 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 June 15, 2019 to September 1, 2020, is $13,916,017. See Note 4 of the Notes to Financial Statements for details.

(f)	Annualized 7-day yield as of period end.

(g)	During the six months ended January 31, 2019, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares Held at 07/31/18				Net Activity				Shares Held at 01/31/19				Value at 01/31/19				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, MuniCash, Institutional Class			1,217,685				(392,076	)			825,609			$	825,774			$	24,551			$	237			$	83

 

(a)

Includes net capital gain distributions, if applicable.

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 Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			152				03/20/19			$	18,615			$	(424,738	)
Long U.S. Treasury Bond			186				03/20/19				27,284				(1,178,433	)
5-Year U.S. Treasury Note			69				03/29/19				7,925				(138,767	)
														$	(1,741,938	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

		Commodity Contract				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Liabilities — Derivative Financial Instruments
Futures contracts Net unrealized depreciation(a)		$	—			$	—			$	—			$	—			$	1,741,938			$	—			$	1,741,938

 

(a)

Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

For the six months ended January 31, 2019, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

		Commodity Contract				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Net Realized Gain (Loss) from:
Futures contracts		$	—			$	—			$	—			$	—			$	473,575			$	—			$	473,575
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	(1,896,764	)		$	—			$	(1,896,764	)

 

 

24		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniHoldings New Jersey Quality Fund, Inc. (MUJ)

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts — short		$	38,326,000

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 and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	752,908,850			$	—			$	752,908,850
Short-Term Securities			825,774				—				—				825,774
		$	825,774			$	752,908,850			$	—			$	753,734,624
Derivative Financial Instruments(b)
Liabilities:
Interest rate contracts		$	(1,741,938	)		$	—			$	—			$	(1,741,938	)

 

(a)

See above Schedule of Investments for values in each sector.

(b)

Derivative financial instruments are futures contracts which are valued at the unrealized appreciation (depreciation) on the instrument.

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		$	—			$	(62,747,370	)		$	—			$	(62,747,370	)
VRDP Shares at Liquidation Value			—				(237,100,000	)			—				(237,100,000	)
		$	—			$	(299,847,370	)		$	—			$	(299,847,370	)

During the six months ended January 31, 2019, there were no transfers between levels.

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS			25

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Schedule of Investments  (unaudited)  January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT) (Percentages shown are based on Net Assets)

 

 

 

26		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			27

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT) (Percentages shown are based on Net Assets)

 

 

 

28		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT) (Percentages shown are based on Net Assets)

 

(a)	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.

(b)	Zero-coupon bond.

(c)	When-issued security.

(d)	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.

(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 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 February 1, 2019, to December 1, 2026, is $7,188,603. See Note 4 of the Notes to Financial Statements for details.

(g)	Annualized 7-day yield as of period end.

(h)	During the six months ended January 31, 2019, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares Held at 07/31/18				Net Activity				Shares Held at 01/31/19				Value at 01/31/19				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, MuniCash, Institutional Class			477,450				551				478,001			$	478,097			$	7,532			$	283			$	—

 

(a)

Includes net capital gain distributions, if applicable.

 

 

SCHEDULES OF INVESTMENTS			29

---

Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT)

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			13				03/20/19			$	1,592			$	(28,345	)
Long U.S. Treasury Bond			40				03/20/19				5,868				(226,803	)
5-Year U.S. Treasury Note			13				03/29/19				1,493				(23,576	)
														$	(278,724	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Liabilities — Derivative Financial Instruments
Futures contracts
Net unrealized depreciation(a)		$	—			$	—			$	—			$	—			$	278,724			$	—			$	278,724

 

(a)

Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

For the six months ended January 31, 2019, the effect of derivative financial instruments in the Statements of Operations were 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		$	—			$	—			$	—			$	—			$	36,883			$	—			$	36,883
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	(297,792	)		$	—			$	(297,792	)

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts — short		$	6,805,309

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 and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	201,973,723			$	—			$	201,973,723
Short-Term Securities			478,097				—				—				478,097
		$	478,097			$	201,973,723			$				$	202,451,820
Derivative Financial Instruments(b)
Liabilities:
Interest rate contracts		$	(278,724	)		$	—			$	—			$	(278,724	)

 

(a)

See above Schedule of Investments for values in each state.

(b)

Derivative financial instruments are futures contracts which are valued at the unrealized appreciation (depreciation) on the instrument.

 

 

30		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Investment Quality Fund (MFT)

 

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		$	—			$	(29,988,610	)		$	—			$	(29,988,610	)
VMTP Shares at Liquidation Value			—				(56,500,000	)			—				(56,500,000	)
		$	—			$	(86,488,610	)		$	—			$	(86,488,610	)

During the six months ended January 31, 2019, there were no transfers between levels.

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS			31

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Schedule of Investments  (unaudited) January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc. (MIY) (Percentages shown are based on Net Assets)

 

 

 

32		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc. (MIY) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			33

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc. (MIY) (Percentages shown are based on Net Assets)

 

 

 

34		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

(g)	During the six months ended January 31, 2019, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares Held at 07/31/18				Net Activity				Shares Held at 01/31/19				Value at 01/31/19				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, MuniCash, Institutional Class			3,335,566				8,386				3,343,952			$	3,344,621			$	26,450			$	698			$	(172	)

 

(a)

Includes net capital gain distributions, if applicable.

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 Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			70				03/20/19			$	8,573			$	(213,419	)
Long U.S. Treasury Bond			145				03/20/19				21,270				(995,457	)
5-Year U.S. Treasury Note			56				03/29/19				6,432				(118,912	)
														$	(1,327,788	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Liabilities — Derivative Financial Instruments
Futures contracts
Net unrealized depreciation(a)		$	—			$	—			$	—			$	—			$	1,327,788			$	—			$	1,327,788

 

(a)

Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

For the six months ended January 31, 2019, the effect of derivative financial instruments in the Statements of Operations were 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		$	—			$	—			$	—			$	—			$	250,628			$	—			$	250,628
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	(1,287,862	)		$	—			$	(1,287,862	)

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts — short		$	29,438,406

 

 

SCHEDULES OF INVESTMENTS			35

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Michigan Quality Fund, Inc. (MIY)

 

Fair Value Hierarchy as of Period End

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

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	718,398,469			$	—			$	718,398,469
Short-Term Securities			3,344,621				—				—				3,344,621
		$	3,344,621			$	718,398,469			$	—			$	721,743,090
Derivative Financial Instruments(b)
Liabilities:
Interest rate contracts		$	(1,327,788	)		$	—			$	—			$	(1,327,788	)

 

(a)

See above Schedule of Investments for values in each sector.

(b)

Derivative financial instruments are futures contracts which are valued at the unrealized appreciation (depreciation) on the instrument.

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		$	—			$	(54,022,057	)		$	—			$	(54,022,057	)
VRDP Shares at Liquidation Value			—				(231,900,000	)			—				(231,900,000	)
		$	—			$	(285,922,057	)		$	—			$	(285,922,057	)

During the six months ended January 31, 2019, there were no transfers between levels.

See notes to financial statements

 

 

36		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund (MPA) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			37

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund (MPA) (Percentages shown are based on Net Assets)

 

 

 

38		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund (MPA) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			39

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund (MPA) (Percentages shown are based on Net Assets)

 

(g)	During the six months ended January 31, 2019, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares Held at 07/31/18				Net Activity				Shares Held at 01/31/19				Value at 01/31/19				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, MuniCash, Institutional Class*			562,228				(562,228	)			—			$	—			$	15,557			$	426			$	(54	)

 

*

No longer held by the Fund as of period end.

(a)

Includes net capital gain distributions, if applicable.

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 Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			53				03/20/19			$	6,491			$	(146,906	)
Long U.S. Treasury Bond			123				03/20/19				18,043				(783,065	)
5-Year U.S. Treasury Note			16				03/29/19				1,838				(32,846	)
														$	(962,817	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Liabilities — Derivative Financial Instruments
Futures contracts
Net unrealized depreciation(a)		$	—			$	—			$	—			$	—			$	962,817			$	—			$	962,817

 

(a)

Includes cumulative appreciation (depreciation) on futures contracts if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

 

 

40		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) January 31, 2019		BlackRock MuniYield Pennsylvania Quality Fund (MPA)

 

For the six months ended January 31, 2019, 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		$	—			$	—			$	—			$	—			$	388,160			$	—			$	388,160
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	(1,036,013	)		$	—			$	(1,036,013	)

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts – sold		$	18,678,664

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 and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	343,648,881			$	—			$	343,648,881
Derivative Financial Instruments(b)
Liabilities:
Interest rate contracts		$	(962,817	)		$	—			$	—			$	(962,817	)

 

(a)

See above Schedule of Investments for values in each sector.

(b)

Derivative financial instruments are futures contracts which are valued at the unrealized appreciation (depreciation) on the instrument.

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		$	—			$	(56,058,453	)		$	—			$	(56,058,453	)
VRDP Shares at Liquidation Value			—				(82,600,000	)			—				(82,600,000	)
		$	—			$	(138,658,453	)		$	—			$	(138,658,453	)

During the six months ended January 31, 2019, there were no transfers between levels.

See notes to financial statements

 

 

SCHEDULES OF INVESTMENTS			41

---

 

Statements of Assets and Liabilities

January 31, 2019 (unaudited)

 

		MUC				MUJ				MFT				MIY				MPA
ASSETS
Investments at value — unaffiliated(a)		$	1,014,755,810			$	752,908,850			$	201,973,723			$	718,398,469			$	343,648,881
Investments at value — affiliated(b)			1,364,331				825,774				478,097				3,344,621				—
Cash pledged for futures contracts			879,502				708,000				113,551				496,950				388,800
Receivables:
Interest — unaffiliated			14,776,647				5,508,667				2,210,552				8,197,571				3,577,451
Dividends — affiliated			1,278				3,647				1,265				4,282				1,249
Investments sold			—				—				5,123				—				1,466,776
TOB Trust			—				—				1,260,000				—				2,500,000
Prepaid expenses			6,664				6,143				4,154				6,070				4,670
Total assets			1,031,784,232				759,961,081				206,046,465				730,447,963				351,587,827
ACCRUED LIABILITIES
Bank overdraft			—				—				—				—				377,176
Payables:
Investments purchased			—				—				2,892,344				—				8,761,065
Income dividend distributions — Common Shares			1,947,618				1,583,078				500,145				1,538,070				707,675
Interest expense and fees			965,151				193,903				109,124				223,992				241,889
Investment advisory fees			435,581				320,993				85,353				301,789				140,879
Variation margin on futures contracts			342,688				276,117				46,515				193,125				152,219
Directors’ and Officer’s fees			320,541				5,751				1,228				5,523				10,312
Other accrued expenses			179,850				160,622				70,917				152,376				100,161
Total accrued liabilities			4,191,429				2,540,464				3,705,626				2,414,875				10,491,376
OTHER LIABILITIES
TOB Trust Certificates			167,017,593				62,747,370				29,988,610				54,022,057				56,058,453
VRDP Shares, at liquidation value of $100,000 per share, net of deferred offering costs(c)(d)			—				236,637,459				—				231,480,550				82,347,492
VMTP Shares, at liquidation value of $100,000 per share(c)(d)			254,000,000				—				56,500,000				—				—
Total other liabilities			421,017,593				299,384,829				86,488,610				285,502,607				138,405,945
Total liabilities			425,209,022				301,925,293				90,194,236				287,917,482				148,897,321
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS		$	606,575,210			$	458,035,788			$	115,852,229			$	442,530,481			$	202,690,506
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS CONSIST OF
Paid-in capital(e)(f)		$	581,297,061			$	424,089,469			$	113,433,638			$	419,036,337			$	194,703,136
Accumulated earnings			25,278,149				33,946,319				2,418,591				23,494,144				7,987,370
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS		$	606,575,210			$	458,035,788			$	115,852,229			$	442,530,481			$	202,690,506
Net asset value per Common Share		$	14.79			$	15.19			$	13.67			$	14.96			$	15.18
(a) Investments at cost — unaffiliated		$	984,846,613			$	716,617,825			$	194,026,078			$	691,752,528			$	332,824,124
(b) Investments at cost — affiliated		$	1,364,331			$	825,691			$	478,097			$	3,344,368			$	—
(c) Preferred Shares outstanding:
Par value $0.05 per share			—				—				565				—				826
Par value $0.10 per share			2,540				2,371				—				2,319				—
(d) Preferred Shares authorized			18,140				9,847				1,000,000				8,046				1,000,000
(e) Common Shares outstanding, par value $0.10 per share			41,002,483				30,153,865				8,477,033				29,578,269				13,352,365
(f)  Common Shares authorized			199,981,860				199,990,153				unlimited				199,991,954				unlimited

See notes to financial statements.

 

 

42		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Statements of Operations

Six Months Ended January 31, 2019 (unaudited)

 

		MUC				MUJ				MFT				MIY				MPA
INVESTMENT INCOME
Interest — unaffiliated		$	19,570,441			$	15,675,558			$	4,500,208			$	14,637,160			$	6,918,420
Dividends — affiliated			32,429				24,551				7,532				26,450				15,557
Total investment income			19,602,870				15,700,109				4,507,740				14,663,610				6,933,977
EXPENSES
Investment advisory			2,846,646				1,898,915				504,749				1,793,205				841,275
Accounting services			60,734				52,217				20,240				51,369				27,707
Professional			58,581				51,134				28,068				49,388				36,980
Rating agency			21,789				21,783				21,728				21,782				21,735
Transfer agent			19,570				18,370				10,612				18,194				14,683
Directors and Officer			14,368				22,238				5,665				21,393				9,490
Registration			8,031				5,906				4,782				5,793				4,778
Custodian			5,120				1,222				2,438				3,992				3,179
Printing			5,084				4,489				3,205				4,424				3,542
Liquidity fees			—				12,173				—				19,857				—
Remarketing fees on Preferred Shares			—				11,953				—				1,839				—
Miscellaneous			19,225				17,590				9,905				—				12,739
Total expenses excluding interest expense, fees and amortization of offering costs			3,059,148				2,117,990				611,392				1,991,236				976,108
Interest expense, fees and amortization of offering cost(a)			4,876,038				3,611,955				1,046,758				3,405,763				1,643,038
Total expenses			7,935,186				5,729,945				1,658,150				5,396,999				2,619,146
Less fees waived and/or reimbursed by the Manager			(268,482	)			(1,456	)			(492	)			(1,720	)			(952	)
Total expenses after fees waived and/or reimbursed			7,666,704				5,728,489				1,657,658				5,395,279				2,618,194
Net investment income			11,936,166				9,971,620				2,850,082				9,268,331				4,315,783
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments — unaffiliated			(3,669,097	)			(709,300	)			149,372				36,595				(338,397	)
Investments — affiliated			(1	)			231				195				540				83
Futures contracts			593,924				473,575				36,883				250,628				388,160
Capital gain distributions from investment companies — affiliated			—				6				88				158				343
			(3,075,174	)			(235,488	)			186,538				287,921				50,189
Net change in unrealized appreciation (depreciation) on:
Investments — unaffiliated			(4,304,390	)			(1,032,146	)			(1,681,105	)			(1,455,958	)			(216,210	)
Investments — affiliated			—				83				—				(172	)			(54	)
Futures contracts			(2,308,745	)			(1,896,764	)			(297,792	)			(1,287,862	)			(1,036,013	)
			(6,613,135	)			(2,928,827	)			(1,978,897	)			(2,743,992	)			(1,252,277	)
Net realized and unrealized loss			(9,688,309	)			(3,164,315	)			(1,792,359	)			(2,456,071	)			(1,202,088	)
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS		$	2,247,857			$	6,807,305			$	1,057,723			$	6,812,260			$	3,113,695
(a) Related to TOB Trusts, VMTP Shares and/or VRDP Shares.

See notes to financial statements.

 

 

FINANCIAL STATEMENTS			43

---

 

Statements of Changes in Net Assets

 

		MUC
		Six Months Ended 01/31/19 (unaudited)				Year Ended 07/31/18
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS
Net investment income		$	11,936,166			$	26,345,394
Net realized gain (loss)			(3,075,174	)			2,208,575
Net change in unrealized appreciation (depreciation)			(6,613,135	)			(21,642,313	)
Net increase in net assets applicable to Common Shareholders resulting from operations			2,247,857				6,911,656
DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)(b)
Decrease in net assets resulting from distributions to shareholders			(12,059,938	)			(27,389,659	)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS(b)
Total decrease in net assets applicable to Common Shareholders			(9,812,081	)			(20,478,003	)
Beginning of period			616,387,291				636,865,294
End of period		$	606,575,210			$	616,387,291

 

(a)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(b)	Prior year distribution character information and undistributed net investment income has been modified or removed to conform with current year Regulation S-X presentation changes. Refer to Note 11 for this prior year information.

See notes to financial statements.

 

 

44		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Statements of Changes in Net Assets  (continued)

 

		MUJ
		Six Months Ended 01/31/19 (unaudited)				Year Ended 07/31/18
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS
Net investment income		$	9,971,620			$	21,389,643
Net realized gain (loss)			(235,488	)			3,015,448
Net change in unrealized appreciation (depreciation)			(2,928,827	)			(10,791,325	)
Net increase in net assets applicable to Common Shareholders resulting from operations			6,807,305				13,613,766
DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)(b)
Decrease in net assets resulting from distributions to shareholders			(9,498,467	)			(22,304,151	)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS(b)
Total decrease in net assets applicable to Common Shareholders			(2,691,162	)			(8,690,385	)
Beginning of period			460,726,950				469,417,335
End of period		$	458,035,788			$	460,726,950

 

(a)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(b)	Prior year distribution character information and undistributed net investment income has been modified or removed to conform with current year Regulation S-X presentation changes. Refer to Note 11 for this prior year information.

See notes to financial statements.

 

 

FINANCIAL STATEMENTS			45

---

 

Statements of Changes in Net Assets  (continued)

 

		MFT
		Six Months Ended 01/31/19 (unaudited)				Year Ended 07/31/18
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS
Net investment income		$	2,850,082			$	6,310,000
Net realized gain			186,538				749,117
Net change in unrealized (depreciation)			(1,978,897	)			(6,248,096	)
Net increase in net assets applicable to Common Shareholders resulting from operations			1,057,723				811,021
DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)(b)
Decrease in net assets resulting from distributions to shareholders			(3,000,870	)			(6,747,670	)
CAPITAL SHARE TRANSACTIONS
Reinvestment of common distributions to shareholders			—				27,009
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS(b)
Total decrease in net assets applicable to Common Shareholders			(1,943,147	)			(5,909,640	)
Beginning of period			117,795,376				123,705,016
End of period		$	115,852,229			$	117,795,376

 

(a)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(b)	Prior year distribution character information and undistributed net investment income has been modified or removed to conform with current year Regulation S-X presentation changes. Refer to Note 11 for this prior year information.

See notes to financial statements.

 

 

46		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Statements of Changes in Net Assets  (continued)

 

		MIY
		Six Months Ended 01/31/19 (unaudited)				Year Ended 07/31/18
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS
Net investment income		$	9,268,331			$	20,261,471
Net realized gain			287,921				2,353,308
Net change in unrealized appreciation (depreciation)			(2,743,992	)			(14,527,958	)
Net increase in net assets applicable to Common Shareholders resulting from operations			6,812,260				8,086,821
DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)(b)
Decrease in net assets resulting from distributions to shareholders			(9,228,420	)			(21,027,723	)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS(b)
Total decrease in net assets applicable to Common Shareholders			(2,416,160	)			(12,940,902	)
Beginning of period			444,946,641				457,887,543
End of period		$	442,530,481			$	444,946,641

 

(a)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(b)	Prior year distribution character information and undistributed net investment income has been modified or removed to conform with current year Regulation S-X presentation changes. Refer to Note 11 for this prior year information.

See notes to financial statements.

 

 

FINANCIAL STATEMENTS			47

---

 

Statements of Changes in Net Assets  (continued)

 

		MPA
		Six Months Ended 01/31/19 (unaudited)				Year Ended 07/31/19
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS
Net investment income		$	4,315,783			$	9,437,503
Net realized gain			50,189				1,004,627
Net change in unrealized appreciation (depreciation)			(1,252,277	)			(7,113,551	)
Net increase in net assets applicable to Common Shareholders resulting from operations			3,113,695				3,328,579
DISTRIBUTIONS TO COMMON SHAREHOLDERS(a)(b)
Decrease in net assets resulting from distributions to shareholders			(4,379,576	)			(9,542,548	)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS(b)
Total decrease in net assets applicable to Common Shareholders			(1,265,881	)			(6,213,969	)
Beginning of period		$	203,956,387			$	210,170,356
End of period		$	202,690,506			$	203,956,387

 

(a)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(b)	Prior year distribution character information and undistributed net investment income has been modified or removed to conform with current year Regulation S-X presentation changes. Refer to Note 11 for this prior year information.

See notes to financial statements.

 

 

48		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Statements of Cash Flows  (unaudited)

Six Months Ended January 31, 2019

 

		MUC				MUJ				MFT				MIY				MPA
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net increase in net assets resulting from operations		$	2,247,857			$	6,807,305			$	1,057,723			$	6,812,260			$	3,113,695
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			202,688,610				47,440,257				37,157,633				78,995,249				31,058,970
Purchases of long-term investments			(175,689,179	)			(44,492,644	)			(37,004,360	)			(73,764,179	)			(26,722,311	)
Net (purchases) sales of short-term securities			(1,364,332	)			(1,653,651	)			(355	)			(8,019	)			562,370
Amortization of premium and accretion of discount on investments and other fees			3,767,381				390,701				432,555				1,943,894				508,683
Net realized (gain) loss on investments			3,669,098				709,069				(149,567	)			(37,135	)			338,314
Net unrealized depreciation on investments			4,304,390				1,032,063				1,681,105				1,456,130				216,264
(Increase) Decrease in Assets:
Receivables:
Interest — unaffiliated			780,821				(129,046	)			9,779				176,431				(174,393	)
Dividends — affiliated			10,009				(2,125	)			(1,005	)			(410	)			(504	)
Prepaid expenses			17,646				14,675				12,046				14,499				12,443
Increase (Decrease) in Liabilities:
Payables:
Investment advisory fees			(7,872	)			(1,971	)			(959	)			(5,275	)			(2,851	)
Interest expense and fees			81,546				35,202				12,954				29,739				38,247
Directors’ and Officer’s			(24,615	)			1,628				137				1,478				162
Variation margin on futures contracts			270,779				255,205				42,044				158,323				139,106
Other accrued expenses			(83,026	)			(72,745	)			(29,902	)			(72,599	)			(50,370	)
Net cash provided by operating activities			40,669,113				10,333,923				3,219,828				15,700,386				9,037,825
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from TOB Trust Certificates			10,958,931				—				2,570,851				5,684,998				1,655,350
Repayments of TOB Trust Certificates			(29,846,529	)			—				(2,628,429	)			(11,664,998	)			(6,273,213	)
Proceeds from Loan for TOB Trust Certificates			10,958,283				—				—				—				—
Repayments of Loan for TOB Trust Certificates			(10,958,283	)			—				—				—				—
Cash dividends paid to Common Shareholders			(12,059,938	)			(9,498,467	)			(3,000,870	)			(9,228,420	)			(4,412,957	)
Increase (decrease) in bank overdraft			(9,451,577	)			(358,053	)			(95,379	)			(335,798	)			258,383
Amortization of deferred offering costs			—				9,597				—				4,832				5,612
Net cash used for financing activities			(40,399,113	)			(9,846,923	)			(3,153,827	)			(15,539,386	)			(8,766,825	)
CASH
Net increase in restricted and unrestricted cash and foreign currency			270,000				487,000				66,001				161,000				271,000
Restricted and unrestricted cash and foreign currency at beginning of period			609,502				221,000				47,550				335,950				117,800
Restricted and unrestricted cash and foreign currency at end of period		$	879,502			$	708,000			$	113,551			$	496,950			$	388,800
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest expense		$	4,794,492			$	3,567,156			$	1,033,804			$	3,371,192			$	1,599,179
RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE END OF PERIOD TO THE STATEMENTS OF ASSETS AND LIABILITIES
Cash pledged:
Futures contracts		$	879,502			$	708,000			$	113,551			$	496,950			$	388,800
RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE BEGINNING OF PERIOD TO THE STATEMENTS OF ASSETS AND LIABILITIES
Cash pledged:
Futures contracts		$	609,502			$	221,000			$	47,550			$	335,950			$	117,800

See notes to financial statements.

 

 

FINANCIAL STATEMENTS			49

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Financial Highlights

(For a share outstanding throughout each period)

 

		MUC
		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018				2017				2016				2015				2014
Net asset value, beginning of period		$	15.03							$	15.53			$	16.51			$	15.78			$	15.82			$	14.52
Net investment income(a)			0.29								0.64				0.69				0.77				0.78				0.82
Net realized and unrealized gain (loss)			(0.23	)							(0.47	)			(0.93	)			0.76				(0.00	)(b)			1.34
Net increase (decrease) from investment operations			0.06								0.17				(0.24	)			1.53				0.78				2.16
Distributions to Common Shareholders(c)
From net investment income			(0.29	)							(0.67	)			(0.74	)			(0.80	)			(0.82	)			(0.86	)
From net realized gain			(0.01	)							—				—				—				—				—
Total distributions			(0.30	)							(0.67	)			(0.74	)			(0.80	)			(0.82	)			(0.86	)
Net asset value, end of period		$	14.79							$	15.03			$	15.53			$	16.51			$	15.78			$	15.82
Market price, end of period		$	12.80							$	13.07			$	14.75			$	16.28			$	14.28			$	14.04
Total Return Applicable to Common Shareholders(d)
Based on net asset value			0.71	%(e)							1.54	%			(1.08	)%			10.20	%			5.52	%			15.94	%
Based on market price			0.23	%(e)							(7.03	)%			(4.73	)%			20.08	%			7.60	%			12.25	%
Ratios to Average Net Assets Applicable to Common Shareholders
Total expenses			2.60	%(f)							2.38	%			2.04	%			1.60	%			1.47	%			1.57	%
Total expenses after fees waived and/or reimbursed and paid indirectly			2.52	%(f)							2.29	%			1.96	%			1.55	%			1.45	%			1.51	%
Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees and amortization of offering costs(g)			0.92	%(f)							0.93	%			0.93	%			0.93	%			0.93	%			0.93	%
Net investment income to Common Shareholders			3.92	%(f)							4.20	%			4.44	%			4.79	%			4.88	%			5.44	%
Supplemental Data
Net assets applicable to Common Shareholders, end of period (000)		$	606,575							$	616,387			$	636,865			$	677,128			$	646,897			$	648,837
VMTP Shares outstanding at $100,000 liquidation value, end of period (000)		$	254,000							$	254,000			$	254,000			$	254,000			$	254,000			$	254,000
Asset coverage per VMTP Shares at $100,000 liquidation value, end of period		$	338,809							$	342,672			$	350,734			$	366,586			$	354,684			$	355,448
Borrowings outstanding, end of period (000)		$	167,018							$	185,905			$	181,685			$	169,699			$	161,571			$	88,271
Portfolio turnover rate			15	%							24	%			19	%			21	%			25	%			25	%

 

(a)	Based on average Common Shares outstanding.

(b)	Amount is greater than $(0.005) per share.

(c)	Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

(d)	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.

(e)	Aggregate total return.

(f)	Annualized.

(g)	Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VMTP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

See notes to financial statements.

 

 

50		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		MUJ
		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018				2017				2016				2015				2014
Net asset value, beginning of period		$	15.28							$	15.57			$	16.55			$	15.62			$	15.74			$	14.51
Net investment income(a)			0.33								0.71				0.77				0.84				0.84				0.86
Net realized and unrealized gain (loss)			(0.10	)							(0.26	)			(0.94	)			0.96				(0.07	)			1.27
Net increase (decrease) from investment operations			0.23								0.45				(0.17	)			1.80				0.77				2.13
Distributions to Common Shareholders(b)
From net investment income			(0.32	)							(0.74	)			(0.81	)			(0.87	)			(0.89	)			(0.89	)
From net realized gain			—								—				—				—				—				(0.01	)
Total distributions			(0.32	)							(0.74	)			(0.81	)			(0.87	)			(0.89	)			(0.90	)
Net asset value, end of period		$	15.19							$	15.28			$	15.57			$	16.55			$	15.62			$	15.74
Market price, end of period		$	12.99							$	12.90			$	14.88			$	16.12			$	13.55			$	14.11
Total Return Applicable to Common Shareholders(c)
Based on net asset value			1.89	%(d)							3.52	%			(0.57	)%			12.39	%			5.59	%			15.79	%
Based on market price			3.21	%(d)							(8.55	)%			(2.44	)%			26.20	%			2.18	%			13.24	%
Ratios to Average Net Assets Applicable to Common Shareholders
Total expenses			2.51	%(e)							2.23	%			1.89	%			1.52	%			1.62	%(f)			1.64	%
Total expenses after fees waived and/or reimbursed and paid indirectly			2.51	%(e)							2.23	%			1.89	%			1.52	%			1.57	%(f)			1.57	%
Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense fees and amortization of offering costs(g)(h)			0.93	%(e)							0.93	%			0.91	%			0.90	%			1.02	%(f)			1.25	%
Net investment income to Common Shareholders			4.36	%(e)							4.60	%			4.95	%			5.27	%			5.27	%			5.78	%
Supplemental Data
Net assets applicable to Common Shareholders, end of period (000)		$	458,036							$	460,727			$	469,417			$	499,058			$	470,946			$	335,425
VRDP Shares outstanding at $100,000 liquidation value, end of period (000)		$	237,100							$	237,100			$	237,100			$	237,100			$	237,100			$	172,700
Asset coverage per VRDP Shares at $100,000 liquidation value, end of period		$	293,183							$	294,318			$	297,983			$	310,484			$	298,628			$	294,224
Borrowings outstanding, end of period (000)		$	62,747							$	62,747			$	63,877			$	55,089			$	52,744			$	34,699
Portfolio turnover rate			6	%							14	%			8	%			9	%			10	%			16	%

 

(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)	Aggregate total return.

(e)	Annualized.

(f)

Includes reorganization costs associated with the Fund’s reorganization. Without these costs, total expenses, total expenses after fees waived and/or reimbursed and/or paid indirectly and total expenses after fees waived and/or reimbursed and/or paid indirectly and excluding interest expense, fees and amortization of offering costs would have been 1.52%, 1.50% and 0.95%, respectively.

(g)	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.

(h)	The total expense ratio after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees were as follows:

 

		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018								2017								2016								2015								2014
Expense ratios			0.93	%							0.93	%							0.91	%							0.89	%							1.01	%							0.95	%

See notes to financial statements.

 

 

FINANCIAL HIGHLIGHTS			51

---

Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		MFT
		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018				2017				2016				2015				2014
Net asset value, beginning of period		$	13.90							$	14.60			$	15.55			$	14.95			$	14.83			$	13.61
Net investment income(a)			0.34								0.74				0.79				0.83				0.84				0.85
Net realized and unrealized gain (loss)			(0.22	)							(0.64	)			(0.91	)			0.62				0.13				1.22
Net increase (decrease) from investment operations			0.12								0.10				(0.12	)			1.45				0.97				2.07
Distributions to Common Shareholders from net investment income(b)			(0.35	)							(0.80	)			(0.83	)			(0.85	)			(0.85	)			(0.85	)
Net asset value, end of period		$	13.67							$	13.90			$	14.60			$	15.55			$	14.95			$	14.83
Market price, end of period		$	13.10							$	13.03			$	14.67			$	16.09			$	13.37			$	13.26
Total Return Applicable to Common Shareholders(c)
Based on net asset value			1.15	%(d)							0.92	%			(0.51	)%			10.31	%			7.25	%			16.40	%
Based on market price			3.41	%(d)							(5.85	)%			(3.39	)%			27.63	%			7.27	%			16.10	%
Ratios to Average Net Assets Applicable to Common Shareholders
Total expenses			2.85	%(e)							2.47	%			2.07	%			1.61	%			1.56	%			1.67	%
Total expenses after fees waived and/or reimbursed and paid indirectly			2.85	%(e)							2.47	%			2.07	%			1.61	%			1.56	%			1.67	%
Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees and amortization of offering costs(f)			1.05	%(e)							1.03	%			1.00	%			0.96	%			0.98	%			1.00	%
Net investment income to Common Shareholders			4.89	%(e)							5.23	%			5.35	%			5.45	%			5.52	%			6.04	%
Supplemental Data
Net assets applicable to Common Shareholders, end of period (000)		$	115,852							$	117,795			$	123,705			$	131,739			$	126,696			$	125,647
VMTP Shares outstanding at $100,000 liquidation value, end of period (000)		$	56,500							$	56,500			$	56,500			$	56,500			$	56,500			$	56,500
Asset coverage per VMTP Shares at $100,000 liquidation value, end of period		$	305,048							$	308,487			$	318,947			$	333,167			$	324,240			$	322,384
Borrowings outstanding, end of period (000)		$	29,989							$	28,786			$	27,229			$	21,953			$	19,488			$	20,284
Portfolio turnover rate			18	%							30	%			34	%			21	%			13	%			32	%

 

(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)	Aggregate total return.

(e)	Annualized.

(f)	Interest expense, fees and amortization of offering costs related to TOB Trusts and/or VMTP Shares. See Note 4 and Note 10 of the Notes to Financial Statements for details.

See notes to financial statements.

 

 

52		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		MIY
		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018				2017				2016				2015				2014
Net asset value, beginning of period		$	15.04							$	15.48			$	16.36			$	15.48			$	15.24			$	14.16
Net investment income(a)			0.31								0.69				0.75				0.79				0.83				0.86
Net realized and unrealized gain (loss)			(0.08	)							(0.42	)			(0.86	)			0.92				0.27				1.12
Net increase (decrease) from investment operations			0.23								0.27				(0.11	)			1.71				1.10				1.98
Distributions to Common Shareholders from net investment income(b)			(0.31	)							(0.71	)			(0.77	)			(0.83	)			(0.86	)			(0.90	)
Net asset value, end of period		$	14.96							$	15.04			$	15.48			$	16.36			$	15.48			$	15.24
Market price, end of period		$	12.81							$	12.89			$	14.19			$	15.38			$	13.22			$	13.47
Total Return Applicable to Common Shareholders(c)
Based on net asset value			1.95	%(d)							2.37	%			(0.07	)%			11.99	%			8.08	%			15.24	%
Based on market price			1.85	%(d)							(4.29	)%			(2.56	)%			23.28	%			4.43	%			14.74	%
Ratios to Average Net Assets Applicable to Common Shareholders
Total expenses			2.44	%(e)							2.16	%			1.88	%			1.54	%(f)			1.52	%(g)			1.54	%
Total expenses after fees waived and/or reimbursed and paid indirectly			2.44	%(e)							2.16	%			1.88	%			1.54	%(f)			1.48	%(g)			1.54	%
Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees and amortization of offering costs(h)			0.90	%(e)							0.89	%			0.89	%			0.93	%(f)			0.93	%(g)			0.93	%
Net investment income to Common Shareholders			4.20	%(e)							4.49	%			4.81	%			5.02	%			5.30	%			5.94	%
Supplemental Data
Net assets applicable to Common Shareholders, end of period (000)		$	442,530							$	444,947			$	457,888			$	483,968			$	282,534			$	278,143
VRDP Shares outstanding at $100,000 liquidation value, end of period (000)		$	231,900							$	231,900			$	231,900			$	231,900			$	144,600			$	144,600
Asset coverage per VRDP Shares at $100,000 liquidation value, end of period		$	290,828							$	291,870			$	297,450			$	308,697			$	295,390			$	292,354
Borrowings outstanding, end of period (000)		$	54,022							$	60,002			$	52,002			$	51,227			$	23,487			$	23,487
Portfolio turnover rate			9	%							8	%			13	%			19	%			19	%			16	%

 

(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)	Aggregate total return.

(e)	Annualized.

(f)

Includes reorganization costs associated with the Fund’s reorganization. Without these costs total expenses, total expenses after fees waived and/or reimbursed and/or paid indirectly and total expenses after fees waived and/or reimbursed and/or paid indirectly and excluding interest expense, fees and amortization of offering costs would have been 1.49%, 1.49% and 0.88%, respectively.

(g)

Includes reorganization costs associated with the Fund’s reorganization. Without these costs total expenses, total expenses after fees waived and/or reimbursed and/or paid indirectly and total expenses after fees waived and/or reimbursed and/or paid indirectly and excluding interest expense, fees and amortization of offering costs would have been 1.48%, 1.48% and 0.92%, respectively

(h)	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.

 

 

FINANCIAL HIGHLIGHTS			53

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Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		MPA
		Six Months Ended 01/31/19 (unaudited)								Year Ended July 31,
										2018				2017				2016				2015				2014
Net asset value, beginning of period		$	15.27							$	15.74			$	16.76			$	15.77			$	15.77			$	14.59
Net investment income(a)			0.32								0.71				0.76				0.80				0.81				0.87
Net realized and unrealized gain (loss)			(0.08	)							(0.47	)			(1.03	)			1.02				0.07				1.20
Net increase (decrease) from investment operations			0.24								0.24				(0.27	)			1.82				0.88				2.07
Distributions to Common Shareholders from net investment income(b)			(0.33	)							(0.71	)			(0.75	)			(0.83	)			(0.88	)			(0.89	)
Net asset value, end of period		$	15.18							$	15.27			$	15.74			$	16.76			$	15.77			$	15.77
Market price, end of period		$	13.19							$	13.26			$	14.69			$	16.07			$	13.50			$	13.89
Total Return Applicable to Common Shareholders(c)
Based on net asset value			1.97	%(d)							2.09	%			(1.20	)%			12.38	%			6.33	%			15.39	%
Based on market price			2.03	%(d)							(5.01	)%			(3.83	)%			25.87	%			3.34	%			13.45	%
Ratios to Average Net Assets Applicable to Common Shareholders
Total expenses			2.59	%(e)							2.26	%			1.91	%			1.46	%			1.54	%(f)			1.48	%
Total expenses after fees waived and/or reimbursed and paid indirectly			2.59	%(e)							2.26	%			1.91	%			1.46	%			1.45	%(f)			1.48	%
Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense, fees and amortization of offering costs(g)			0.96	%(e)							0.95	%			0.94	%			0.89	%			0.96	%(f)			0.95	%
Net investment income to Common Shareholders			4.27	%(e)							4.56	%			4.83	%			4.98	%			5.05	%			5.79	%
Supplemental Data
Net assets applicable to Common Shareholders, end of period (000)		$	202,691							$	203,956			$	210,170			$	223,738			$	210,549			$	181,459
VRDP Shares outstanding at $100,000 liquidation value, end of period (000)		$	82,600							$	82,600			$	82,600			$	82,600			$	82,600			$	66,300
Asset coverage per VRDP Shares at $100,000 liquidation value, end of period		$	345,388							$	346,921			$	354,444			$	370,869			$	354,901			$	373,693
Borrowings outstanding, end of period (000)		$	56,058							$	58,176			$	55,826			$	48,710			$	28,468			$	37,066
Portfolio turnover rate			10	%							21	%			15	%			17	%			21	%			16	%

 

(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)	Aggregate total return.

(e)	Annualized.

(f)

Includes reorganization costs associated with the Fund’s reorganization. Without these costs, total expenses, total expenses after fees waived and/or reimbursed and/or paid indirectly and total expenses after fees waived and/or reimbursed and/or paid indirectly and excluding interest expense, fees and amortization of offering costs would have been 1.40%, 1.40% and 0.91% respectively.

(g)	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.

See notes to financial statements.

 

 

54		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Notes to Financial Statements  (unaudited)

 

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 MuniHoldings California Quality Fund, Inc.		MUC		Maryland		Diversified
BlackRock MuniHoldings New Jersey Quality Fund, Inc.		MUJ		Maryland		Non-diversified
BlackRock MuniYield Investment Quality Fund		MFT		Massachusetts		Diversified
BlackRock MuniYield Michigan Quality Fund, Inc.		MIY		Maryland		Non-diversified
BlackRock MuniYield Pennsylvania Quality Fund		MPA		Massachusetts		Non-diversified

The Boards of Directors and Boards of Trustees of the Funds are collectively referred to throughout this report as the “Board of Directors” or the “Board,” and the directors thereof are collectively referred to throughout this report as “Directors”. The Funds determine and make available for publication the 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 Fixed-Income Complex.

 

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 entered into (the “trade dates”). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend 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 borrowing 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 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 independent Directors (“Independent Directors”) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain 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: In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update “Premium Amortization of Purchased Callable Debt Securities” which amends the amortization period for certain purchased callable debt securities. Under the new guidance, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features and are callable at fixed prices will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis and is effective for fiscal years, and their interim periods, beginning after December 15, 2018. Management is currently evaluating the impact of this guidance to the Funds.

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-13 “Changes to the Disclosure Requirements for Fair Value Measurement” which modifies disclosure requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Management is currently evaluating the impact of this guidance to the Funds.

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.

 

 

NOTES TO FINANCIAL STATEMENTS			55

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Notes to Financial Statements  (unaudited) (continued)

 

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. 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 traded on exchanges are valued at their last sale price.

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 each Fund’s own 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. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Global Valuation Committee in the absence of market information.

Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with each Fund’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 and When-Issued 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 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

 

 

56		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Notes to Financial Statements  (unaudited) (continued)

 

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 provides 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 management of each of MFT, MIY and MPA believes that each Fund’s restriction on borrowings do not apply to the Fund’s 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 deferred 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
MUC		$	1,326,087			$	385,997			$	115,815			$	1,827,899
MUJ			508,229				124,271				75,159				707,659
MFT			224,719				61,190				24,508				310,417
MIY			453,267				124,389				36,314				613,970
MPA			457,724				140,418				33,567				631,709

For the six months ended January 31, 2019, 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
MUC		$	336,460,826			$	167,017,593				1.25% — 1.41	%		$	167,807,275				2.16	%
MUJ			114,707,858				62,747,370				1.29 — 1.49				62,747,370				2.24
MFT			54,357,984				29,988,610				1.29 — 1.49				28,115,938				2.19
MIY			100,668,159				54,022,057				1.32 — 1.49				55,922,220				2.18
MPA			96,063,372				56,058,453				1.31 — 1.49				57,484,660				2.18

 

 

NOTES TO FINANCIAL STATEMENTS			57

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Notes to Financial Statements  (unaudited) (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 January 31, 2019, 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 January 31, 2019.

For the six months ended January 31, 2019, the following table is a summary of each Fund’s Loan for TOB Trust Certificates:

 

		Loan Outstanding at Period End				Interest Rate on Loan at Period End				Average Loans Outstanding				Daily Weighted Average Rate of Interest and Other Expenses on Loans
MUC		$	—				—	%		$	547,045				0.82	%

 

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, is 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, 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 the following percentages of the average daily value of each Fund’s net assets.

 

		MUC				MUJ				MFT				MIY				MPA
Investment advisory fees			0.55	%			0.50	%			0.50	%			0.49	%			0.49	%

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 NAV.

Waivers: The Manager, for MUC, voluntarily agreed to waive its investment advisory fee on the proceeds of the Preferred Shares and TOB Trusts that exceed 35% of total assets 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). The voluntary waiver may be reduced or discontinued at any time without notice. This amount is included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the six months ended January 31, 2019 the waiver was $267,712.

 

 

58		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Notes to Financial Statements  (unaudited) (continued)

 

With respect to each Fund, the Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”). These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the six months ended January 31, 2019, the amounts waived were as follows:

 

		MUC				MUJ				MFT				MIY				MPA
Amounts waived		$	770			$	1,456			$	492			$	1,720			$	952

The Manager contractually agreed to waive its investment advisory fee with respect to any portion of each assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2019. 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 Fund’s Independent Directors. For the six months ended January 31, 2019, there were no fees waived by the Manager.

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.

Other Transactions: The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers, or common trustees. For the six months ended January 31, 2019, the purchase and sale transactions and any net realized gains (losses) with an affiliated funds in compliance with Rule 17a-7 under the 1940 Act were as follows:

 

		Purchases				Sales				Net Realized Gain (Loss)
BlackRock MuniYield Investment Quality Fund		$	—			$	99,351			$	(7,368	)

 

7.	PURCHASES AND SALES

For the six months ended January 31, 2019, purchases and sales of investments, excluding short-term securities, were as follows:

 

		MUC				MUJ				MFT				MIY				MPA
Purchases		$	153,957,028			$	44,492,644			$	38,548,128			$	73,764,179			$	35,483,376
Sales			201,224,068				47,440,257				35,847,020				78,995,249				32,525,746

 

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, 2018. 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 January 31, 2019, 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.

As of July 31, 2018, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

 

Expires July 31,		MUJ				MFT				MIY				MPA
No expiration date(a)		$	715,913			$	5,782,781			$	1,788,344			$	1,302,025
2019			—				—				—				50,303
		$	715,913			$	5,782,781			$	1,788,344			$	1,352,328

 

(a)

Must be utilized prior to losses subject to expiration.

As of January 31, 2019, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:

 

		MUC				MUJ				MFT				MIY				MPA
Tax cost		$	819,663,718			$	655,700,745			$	164,625,021			$	641,439,410			$	277,022,618
Gross unrealized appreciation			31,191,918				38,392,796				8,258,408				27,531,435				11,862,786
Gross unrealized depreciation			(3,681,152	)			(4,848,225	)			(698,943	)			(2,577,600	)			(2,257,793	)
Net unrealized appreciation		$	27,510,766			$	33,544,571			$	7,559,465			$	24,953,835			$	9,604,993

 

 

NOTES TO FINANCIAL STATEMENTS			59

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Notes to Financial Statements  (unaudited) (continued)

 

 

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.

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 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.

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 of MUC, MUJ, MIY and MPA invests a substantial amount of its assets in issuers located in a single state or limited number of states. 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, MUC invested a significant portion of their assets in securities in the county, city, special district and school district sector. MUJ and MFT invested a significant portion of its assets in securities in the transportation 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.

 

 

60		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Notes to Financial Statements  (unaudited) (continued)

 

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. The Federal Reserve has begun to raise the Federal Funds rate, and each increase results in more pronounced interest rate risk in the current market environment.

 

10.	CAPITAL SHARE TRANSACTIONS

Common Shares

MFT and MPA are authorized to issue an unlimited number of Common Shares and 1 million Preferred Shares, all of which were initially classified as Common Shares. MUC, MUJ and MIY each is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Fund’s Common Shares is $0.10. The par value for each Fund’s Preferred Shares outstanding is $0.10, except for MFT and MPA, which is $0.05. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders.

For the six months ended January 31, 2019, shares issued and outstanding remained constant for MFT. For the year ended July 31, 2018, shares issued and outstanding increased by 1,844, for MFT as a result of dividend reinvestment.

For the six months ended January 31, 2019 and the year ended July 31, 2018, shares issued and outstanding remained constant for MUC, MUJ, MIY and MPA.

On November 15, 2018, the Board authorized each Fund to participate in an open market share repurchase program. Under the program, each Fund may repurchase up to 5% of its outstanding common shares through November 30, 2019, based on common shares outstanding as of the close of business on November 30, 2018, subject to certain conditions. There is no assurance that the Funds will purchase shares in any particular amounts. For the six months ended January 31, 2019, 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 its 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

MUJ, MIY and MPA (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 of each Fund were as follows:

 

		Issue Date				Shares Issued				Aggregate Principal				Maturity Date
MUJ			06/30/11				1,727			$	172,700,000				07/01/41
			04/13/15				644				64,400,000				07/01/41
MIY			04/21/11				1,446				144,600,000				05/01/41
			09/14/15				873				87,300,000				05/01/41
MPA			05/19/11				663				66,300,000				06/01/41
			04/13/15				163				16,300,000				06/01/41

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.

 

 

NOTES TO FINANCIAL STATEMENTS			61

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Notes to Financial Statements  (unaudited) (continued)

 

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. The fee agreement is set to expire, unless renewed or terminated in advance, as follows:

 

MUJ

MIY

MPA

Expiration Date

04/15/20

07/04/19

07/04/19

In the event a fee agreement is not renewed or is terminated in advance, and the VRDP Fund does not enter into a fee agreement with an alternate liquidity provider, the VRDP Shares will be subject to mandatory purchase by the liquidity provider prior to the termination of the fee agreement. 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.

Ratings: As of period end, the VRDP Shares were assigned the following long-term ratings:

 

		Moody’s		Fitch
MUJ		Aa2		AAA
MIY		Aa2		AAA
MPA		Aa2		AAA

Any short-term ratings on the VRDP Shares are directly related to the short-term ratings of the liquidity provider for such VRDP Shares. Changes in the credit quality of the liquidity provider could cause a change in the short-term credit ratings of the VRDP Shares as rated by Moody’s and Fitch. 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. 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. As of period end, the short-term ratings of the VRDP Shares were within the two highest rating categories as follows:

 

		Moody’s		Fitch
MIY		P-1		F1

Special Rate Period: A VRDP Fund may commence 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. The following VRDP Funds have commenced or are set to commence a special rate period:

 

		Commencement Date		Expiration Date as of Period Ended January 31, 2019
MUJ		04/17/2014*		04/15/2020
MPA		06/21/2012*		06/19/2019

 

*

Issuance date of VRDP Shares.

The following VRDP Fund was in a special rate period that terminated during the reporting period:

 

		Commencement Date		Termination Date
MIY		06/21/12*		01/24/19

 

*

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 the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index 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.

If a VRDP Fund redeems its VRDP Shares prior to end of the special rate period and the VRDP Shares have long-term ratings above A1/A+ and its equivalent by all ratings agencies then rating the VRDP Shares, then such redemption may be subject to a redemption premium payable to the holder of the VRDP Shares based on the time remaining in the special rate period, subject to certain exceptions for redemptions that are required to comply with minimum asset coverage requirements.

Dividends: Except during the Special Rate Period, 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

 

 

62		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Notes to Financial Statements  (unaudited) (continued)

 

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 six months ended January 31, 2019, the annualized dividend rates for the VRDP Shares were as follows:

 

		MUJ				MIY				MPA
Rate			1.22	%			1.20	%			1.22	%

VMTP Shares

MUC and MFT (for purposes of this section, a “VMTP Fund”) have issued Series W-7 VMTP Shares, $100,000 liquidation preference per share, in one or more privately negotiated offerings to qualified institutional buyers as defined pursuant to Rule 144A under the Securities Act. The VMTP Shares are subject to certain restrictions on transfer, and a VMTP Fund may also be required to register its VMTP Shares for sale under the Securities Act under certain circumstances. In addition, amendments to the VMTP governing documents generally require the consent of the holders of VMTP Shares. As of period end, the VMTP Shares outstanding were as follows:

 

Issue Date

Shares Issued

Aggregate Principal

Maturity Date

MUC

03/22/12

2,540

$

254,000,000

03/30/20

MFT

12/16/11

565

56,500,000

07/02/20

Redemption Terms: A VMTP Fund is required to redeem its VMTP Shares on the term redemption date, unless earlier redeemed or repurchased or unless extended. There is no assurance that a term will be extended further or that any VMTP Shares will be replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the VMTP Shares. Six months prior to the term redemption date, a VMTP Fund is required to begin to segregate liquid assets with its custodian to fund the redemption. In addition, a VMTP Fund is required to redeem certain of its outstanding VMTP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.

Subject to certain conditions, VMTP Shares may be redeemed, in whole or in part, at any time at the option of the VMTP Fund. The redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends and applicable redemption premium. If a VMTP Fund redeems its VMTP Shares prior to the term redemption date and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then rating the VMTP Shares, then such redemption may be subject to a prescribed redemption premium (up to 3% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining until the term redemption date, subject to certain exceptions for redemptions that are required to comply with minimum asset coverage requirements.

Dividends: Dividends on the VMTP Shares are declared daily and payable monthly at a variable rate set weekly at a fixed rate spread to the SIFMA Municipal Swap Index or to a percentage of the one-month LIBOR rate, as set forth in the VMTP Shares governing instrument. The fixed spread is determined based on the long-term preferred share rating assigned to the VMTP Shares by the ratings agencies then rating the VMTP Shares. As of period end, the VMTP Shares were assigned the following long-term ratings:

 

		Moody’s		Fitch
MUC		Aa2		AAA
MFT		Aa1		AAA

The dividend rate on VMTP Shares is subject to a step-up spread if the VMTP Fund fails to comply with certain provisions, including, among other things, the timely payment of dividends, redemptions or gross-up payments, and complying with certain asset coverage and leverage requirements.

For the six months ended January 31, 2019, the average annualized dividend rates for the VMTP Shares were as follows:

 

		MUC				MFT
Rate			1.20	%			1.30	%

For the six months ended January 31, 2019, VMTP Shares issued and outstanding of each Fund remained constant.

Offering Costs: The Funds incurred costs in connection with the issuance of VRDP and VMTP Shares, which were recorded as a direct deduction from the carrying value of the related debt liability and will be amortized over the life of the VRDP Shares with the exception of upfront fees paid to the liquidity provider which were amortized over the life of the liquidity agreement. Amortization of these costs is included in interest expense, fees and amortization of offering costs in the Statements of Operations.

Financial Reporting: The VRDP and VMTP Shares are considered debt of the issuer; therefore, the liquidation preference, which approximates fair value of the VRDP and VMTP Shares, is recorded as a liability in the Statements of Assets and Liabilities net of deferred offering costs. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the dividends accrued and paid on the VRDP and VMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the Statements of Operations. The VRDP and VMTP Shares are treated as equity for tax purposes. Dividends paid to holders of the VRDP and VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes. Dividends and amortization of deferred offering costs on VRDP and VMTP Shares are included in interest expense, fees and amortization of offering costs in the Statements of Operations:

 

		Dividends Accrued				Deferred Offering Costs Amortization
MUC		$	3,048,139			$	—
MUJ			2,894,699				9,597
MFT			736,341				—
MIY			2,786,961				4,832
MPA			1,005,717				5,612

 

 

NOTES TO FINANCIAL STATEMENTS			63

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Notes to Financial Statements  (unaudited) (continued)

 

 

11.	REGULATION S-X AMENDMENTS

On August 17, 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The Funds have adopted the amendments pertinent to Regulation S-X in this shareholder report. The amendments impacted certain disclosure presentation on the Statements of Assets and Liabilities, Statements of Changes in Net Assets and Notes to Financial Statements.

Prior year distribution information and undistributed net investment income in the Statements of Changes in Net Assets has been modified to conform to the current year presentation in accordance with the Regulation S-X changes.

Distributions for the year ended July 31, 2018, were classified as follows:

 

		Net Investment Income
MUC		$	27,389,659
MUJ			22,304,151
MFT			6,747,670
MIY			21,027,723
MPA			9,542,548

Undistributed net investment income as of July 31, 2018, is as follows:

 

		Undistributed Net Investment Income
MUC		$	2,019,353
MUJ			2,514,002
MFT			828,755
MIY			673,979
MPA			646,458

 

12.	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:

 

		Common Dividend Per Share												Preferred Shares (c)
		Paid (a)				Declared (b)								Shares				Series				Declared
MUC		$	0.0475			$	0.0475								VMTP				W-7			$	460,540
MUJ			0.0525				0.0525								VRDP				W-7				453,543
MFT			0.0590				0.0590								VMTP				W-7				115,417
MIY			0.0520				0.0520								VRDP				W-7				313,732
MPA			0.0530				0.0530								VRDP				W-7				157,370

 

(a)

Net investment income dividend paid on March 1, 2019 to Common Shareholders of record on February 15, 2019.

(b)

Net investment income dividend declared on March 1, 2019, payable to Common Shareholders of record on March 15, 2019.

(c)

Dividends declared for period February 1, 2019 to February 28, 2019.

 

 

64		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Director and Officer Information

 

Richard E. Cavanagh, Co-Chair of the Board and Director

Karen P. Robards, Co-Chair of the Board and Director

Michael J. Castellano, Director

Cynthia L. Egan, Director

Frank J. Fabozzi, Director

Henry Gabbay, Director

R. Glenn Hubbard, Director

W. Carl Kester, Director

Catherine A. Lynch, Director

Robert Fairbairn, Director

John M. Perlowski, Director, President and Chief Executive Officer

Jonathan Diorio, Vice President

Neal J. Andrews, Chief Financial Officer

Jay M. Fife, Treasurer

Charles Park, Chief Compliance Officer

Janey Ahn, Secretary

 

 

 

(a)	For MIY and MPA.

(b)

For MUJ.

 

 

DIRECTOR AND OFFICER INFORMATION			65

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Additional Information

 

Section 19(a) Notices

The amounts and sources of distributions reported in this notice are estimates that are subject to change based on the Fund’s investment experience during the remainder of the calendar year, are for financial reporting purposes and are not being provided for tax reporting purposes. The actual amounts and character of the distributions for tax reporting purposes will be reported to shareholders on Form 1099-DIV which is sent to shareholders shortly after calendar year end.

 

						Total Fiscal Year to Date Cumulative Distributions by Character																				Percentage of Fiscal Year to Date Cumulative Distributions by Character
		Ticker				Net Investment Income				Net Realized Capital Gains Short-Term				Net Realized Capital Gains Long-Term				Return of Capital				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
BlackRock MuniYield Pennsylvania Quality Fund			MPA			$	0.328000			$	—			$	—			$	—			$	0.328000				100	%			—	%			—	%			—	%			100	%

Section 19(a) notices for the Trusts, as applicable, are available on the BlackRock website at http://www.blackrock.com.

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 and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the distributions paid by the Funds for any particular month may be more or less than the amount of net investment income earned by the Funds during such month. The Funds’ current accumulated but undistributed net investment income, if any, is disclosed in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.

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.

During the period, there were no material changes in the Funds’ investment objectives or policies or to the Funds’ charters or by-laws that would delay or prevent a change of control of the Funds that were not approved by the shareholders or in the principal risk factors associated with investment in the Funds. Except as disclosed on page xx, 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 http://www.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, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.

 

 

66		2019 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Additional Information  (continued)

 

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 http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com; or by calling (800) 882-0052; and (2) on the SEC’s website at http://www.sec.gov.

Availability of Fund Updates

BlackRock will update performance and certain other data for the Funds on a monthly basis on its website in the “Closed-end Funds” section of http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to 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.

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.

Glossary of Terms Used in this Report

 

 

 

ADDITIONAL INFORMATION / GLOSSARY OF TERMS USED IN THIS REPORT			67

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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.

 

 

 

MQUAL5-1/19-SAR

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Item 2 –

Code of Ethics – Not Applicable to this semi-annual report

 

Item 3 –

Audit Committee Financial Expert – Not Applicable to this semi-annual report

 

Item 4 –

Principal Accountant Fees and Services – Not Applicable to this semi-annual report

 

Item 5 –

Audit Committee of Listed Registrants – Not Applicable to this semi-annual report

 

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 – Not Applicable to this semi-annual report

 

Item 8 –

Portfolio Managers of Closed-End Management Investment Companies

 

(a)

Not Applicable to this semi-annual report.

 

(b)

As of the date of this filing, there have been no changes in any of the portfolio managers identified in the most recent annual report on Form N-CSR.

 

Item 9 –

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

 

Period		(a) Total		(b) Average Price Paid per   Share		(c) Total Number of Shares Purchased as Part   of Publicly Announced Plans or Programs		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans   or Programs1
		Number of   Shares Purchased
August 1 – 31, 2018		N/A		N/A		N/A		N/A
September 1 – 30, 2018		N/A		N/A		N/A		N/A
October 1- 31, 2018		N/A		N/A		N/A		N/A
November 1 – 30, 2018		N/A		N/A		N/A		N/A
December 1 – 31, 2018		0		$0		0		2,050,124
January 1 – 31, 2019		0		$0		0		2,050,124
Total:		0		$0		0		2,050,124

¹The Fund announced an open market share repurchase program on November 15, 2018 pursuant to which the Fund was authorized to repurchase, through November 30, 2019, up to 5% of its common shares based on common shares outstanding on November 30, 2018, in open market transactions, subject to certain conditions.

 

Item 10 –

Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

 

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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 second fiscal quarter of 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 – Not Applicable to this semi-annual report

(a)(2) – Certifications – Attached hereto

(a)(3) – Not Applicable

(a)(4) – Not Applicable

(b) –   Certifications – Attached hereto

 

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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 MuniHoldings California Quality Fund, Inc.

 

By:		/s/ John M. Perlowski
		John M. Perlowski
		Chief Executive Officer (principal executive officer) of
		BlackRock MuniHoldings California Quality Fund, Inc.

Date: April 5, 2019

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 MuniHoldings California Quality Fund, Inc.

Date: April 5, 2019

 

By:		/s/ Neal J. Andrews
		Neal J. Andrews
		Chief Financial Officer (principal financial officer) of
		BlackRock MuniHoldings California Quality Fund, Inc.

Date: April 5, 2019

 

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