BLACKROCK MUNIYIELD QUALITY FUND III, INC.

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: 811-06540

Name of Fund: BlackRock MuniYield Quality Fund III, Inc. (MYI)

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

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

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

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

Date of fiscal year end: 07/31/2016

Date of reporting period: 07/31/2016


Item 1 – Report to Stockholders


JULY 31, 2016

 

 

 

 

 

ANNUAL REPORT

 

    LOGO

 

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

BlackRock MuniYield California Quality Fund, Inc. (MCA)

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Not FDIC Insured • May Lose Value • No Bank Guarantee


Table of Contents     

 

 

     Page  

The Markets in Review

    3   

Annual Report:

 

Municipal Market Overview

    4   

The Benefits and Risks of Leveraging

    5   

Derivative Financial Instruments

    6   

Fund Summaries

    7   
Financial Statements:  

Schedules of Investments

    15   

Statements of Assets and Liabilities

    41   

Statements of Operations

    42   

Statements of Changes in Net Assets

    43   

Statements of Cash Flows

    44   

Financial Highlights

    45   

Notes to Financial Statements

    49   

Report of Independent Registered Public Accounting Firm

    60   

Disclosure of Investment Advisory Agreements

    61   

Automatic Dividend Reinvestment Plans

    65   

Officers and Directors

    66   

Additional Information

    69   

 

                
2    ANNUAL REPORT    JULY 31, 2016   


The Markets in Review

 

Dear Shareholder,

Uneven economic outlooks and the divergence of monetary policies across regions have been the overarching themes driving financial markets over the past couple of years. In the latter half of 2015, as U.S. growth outpaced other developed markets, investors were focused largely on the timing of the Federal Reserve’s (the “Fed”) decision to end its near-zero interest rate policy. The Fed ultimately hiked rates in December, whereas the European Central Bank and the Bank of Japan took additional steps to stimulate growth, even introducing negative interest rates. The U.S. dollar had strengthened considerably ahead of these developments, causing profit challenges for U.S. companies that generate revenues overseas, and pressuring emerging market currencies and commodities prices.

Also during this time period, oil prices collapsed due to excess global supply. China, one of the world’s largest consumers of oil, was another notable source of stress for financial markets as the country showed signs of slowing economic growth and took measures to devalue its currency. Declining confidence in the country’s policymakers stoked investors’ worries about the potential impact of China’s weakness on the global economy. Global market volatility increased and risk assets (such as equities and high yield bonds) suffered in this environment.

The elevated market volatility spilled over into 2016, but as the first quarter wore on, fears of a global recession began to fade, allowing markets to calm and risk assets to rebound. Central bank stimulus in Europe and Japan, combined with a more tempered outlook for rate hikes in the United States, helped bolster financial markets. A softening in U.S. dollar strength brought relief to U.S. exporters and emerging market economies. Oil prices rebounded as the world’s largest producers agreed to reduce supply.

Volatility spiked again in late June when the United Kingdom shocked investors with its vote to leave the European Union. Uncertainty around how the British exit might affect the global economy and political landscape drove investors to high-quality assets, pushing already low global yields to even lower levels. But markets recovered swiftly in July as economic data suggested that the negative impact had thus far been contained to the United Kingdom and investors returned to risk assets.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to adjust accordingly as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of July 31, 2016  
    6-month     12-month  

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

    13.29 %      5.61 % 

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

    18.76        0.00   

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

    8.25        (7.53

Emerging market equities
(MSCI Emerging Markets Index)

    19.52        (0.75

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

    0.17        0.22   

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

    5.01        8.53   

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

    4.54        5.94   

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

    3.27        7.06   

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

    13.84        5.01   
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.    

 

                
   THIS PAGE NOT PART OF YOUR FUND REPORT       3


Municipal Market Overview     

 

For the Reporting Period Ended July 31, 2016      

Municipal Market Conditions

Municipal bonds generated positive performance for the period due to falling interest rates and a favorable supply-and-demand environment. Interest rates were volatile in 2015 (bond prices rise as rates fall) leading up to a long-awaited rate hike from the Fed that ultimately came in December. However, ongoing reassurance from the Fed that rates would be increased gradually and would likely remain low overall resulted in strong demand for fixed income investments. Investors favored the relative yield and stability of municipal bonds amid bouts of volatility resulting from uneven U.S. economic data, volatile oil prices, global growth concerns, geopolitical risks (particularly the U.K.’s decision to leave the European Union), and widening central bank divergence — i.e., policy easing outside the United States while the Fed was posturing to commence policy tightening. During the 12 months ended July 31, 2016, municipal bond funds garnered net inflows of approximately $49 billion (based on data from the Investment Company Institute).

For the same 12-month period, total new issuance remained relatively strong from a historical perspective at $386 billion (though lower than the $417 billion issued in the prior 12-month period). A noteworthy portion of new supply during this period was attributable to refinancing activity (roughly 59%) as issuers continued to take advantage of low interest rates and a flatter yield curve to reduce their borrowing costs.

S&P Municipal Bond Index

Total Returns as of July 31, 2016

  6 months:   3.27%

12 months:   7.06%

A Closer Look at Yields

 

LOGO

From July 31, 2015 to July 31, 2016, yields on AAA-rated 30-year municipal bonds decreased by 100 basis points (“bps”) from 3.12% to 2.12%, while 10-year rates fell by 79 bps from 2.19% to 1.40% and 5-year rates decreased 46 bps from 1.30% to 0.84% (as measured by Thomson Municipal Market Data). The municipal yield curve experienced significant flattening over the 12-month period with the spread between 2- and 30-year maturities flattening by 90 bps and the spread between 2-and 10-year maturities flattening by 69 bps.

During the same time period, on a relative basis, tax-exempt municipal bonds broadly outperformed U.S. Treasuries with the greatest outperformance experienced in longer-term issues. In absolute terms, the positive performance of municipal bonds was driven largely by falling interest rates as well as a supply/demand imbalance within the municipal market as investors sought income and incremental yield in an environment where opportunities became increasingly scarce. More broadly, municipal bonds benefited from the greater appeal of tax-exempt investing in light of the higher tax rates implemented in 2014. 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 distress among a few issuers. Four of the five states with the largest amount of debt outstanding — California, New York, Texas and Florida — have exhibited markedly improved credit fundamentals during the slow national recovery. However, several states with the largest unfunded pension liabilities have seen their bond prices decline noticeably and remain vulnerable to additional price deterioration. On the local level, Chicago’s credit quality downgrade is an outlier relative to other cities due to its larger pension liability and inadequate funding remedies. 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 July 31, 2016, 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 US municipal bond market. All bonds in the index are exempt from US federal income taxes or subject to the alternative minimum tax. 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    ANNUAL REPORT    JULY 31, 2016   


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, these objectives cannot 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 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 diffi-

cult to predict accurately, and there is no assurance that a Fund’s intended leveraging strategy will be successful.

The use of leverage also generally causes greater changes in each Fund’s NAV, market price and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of a Fund’s Common Shares than if the Fund were not leveraged. In addition, each Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Funds 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), a TOB Trust is not considered a senior security and is not subject to the foregoing limitations and requirements under the 1940 Act.

 

 

                
   ANNUAL REPORT    JULY 31, 2016    5


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 risk, including the imperfect correlation between the value of a derivative financial instru-

ment and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the instrument. The Funds’ successful use of derivative financial instruments depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.

 

 

                
6    ANNUAL REPORT    JULY 31, 2016   


Fund Summary as of July 31, 2016    BlackRock MuniHoldings Quality Fund II, Inc.

 

Fund Overview      

BlackRock MuniHoldings Quality Fund II, Inc.’s (MUE) (the “Fund”) investment objective is to provide shareholders with current income exempt from federal income taxes. The Fund seeks to achieve its investment objective by investing primarily in long-term, investment grade municipal obligations exempt from federal income taxes (except that the interest may be subject to the federal alternative minimum tax). 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 New York Stock Exchange (“NYSE”)

  MUE

Initial Offering Date

  February 26, 1999

Yield on Closing Market Price as of July 31, 2016 ($14.94)1

  5.14%

Tax Equivalent Yield2

  9.08%

Current Monthly Distribution per Common Share3

  $0.0640

Current Annualized Distribution per Common Share3

  $0.7680

Economic Leverage as of July 31, 20164

  36%

 

  1   

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.

 

  2   

Tax equivalent yield assumes the maximum marginal federal tax rate of 43.4%, 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.

 

  3   

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

 

  4   

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 12 months ended July 31, 2016 were as follows:

 

    Returns Based On  
     Market Price     NAV  

MUE1,2

    20.55     10.33

Lipper General & Insured Municipal Debt Funds (Leveraged)3

    21.89     11.98

 

  1   

All returns reflect reinvestment of dividends and/or distributions.

 

  2  

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

 

  3   

Average return.

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

 

 

Municipal bonds generated strong performance in the annual period. Municipals were aided by the sharp decline in Treasury yields, which was brought about by the slow global economy and the accommodative policies of the world’s central banks. (Bond prices rise as yields fall.) The gains were largely concentrated among intermediate- and longer-term bonds, while shorter-term issues produced much smaller returns. In addition, lower-rated securities generally outpaced their higher-quality counterparts.

 

 

The Fund’s position in the transportation sector made the largest contribution to returns. The Fund’s overall duration exposure also contributed positively given that bond yields declined.

 

 

The use of leverage helped augment returns at a time of strong market performance. However, leverage had less of an impact to performance in the second half of the period since the Fed’s interest rate increase in December 2015 raised the cost of short-term financing.

 

 

The Fund utilized U.S. Treasury futures contracts to manage exposure to a rise in interest rates, which had a slightly negative impact on performance due to the strength in the Treasury market. In addition, the Fund’s yield declined during the period as the proceeds from bonds that were called away were reinvested at lower yields.

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    7


     BlackRock MuniHoldings Quality Fund II, Inc.

 

 

Market Price and Net Asset Value Per Share Summary      

 

      7/31/16      7/31/15      Change      High      Low  

Market Price

   $ 14.94       $ 13.13         13.79    $ 15.22       $ 12.79   

Net Asset Value

   $ 15.08       $ 14.48         4.14    $ 15.23       $ 14.29   

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*
Sector Allocation              
     7/31/16     7/31/15  

Transportation

    42     37

County/City/Special District/School District

    21        25   

Utilities

    14        14   

Health

    11        11   

State

    6        7   

Education

    3        2   

Housing

    1        1   

Tobacco

    1        1   

Corporate

    1        2   

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

Credit Quality Allocation1              
     7/31/16     7/31/15  

AAA/Aaa

    8     6

AA/Aa

    59        65   

A

    27        26   

BBB/Baa

    5        3   

N/R

    1        2  

 

  1   

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

 

  2   

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

 
   
Call/Maturity Schedule3       

Calendar Year Ended December 31,

 

2016

    2 

2017

    1

2018

    21   

2019

    10   

2020

    3   

 

  3   

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

 

  *   Excludes short-term securities.
 

 

                
8    ANNUAL REPORT    JULY 31, 2016   


Fund Summary as of July 31, 2016    BlackRock MuniYield California Quality Fund, Inc.

 

Fund Overview      

BlackRock MuniYield California Quality Fund, Inc.’s (MCA) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from federal and California income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from federal income taxes (except that the interest may be subject to the federal alternative minimum tax) and California income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality 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

  MCA

Initial Offering Date

  October 30, 1992

Yield on Closing Market Price as of July 31, 2016 ($16.75)1

  4.66%

Tax Equivalent Yield2

  9.50%

Current Monthly Distribution per Common Share3

  $0.0650

Current Annualized Distribution per Common Share3

  $0.7800

Economic Leverage as of July 31, 20164

  37%

 

  1   

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.

 

  2   

Tax equivalent yield assumes the maximum marginal federal and state tax rate of 50.93%, 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.

 

  3   

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

 

  4   

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 12 months ended July 31, 2016 were as follows:

 

    Returns Based On  
     Market Price     NAV  

MCA1,2

    20.15     9.84

Lipper California Municipal Debt Funds3

    22.31     11.51

 

  1   

All returns reflect reinvestment of dividends and/or distributions.

 

  2  

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

 

  3   

Average return.

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

 

 

Municipal bonds generated strong performance in the annual period. Municipals were aided by the sharp decline in Treasury yields, which was brought about by the slow global economy and the accommodative policies of the world’s central banks. (Bond prices rise as yields fall.) The gains were largely concentrated among intermediate- and longer-term bonds, while shorter-term issues produced much smaller returns. In addition, lower-rated securities generally outpaced their higher-quality counterparts.

 

 

California municipal bonds outperformed the broader national tax-exempt market as a result of the state’s sound financial condition, robust employment growth and rising personal income. California municipals were also boosted by the favorable balance of supply and demand in the market, as the state’s high tax burden fueled investors’ appetite for tax-exempt investments.

 

 

The Fund was helped by its exposure to the long end of the yield curve, where performance was strongest. Leverage helped augment returns in this portion of the portfolio, as well. However, leverage had less of an impact to performance in the second half of the period due to the Fed’s interest rate increase in December 2015.

 

 

Holdings in AA rated securities, including investments in the school districts, health care and tax-backed (local) sectors, aided performance. Positions in the transportation and utilities sectors were also additive.

 

 

The Fund utilized U.S. Treasury futures contracts to manage exposure to a rise in interest rates, which had a slightly negative impact on performance given that the Treasury market finished with positive returns. In addition, the Fund’s yield declined during the period as the proceeds from bonds that were called away were reinvested at lower yields.

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    9


     BlackRock MuniYield California Quality Fund, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                              
           
      7/31/16     

7/31/15

     Change      High      Low  

Market Price

   $ 16.75       $ 14.71         13.87    $ 16.82       $ 14.53   

Net Asset Value

   $ 16.77       $ 16.11         4.10    $ 16.98       $ 15.91   

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*
Sector Allocation              
     7/31/16    

7/31/15

 

County/City/Special District/School District

    41     39

Utilities

    18        25   

Health

    14        9   

Transportation

    13        10   

Education

    9        12   

State

    5        5   

Corporate

             

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.

Credit Quality Allocation1              
     7/31/16    

7/31/15

 

AAA/Aaa

    15     12

AA/Aa

    75        77   

A

    8        11   

BBB/Baa

    1          

N/R

    1          

 

  1   

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

 
   
Call/Maturity Schedule2       

Calendar Year Ended December 31,

 

2016

    2

2017

    10   

2018

    8   

2019

    15   

2020

    5   

 

  2   

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

 

  *   Excludes short-term securities.
 

 

                
10    ANNUAL REPORT    JULY 31, 2016   


Fund Summary as of July 31, 2016    BlackRock MuniYield New York Quality Fund, Inc.

 

Fund Overview      

BlackRock MuniYield New York Quality Fund, Inc.’s (MYN) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from federal income taxes and New York State and New York City personal 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 federal income taxes (except that the interest may be subject to the federal alternative minimum tax) and New York State and New York City personal income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade 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

  MYN

Initial Offering Date

  February 28, 1992

Yield on Closing Market Price as of July 31, 2016 ($14.40)1

  4.50%

Tax Equivalent Yield2

  9.11%

Current Monthly Distribution per Common Share3

  $0.0540

Current Annualized Distribution per Common Share3

  $0.6480

Economic Leverage as of July 31, 20164

  38%

 

  1   

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.

 

  2   

Tax equivalent yield assumes the maximum marginal federal and state tax rate of 50.59%, 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.

 

  3   

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

 

  4   

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 12 months ended July 31, 2016 were as follows:

 

    Returns Based On  
     Market Price     NAV  

MYN1,2

    15.60     12.19

Lipper New York Municipal Debt Funds3

    20.33     10.69

 

  1   

All returns reflect reinvestment of dividends and/or distributions.

 

  2  

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

 

  3   

Average return.

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

 

 

Municipal bonds generated strong performance in the annual period. Municipals were aided by the sharp decline in Treasury yields, which was brought about by the slow global economy and the accommodative policies of the world’s central banks. (Bond prices rise as yields fall.) The gains were largely concentrated among intermediate- and longer-term bonds, while shorter-term issues produced much smaller returns. New York municipal bonds performed well in the period, as the state’s healthy economy, robust overall financial position and general lack of pension-funding issues contributed to strong investor demand.

 

 

At a time of falling yields, the Fund’s positions in longer-duration and longer-dated bonds generally provided the largest absolute returns. (Duration is a measure of interest-rate sensitivity.) The Fund’s positions in the transportation, education, health care, and utilities sectors made positive contributions to performance. The Fund’s exposure to lower-coupon and zero-coupon bonds, both of which outperformed, also aided returns.

 

 

Lower-rated bonds within the investment grade category outperformed during the period. In addition to offering higher incremental yield, the market segment benefited from a tightening of yield spreads that was fueled in part by investors’ elevated appetite for risk. In this environment, the Fund’s exposure to these higher-yielding bonds contributed to performance.

 

 

Leverage amplifies the effect of interest-rate movements, which was a positive to performance during the past 12 months given that yields declined.

 

 

The Fund utilized a mix of U.S. Treasury futures contracts to manage exposure to a rise in interest rates, which had a slightly negative impact on performance at a time in which the Treasury market finished with positive returns.

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    11


     BlackRock MuniYield New York Quality Fund, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                                        
           
      7/31/16     

7/31/15

     Change      High      Low  

Market Price

     $14.40         $13.13         9.67%         $14.70         $12.79   

Net Asset Value

     $15.07         $14.16         6.43%         $15.28         $14.00   

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*
Sector Allocation              
     7/31/16    

7/31/15

 

County/City/Special District/School District

    25     20

Transportation

    20        21   

Education

    18        18   

Utilities

    13        15   

State

    13        14   

Health

    6        6   

Housing

    3        3   

Corporate

    1        2   

Tobacco

    1        1   

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

Credit Quality Allocation1              
     7/31/16    

7/31/15

 

AAA/Aaa

    19     15

AA/Aa

    59        59   

A

    16        20   

BBB/Baa

    4        3   

BB/Ba

           1   

N/R2

    2        2   
  1   

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

 

  2   

The investment advisor evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment advisor has deemed certain of these unrated securities as investment grade quality. As of July 31, 2016, and July 31, 2015 the market value of unrated securities deemed by the investment advisor to be investment grade represents less than 1% of the Fund’s total investments.

 

 
   
Call/Maturity Schedule3       

Calendar Year Ended December 31,

 

2016

    4

2017

    8   

2018

    5   

2019

    4   

2020

    4   

 

  3   

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

 

  *   Excludes short-term securities.

 

                
12    ANNUAL REPORT    JULY 31, 2016   


Fund Summary as of July 31, 2016    BlackRock MuniYield Quality Fund III, Inc.

 

Fund Overview      

BlackRock MuniYield Quality Fund III, Inc.’s (MYI) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from federal income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from federal income taxes (except that the interest may be subject to the federal alternative minimum tax). Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade 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

  MYI

Initial Offering Date

  March 27, 1992

Yield on Closing Market Price as of July 31, 2016 ($15.63)1

  5.22%

Tax Equivalent Yield2

  9.22%

Current Monthly Distribution per Common Share3

  $0.0680

Current Annualized Distribution per Common Share3

  $0.8160

Economic Leverage as of July 31, 20164

  37%

 

  1   

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.

 

  2   

Tax equivalent yield assumes the maximum marginal federal tax rate of 43.4%, 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.

 

  3   

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

 

  4   

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 12 months ended July 31, 2016 were as follows:

 

    Returns Based On  
     Market Price     NAV  

MYI1,2

    18.07     11.08

Lipper General & Insured Municipal Debt Funds (Leveraged)3

    21.89     11.98

 

  1   

All returns reflect reinvestment of dividends and/or distributions.

 

  2  

The Fund moved from a discount to NAV to a premium during the period, which accounts for the difference between performance based on price and performance based on NAV.

 

  3  

Average return.

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

 

 

Municipal bonds generated strong performance in the annual period. Municipals were aided by the sharp decline in Treasury yields, which was brought about by the slow global economy and the accommodative policies of the world’s central banks. (Bond prices rise as yields fall.) The gains were largely concentrated among intermediate- and longer-term bonds, while shorter-term issues produced much smaller returns. In addition, lower-rated securities generally outpaced their higher-quality counterparts.

 

 

The Fund’s duration exposure made the largest contribution to absolute performance. (Duration is a measure of interest-rate sensitivity.) The municipal yield curve flatted aggressively in the second half of the reporting period, indicating outperformance for longer-term bonds. In this environment, the Fund’s exposure to the long end of the curve benefited performance. Additionally, the Fund’s return was helped by its allocation to the health care and transportation sectors. The use of leverage helped augment returns at a time of strong market performance.

 

 

The Fund utilized U.S. Treasury futures contracts to manage exposure to a rise in interest rates, which had a slightly negative impact on performance due to the strength in the Treasury market.

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    13


     BlackRock MuniYield Quality Fund III, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                                        
           
      7/31/16     

7/31/15

     Change      High      Low  

Market Price

   $ 15.63       $ 14.04         11.32    $ 15.88       $ 13.71   

Net Asset Value

   $ 15.49       $ 14.79         4.73    $ 15.71       $ 14.53   

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*
Sector Allocation              
     7/31/16    

7/31/15

 

Transportation

    26     24

Utilities

    17        16   

State

    16        17   

County/City/Special District/School District

    15        18   

Health

    12        11   

Education

    9        9   

Corporate

    2        2   

Housing

    2        2   

Tobacco

    1        1   

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

Credit Quality Allocation1              
     7/31/16    

7/31/15

 

AAA/Aaa

    11     9

AA/Aa

    61        65   

A

    20        20   

BBB/Baa

    7        6   

N/R

    1          

 

  1   

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

 
   
Call/Maturity Schedule2       

Calendar Year Ended December 31,

 

2016

    1

2017

    11   

2018

    17   

2019

    9   

2020

    2   

 

  2   

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

 

  *   Excludes short-term securities.
 

 

                
14    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments July 31, 2016

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

(Percentages shown are based on Net Assets)

 

Municipal Bonds   

Par  

(000)

    Value  

Alabama — 2.1%

  

City of Birmingham Alabama Special Care Facilities Financing Authority, RB, Children’s Hospital (AGC), 6.00%, 6/01/19 (a)

   $ 5,225      $ 5,988,686   

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

     940        1,055,751   
    

 

 

 
        7,044,437   

California — 24.3%

  

California Educational Facilities Authority, RB, University of Southern California, Series A, 5.25%, 10/01/38

     5,050        5,537,830   

California Health Facilities Financing Authority, RB, Sutter Health, Series B, 6.00%, 8/15/42

     2,865        3,427,629   

City & County of San Francisco California Airports Commission, ARB, Special Facility Lease, SFO Fuel, Series A, AMT (AGM), 6.10%, 1/01/20

     880        884,074   

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

    

2nd, 5.50%, 5/01/28

     1,800        2,204,712   

2nd, 5.25%, 5/01/33

     1,410        1,671,738   

5.00%, 5/01/44

     1,860        2,167,365   

City of San Jose California, Refunding ARB, Series A-1, AMT, 5.50%, 3/01/30

     4,045        4,744,866   

City of Sunnyvale California, Refunding RB, 5.25%, 4/01/40

     2,800        3,208,604   

County of Sacramento California, ARB, Senior Series A (AGC), 5.50%, 7/01/41

     3,500        3,814,930   

County of Ventura California Community College District, GO, Election of 2002, Series C, 5.50%, 8/01/18 (a)

     3,175        3,489,261   

Emery Unified School District, GO, Election of 2010, Series A (AGM), 5.50%, 8/01/35

     1,875        2,261,175   

Golden Empire Schools Financing Authority, Refunding RB, Kern High School District Projects, 0.96%, 5/01/17 (b)

     2,850        2,849,202   

Kern Community College District, GO, Safety, Repair & Improvement, Series C, 5.50%, 11/01/33

     2,445        3,089,942   

Los Angeles Community College District California, GO:

    

Election of 2001, Series A (NPFGC), 5.00%, 8/01/17 (a)

     4,000        4,182,720   

Election of 2008, Series C, 5.25%, 8/01/39

     2,000        2,336,860   

Oceanside Unified School District, GO, Series A (AGC), 5.25%, 8/01/33

     1,675        1,816,605   

Redondo Beach Unified School District, GO, Election of 2008, Series E, 5.50%, 8/01/21 (a)

     2,670        3,279,614   

Riverside County Public Financing Authority, RB, Capital Facilities Project, 5.25%, 11/01/40

     4,500        5,575,455   

State of California Public Works Board, LRB, Various Capital Projects, Series I:

    

5.50%, 11/01/30

     5,000        6,315,000   
Municipal Bonds   

Par  

(000)

    Value  

California (continued)

  

State of California Public Works Board, LRB, Various Capital Projects, Series I (continued):

    

5.50%, 11/01/31

   $ 3,130      $ 3,945,866   

5.50%, 11/01/33

     3,000        3,781,980   

State of California Public Works Board, RB, Department of Corrections & Rehabilitation, Series F, 5.25%, 9/01/33

     1,260        1,556,566   

Township of Washington California Health Care District, GO, Election of 2004, Series B, 5.50%, 8/01/40

     940        1,170,460   

University of California, Refunding RB, Regents of the University of California Medical Center Pooled Revenue, Series J, 5.25%, 5/15/38

     7,580        9,217,053   
    

 

 

 
        82,529,507   

Colorado — 2.1%

  

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

    

5.50%, 11/15/28

     1,500        1,818,075   

5.50%, 11/15/30

     565        681,593   

5.50%, 11/15/31

     675        812,228   

Colorado Health Facilities Authority, RB, Hospital, NCMC, Inc. Project, Series B (AGM), 6.00%, 5/15/19 (a)

     3,300        3,783,153   
    

 

 

 
               7,095,049   

Florida — 20.1%

    

City of Jacksonville Florida, Refunding RB, Series A, 5.25%, 10/01/33

     405        499,531   

County of Broward Florida Airport System, ARB, Series A, AMT, 5.13%, 10/01/38

     5,665        6,553,102   

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

     1,440        1,695,917   

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

     2,995        3,609,873   

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

     2,500        2,902,300   

County of Lee Florida HFA, RB, S/F Housing, Multi-County Program, Series A-2, AMT (Ginnie Mae), 6.00%, 9/01/40

     430        439,241   

County of Miami-Dade Florida, RB, Seaport:

    

Series A, 5.38%, 10/01/33

     1,765        2,084,165   

Series A, 5.50%, 10/01/42

     3,000        3,615,900   

Series B, AMT, 6.25%, 10/01/38

     800        1,018,120   

Series B, AMT, 6.00%, 10/01/42

     1,060        1,304,521   

County of Miami-Dade Florida, Refunding RB, Water & Sewer System, Series B, 5.25%, 10/01/29

     3,130        3,855,816   
 

 

Portfolio Abbreviations

 

AGC    Assured Guarantee Corp.      EDA    Economic Development Authority    IDRB    Industrial Development Revenue Bonds
AGM    Assured Guaranty Municipal Corp.      EDC    Economic Development Corp.    ISD    Independent School District
AMBAC    American Municipal Bond Assurance Corp.      ERB    Education Revenue Bonds    LRB    Lease Revenue Bonds
AMT    Alternative Minimum Tax (subject to)      FHA    Federal Housing Administration    M/F    Multi-Family
ARB    Airport Revenue Bonds      GAB    Grant Anticipation Bonds    NPFGC    National Public Finance Guarantee Corp.
BAM    Build America Mutual Assurance Co.      GARB    General Airport Revenue Bonds    PILOT    Payment in Lieu of Taxes
BARB    Building Aid Revenue Bonds      GO    General Obligation Bonds    PSF    Permanent School Fund
BHAC    Berkshire Hathaway Assurance Corp.      GTD    Guaranteed    RB    Revenue Bonds
BOCES    Board of Cooperative Educational Services      HDA    Housing Development Authority    S/F    Single-Family
CAB    Capital Appreciation Bonds      HFA    Housing Finance Agency    SONYMA    State of New York Mortgage Agency

COP

  

Certificates of Participation

     IDA    Industrial Development Authority    Syncora    Syncora Guarantee

DFA

  

Development Finance Agency

     IDB    Industrial Development Board      

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    15


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

Municipal Bonds   

Par  

(000)

    Value  

Florida (continued)

  

County of Miami-Dade Florida Aviation, Refunding ARB, AMT, Series A:

    

Miami International Airport (AGM), 5.25%, 10/01/41

   $ 4,610      $ 4,974,144   

Miami International Airport (AGM), 5.50%, 10/01/41

     4,180        4,557,788   

5.00%, 10/01/32

     5,000        5,844,600   

County of Miami-Dade Florida Aviation Revenue, Refunding ARB, Series A, AMT, 5.00%, 10/01/31

     5,155        6,025,782   

County of Orange Florida School Board, COP, Series A (AGC), 5.50%, 8/01/19 (a)

     7,600        8,683,456   

Reedy Creek Improvement District, GO, Series A, 5.25%, 6/01/32

     1,805        2,192,317   

Tohopekaliga Water Authority, Refunding RB, Series A, 5.25%, 10/01/21 (a)

     6,965        8,465,122   
    

 

 

 
               68,321,695   

Hawaii — 1.7%

    

State of Hawaii, Department of Transportation, COP, AMT:

    

5.25%, 8/01/25

     740        897,835   

5.25%, 8/01/26

     1,205        1,460,339   

State of Hawaii, Department of Transportation, RB, Series A, AMT, 5.00%, 7/01/45

     2,805        3,291,583   
    

 

 

 
               5,649,757   

Illinois — 17.0%

    

City of Chicago Illinois, GARB, O’Hare International Airport, 3rd Lien, Series A, 5.75%, 1/01/39

     2,000        2,344,560   

City of Chicago Illinois Midway International Airport, Refunding GARB, 2nd Lien, Series A:

    

5.00%, 1/01/41

     1,140        1,303,716   

AMT, 5.50%, 1/01/28

     1,000        1,211,280   

AMT, 5.50%, 1/01/29

     1,500        1,809,885   

AMT, 5.38%, 1/01/33

     2,000        2,354,100   

City of Chicago Illinois O’Hare International Airport, GARB, 3rd Lien, Series C, 6.50%, 1/01/41

     9,085        11,056,263   

City of Chicago Illinois Transit Authority, RB:

    

Federal Transit Administration, Section 5309, Series A (AGC), 6.00%, 12/01/18 (a)

     3,400        3,821,804   

Sales Tax Receipts, 5.25%, 12/01/36

     2,940        3,276,248   

Sales Tax Receipts, 5.25%, 12/01/40

     1,500        1,666,080   

City of Chicago Illinois Wastewater Transmission, RB, 2nd Lien, 5.00%, 1/01/42

     2,985        3,287,918   

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

    

5.25%, 12/01/30

     1,270        1,485,176   

5.50%, 12/01/38

     1,980        2,308,066   

5.25%, 12/01/43

     5,500        6,305,585   

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

    

4.00%, 2/15/41

     2,020        2,025,151   

5.00%, 2/15/41

     975        1,110,827   

Railsplitter Tobacco Settlement Authority, RB:

    

5.50%, 6/01/23

     2,350        2,768,183   

6.00%, 6/01/28

     670        803,437   

State of Illinois, GO:

    

5.25%, 2/01/31

     1,495        1,663,247   

5.25%, 2/01/32

     2,320        2,577,868   

5.50%, 7/01/33

     1,000        1,124,590   

5.50%, 7/01/38

     700        779,919   

State of Illinois, RB, Build Illinois, Series B, 5.25%, 6/15/28

     2,500        2,768,825   
    

 

 

 
               57,852,728   
Municipal Bonds   

Par  

(000)

    Value  

Indiana — 0.9%

    

Indiana Finance Authority, RB, Private Activity Bond, Ohio River Bridges, Series A, AMT, 5.00%, 7/01/40

   $ 460      $ 521,723   

Indianapolis Local Public Improvement Bond Bank, Refunding RB, Waterworks Project, Series A (AGC), 5.50%, 1/01/38

     2,370        2,648,830   
    

 

 

 
               3,170,553   

Kentucky — 0.7%

    

County of Louisville & Jefferson Kentucky Metropolitan Government, Refunding RB, Norton Healthcare, Inc., 4.00%, 10/01/35

     2,100        2,313,234   

Louisiana — 1.5%

    

Lake Charles Harbor & Terminal District, RB, Series B, AMT (AGM), 5.50%, 1/01/29

     2,225        2,716,725   

Tobacco Settlement Financing Corp., Refunding RB, Asset-Backed, Series A, 5.50%, 5/15/29

     2,020        2,227,111   
    

 

 

 
               4,943,836   

Massachusetts — 0.7%

    

Massachusetts DFA, Refunding RB, Emmanuel College Issue, Series A, 4.00%, 10/01/46

     900        946,872   

Massachusetts HFA, Refunding RB, Series C, AMT, 5.35%, 12/01/42

     1,235        1,310,570   
    

 

 

 
               2,257,442   

Michigan — 2.2%

    

Hudsonville Public Schools, GO, School Building & Site (Q-SBLF), 5.25%, 5/01/41

     3,420        3,987,070   

Royal Oak Hospital Finance Authority Michigan, Refunding RB, William Beaumont Hospital, Series V, 8.25%, 9/01/18 (a)

     3,115        3,609,600   
    

 

 

 
               7,596,670   

Minnesota — 0.7%

    

City of Minneapolis Minnesota, Refunding RB, Fairview Health Services, Series B (AGC):

    

6.50%, 11/15/18 (a)

     305        345,696   

6.50%, 11/15/38

     1,670        1,868,930   
    

 

 

 
               2,214,626   

Mississippi — 1.3%

    

Mississippi Development Bank, RB, Jackson Water & Sewer System Project (AGM), 6.88%, 12/01/40

     2,405        3,263,176   

Mississippi State University Educational Building Corp., Refunding RB, Mississippi State University Improvement Project, 5.25%, 8/01/38

     1,000        1,222,440   
    

 

 

 
               4,485,616   

Nevada — 2.6%

    

County of Clark Nevada, ARB, Las Vegas-McCarran International Airport, Series A (AGM), 5.25%, 7/01/39

     3,210        3,608,907   

County of Clark Nevada, GO, Limited Tax, 5.00%, 6/01/38

     5,000        5,368,450   
    

 

 

 
               8,977,357   

New Jersey — 5.2%

    

New Jersey EDA, RB, Goethals Bridge Replacement Project, Private Activity Bond, AMT:

    

5.38%, 1/01/43

     1,940        2,257,112   

(AGM), 5.00%, 1/01/31

     1,355        1,580,160   

New Jersey Health Care Facilities Financing Authority, RB, Virtua Health, Series A (AGC), 5.50%, 7/01/38

     3,400        3,825,884   

New Jersey Transportation Trust Fund Authority, RB, Transportation System:

    

Series A, 5.50%, 6/15/41

     3,030        3,378,511   
 

 

See Notes to Financial Statements.

 

                
16    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

Municipal Bonds   

Par  

(000)

    Value  

New Jersey (continued)

    

New Jersey Transportation Trust Fund Authority, RB, Transportation System (continued):

    

Series A (AGC), 5.63%, 12/15/28

   $ 2,930      $ 3,264,635   

Series AA, 5.50%, 6/15/39

     3,040        3,440,399   
    

 

 

 
               17,746,701   

New York — 7.7%

    

City of New York New York Municipal Water Finance Authority, Refunding RB, 2nd General Resolution, Series EE:

    

Fiscal 2009, 5.25%, 6/15/40

     6,930        7,794,795   

Water & Sewer System, 5.38%, 6/15/43

     2,220        2,626,060   

Hudson Yards Infrastructure Corp., RB, Series A, 5.75%, 2/15/47

     940        1,111,456   

Metropolitan Transportation Authority, RB:

    

Series A, 5.25%, 11/15/38

     8,500        10,190,650   

Series A-1, 5.25%, 11/15/39

     1,550        1,898,533   

Port Authority of New York & New Jersey, Refunding ARB, Consolidated, 166th Series, 5.25%, 7/15/36

     2,000        2,349,720   
    

 

 

 
               25,971,214   

Ohio — 0.9%

    

State of Ohio Turnpike Commission, RB, Junior Lien, Infrastructure Projects, Series A-1, 5.25%, 2/15/31

     2,500        3,052,650   

Pennsylvania — 3.7%

    

County of Westmoreland Pennsylvania Municipal Authority, Refunding RB, (BAM), 5.00%, 8/15/38 (c)

     1,965        2,332,593   

Pennsylvania Turnpike Commission, RB:

    

Series A-1, 5.00%, 12/01/46

     2,855        3,399,905   

Series B, 5.00%, 12/01/45

     2,300        2,742,382   

Township of Bristol Pennsylvania School District, GO:

    

5.25%, 6/01/37

     2,500        2,943,375   

5.25%, 6/01/43

     1,100        1,295,085   
    

 

 

 
               12,713,340   

Rhode Island — 0.4%

    

Rhode Island Health & Educational Building Corp., Refunding RB, Hospital Financing, LifeSpan Obligation Group (c):

    

4.00%, 5/15/36

     340        362,341   

5.00%, 5/15/39

     750        880,238   
    

 

 

 
               1,242,579   

South Carolina — 6.3%

    

County of Charleston South Carolina, RB, Special Source, 5.25%, 12/01/38

     3,760        4,633,448   

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

    

6.00%, 7/01/38

     2,940        3,559,076   

5.50%, 7/01/41

     2,500        2,944,400   

South Carolina Ports Authority, RB, AMT, 5.25%, 7/01/50

     1,870        2,192,388   

South Carolina State Public Service Authority, Refunding RB, Series E, 5.25%, 12/01/55

     3,500        4,232,235   

State of South Carolina Public Service Authority, Refunding RB:

    

Series A, 5.50%, 1/01/19 (a)

     200        223,428   

Series A, 5.50%, 1/01/19 (a)

     2,300        2,569,422   

Series C, 5.00%, 12/01/46

     1,000        1,182,140   
    

 

 

 
               21,536,537   

Tennessee — 1.0%

    

Metropolitan Nashville Airport Authority, ARB, Series B, AMT, 5.00%, 7/01/40

     3,000        3,549,000   
Municipal Bonds   

Par  

(000)

    Value  

Texas — 19.1%

    

City of Beaumont Texas, GO, Certificates of Obligation, 5.25%, 3/01/37

   $ 2,345      $ 2,837,403   

City of Houston Texas Combined Utility System Revenue, Refunding RB, Combined 1st Lien, Series A (AGC):

    

6.00%, 5/15/19 (a)

     6,345        7,277,778   

6.00%, 11/15/35

     355        408,222   

County of Tarrant Texas Cultural Education Facilities Finance Corp., Refunding RB, Christus Health, Series A (AGC):

    

6.50%, 1/01/19 (a)

     620        704,605   

6.50%, 7/01/37

     2,380        2,669,884   

Dallas Area Rapid Transit, Refunding RB:

    

Senior Lien, 5.25%, 12/01/18 (a)

     2,605        2,884,933   

Senior Lien, 5.25%, 12/01/38

     1,950        2,148,607   

Series A, 5.00%, 12/01/48

     2,730        3,307,886   

Dallas-Fort Worth International Airport, ARB, Joint Improvement, AMT:

    

Series A, 5.00%, 11/01/38

     1,615        1,812,579   

Series H, 5.00%, 11/01/37

     1,810        2,059,201   

Lower Colorado River Authority, Refunding RB, 5.50%, 5/15/33

     2,155        2,638,022   

North Texas Tollway Authority, RB, Special Projects, Series A, 5.50%, 9/01/41

     7,000        8,364,300   

North Texas Tollway Authority, Refunding RB, 1st Tier System:

    

(NPFGC), 5.75%, 1/01/18 (a)

     4,340        4,656,039   

(NPFGC), 5.75%, 1/01/40

     1,400        1,491,812   

Series A, 5.63%, 1/01/18 (a)

     4,895        5,242,790   

Series A, 5.63%, 1/01/33

     6,080        6,468,877   

Series K-2 (AGC), 6.00%, 1/01/19 (a)

     1,000        1,127,840   

Series S, 5.75%, 1/01/18 (a)

     855        917,261   

Series S, 5.75%, 1/01/18 (a)

     5,835        6,259,905   

Series SE, 5.75%, 1/01/40

     145        154,830   

Red River Education Financing Corp., RB, Texas Christian University Project, 5.25%, 3/15/38

     1,070        1,295,920   
    

 

 

 
               64,728,694   

Virginia — 1.1%

    

City of Lexington Virginia IDA, RB, Washington & Lee University, 5.00%, 1/01/43

     945        1,103,732   

Virginia Public School Authority, RB, Fluvanna County School Financing, 6.50%, 12/01/18 (a)

     2,195        2,496,132   
    

 

 

 
               3,599,864   

Washington — 1.5%

    

City of Seattle Washington Municipal Light & Power, Refunding RB, Series A, 5.25%, 2/01/36

     2,400        2,807,424   

State of Washington, GO, Various Purposes, Series B, 5.25%, 2/01/36

     1,865        2,195,012   
    

 

 

 
               5,002,436   
Total Municipal Bonds — 124.8%              423,595,522   
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
              

Colorado — 3.0%

    

Colorado Health Facilities Authority, RB, Catholic Health, Series C-3 (AGM), 5.10%, 4/29/18 (a)

     9,410        10,153,484   

Connecticut — 1.1%

    

Connecticut State Health & Educational Facility Authority, Refunding RB, Trinity Health Credit Group, 5.00%, 12/01/45

     3,061        3,695,365   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    17


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par  

(000)

    Value  

District of Columbia — 0.5%

    

District of Columbia Water & Sewer Authority, Refunding RB, Senior Lien, Series A, 6.00%, 10/01/18 (a)(e)

   $ 1,699      $ 1,895,345   

Florida — 4.1%

    

County of Miami-Dade Florida, GO, Building Better Communities Program, Series B-1, 6.00%, 7/01/18 (a)

     12,500        13,793,125   

Illinois — 5.7%

    

City of Chicago Illinois, ARB, O’Hare International Airport, Series A (AGM), 5.00%, 1/01/38

     5,000        5,256,150   

City of Chicago Illinois, Refunding RB, Waterworks, 2nd Lien (AGM), 5.25%, 11/01/33

     3,967        4,249,758   

State of Illinois Toll Highway Authority, RB, Senior:

    

Priority, Series A, 5.00%, 1/01/40

     1,980        2,379,273   

Series B, 5.00%, 1/01/40

     6,148        7,390,756   
    

 

 

 
               19,275,937   

Kentucky — 0.7%

    

Kentucky State Property & Building Commission, Refunding RB, Project No. 93 (AGC), 5.25%, 2/01/27

     2,304        2,546,812   

Nevada — 6.0%

  

County of Clark Nevada Water Reclamation District, GO:

    

Limited Tax, 6.00%, 7/01/18 (a)

     10,000        11,036,500   

Series B, 5.50%, 7/01/29

     8,247        9,331,418   
    

 

 

 
               20,367,918   

New Jersey — 1.7%

  

New Jersey Housing & Mortgage Finance Agency, RB, S/F Housing, Series CC, 5.25%, 10/01/29

     3,859        4,108,709   

New Jersey Transportation Trust Fund Authority, RB, Transportation System, Series B, 5.25%, 6/15/36 (e)

     1,500        1,659,590   
    

 

 

 
               5,768,299   

New York — 7.0%

  

City of New York New York Municipal Water Finance Authority, Refunding RB, Water & Sewer System, 2nd General Resolution, Series FF, 5.00%, 6/15/45

     5,958        6,991,494   
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par  

(000)

    Value  

New York (continued)

  

City of New York New York Transitional Finance Authority, BARB, Fiscal 2009, Series S-3, 5.25%, 1/15/39

   $ 2,300      $ 2,538,095   

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

     7,515        9,047,274   

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

     4,400        5,323,580   
    

 

 

 
               23,900,443   

Texas — 1.5%

  

County of Tarrant Texas Cultural Education Facilities Finance Corp., RB, Baylor Health Care System Project, Series A, 5.00%, 11/15/38

     4,296        5,028,055   

Utah — 0.8%

  

City of Riverton Utah, RB, IHC Health Services, Inc., 5.00%, 8/15/41

     2,504        2,755,556   
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 32.1%
             109,180,339   
Total Long-Term Investments
(Cost — $474,409,677) — 156.9%
             532,775,861   
    
                  
Short-Term Securities    Shares         

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.26% (f)(g)

     627,379        627,379   
Total Short-Term Securities
(Cost — $627,379) — 0.2%
             627,379   
Total Investments (Cost — $475,037,056) — 157.1%        533,403,240   
Liabilities in Excess of Other Assets — (1.5)%        (5,306,711

Liability for TOB Trust Certificates, Including Interest Expense and Fees Payable — (17.0)%

   

    (57,603,522
VMTP Shares at Liquidation Value — (38.6)%        (131,000,000
    

 

 

 
Net Assets Applicable to Common Shares — 100.0%      $ 339,493,007   
    

 

 

 
 
Notes to Schedule of Investments

 

(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)   Variable rate security. Rate as of period end.

 

(c)   When-issued security.

 

(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 October 1, 2016 to November 15, 2019 is $4,822,868. See Note 4 of the Notes to Financial Statements for details.

 

(f)   During the year ended July 31, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the 1940 Act, were as follows:

 

Affiliate      Shares Held
at July 31,
2015
       Net
Activity
       Shares Held
at July 31,
2016
       Value at
July 31,
2016
       Income         

BlackRock Liquidity Funds, MuniCash, Institutional Class

                 627,379           627,379         $ 627,379         $ 2,081     

FFI Institutional Tax-Exempt Fund

       5,506,208           (5,506,208                            390           

Total

                    $ 627,379         $ 2,471     
                   

 

 

 

 

(g)   Current yield as of period end.

 

See Notes to Financial Statements.

 

                
18    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Contracts
Short
    Issue      Expiration        Notional
Value
       Unrealized
Appreciation
(Depreciation)
               
  (30   5-Year U.S. Treasury Note        September 2016         $ 3,660,469         $ 3,541       
  (53   10-Year U.S. Treasury Note        September 2016         $ 7,051,484           (14,263    
  (18   Long U.S. Treasury Bond        September 2016         $ 3,139,875           (33,502    
  (3   Ultra U.S. Treasury Bond        September 2016         $ 571,594           (16,792                
  Total                     $ (61,016    
                

 

 

 

 

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:

 

Assets — Derivative Financial Instruments    Commodity
Contracts
   Credit
Contracts
   Equity
Contracts
   Foreign
Currency
Exchange
Contracts
   Interest
Rate
Contracts
     Other
Contracts
   Total  

Futures contracts

  Net unrealized appreciation1                $ 3,541          $ 3,541   
Liabilities — Derivative Financial Instruments                                        

Futures contracts

  Net unrealized depreciation1                $ 64,557          $ 64,557   

1    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 year ended July 31, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

Net Realized Gain (Loss) from:   Commodity
Contracts
  Credit
Contracts
  Equity
Contracts
  Foreign
Currency
Exchange
Contracts
  Interest
Rate
Contracts
    Other
Contracts
  Total  

Futures contracts

          $ (1,033,461     $ (1,033,461
Net Change in Unrealized Appreciation (Depreciation) on:                             

Futures contracts

          $ (25,060     $ (25,060

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments      

 

Futures contracts:       

Average notional value of contracts — short

  $ 13,603,188   

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 Investments1

            $ 532,775,861                   $ 532,775,861   

Short-Term Securities

  $ 627,379                               627,379   
 

 

 

 

Total

  $ 627,379         $ 532,775,861                   $ 533,403,240   
 

 

 

 
                
Derivative Financial Instruments2                                         

Assets:

                

Interest rate contracts

  $ 3,541                             $ 3,541   

Liabilities:

                

Interest rate contracts

    (64,557                            (64,557
 

 

 

 

Total

  $ (61,016                          $ (61,016
 

 

 

 

1    See above Schedule of Investments for values in each state or politcal subdivision.

       

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

      

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    19


Schedule of Investments (concluded)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

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  

Assets:

                

Cash

  $ 6,004                             $ 6,004   

Cash pledged for futures contracts

    180,800                               180,800   

Liabilities:

                

TOB Trust Certificates

            $ (57,549,366                  (57,549,366

VMTP Shares at Liquidation Value

              (131,000,000                  (131,000,000
 

 

 

 

Total

  $ 186,804         $ (188,549,366                $ (188,362,562
 

 

 

 

During the year ended July 31, 2016, there were no transfers between levels.

 

See Notes to Financial Statements.

 

                
20    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments July 31, 2016

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

(Percentages shown are based on Net Assets)

 

Municipal Bonds   

Par  

(000)

    Value  

California — 89.7%

  

Corporate — 0.5%

  

City of Chula Vista California, Refunding RB, San Diego Gas & Electric, Series A, 5.88%, 2/15/34

   $ 2,435      $ 2,760,730   

County/City/Special District/School District — 36.8%

  

Arcadia Unified School District, GO, Election of 2006, Series A, 5.00%, 8/01/37

     7,925        8,097,844   

Centinela Valley Union High School District, GO, Refunding, Election of 2008, Series B, 6.00%, 8/01/36

     2,250        2,904,279   

City & County of San Francisco California, COP, Port Facilities Project, Series C, AMT, 5.25%, 3/01/32

     1,050        1,250,371   

County of Kern California, COP, Capital Improvements Projects, Series A (AGC), 6.00%, 8/01/35

     2,000        2,262,400   

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

    

4.00%, 12/01/40

     1,000        1,108,390   

5.00%, 12/01/45

     4,765        5,813,681   

County of Orange California Sanitation District, COP, Series A, 5.00%, 2/01/19 (a)

     2,500        2,773,700   

County of Orange California Water District, COP, Refunding, 5.25%, 8/15/34

     9,045        10,289,592   

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

     10,000        12,361,800   

County of San Joaquin California Transportation Authority, Refunding RB, Limited Tax, Measure K, Series A, 6.00%, 3/01/36

     2,755        3,360,714   

Fremont Union High School District, GO, Refunding, 4.00%, 8/01/40

     1,150        1,285,067   

Garden Grove Unified School District, GO, Election of 2010, Series C, 5.25%, 8/01/37

     2,725        3,325,127   

Gavilan Joint Community College District, GO, Election of 2004, Series D:

    

5.50%, 8/01/31

     2,165        2,576,112   

5.75%, 8/01/35

     8,400        10,073,448   

Grossmont California Healthcare District, GO, Election of 2006, Series B, 6.13%, 7/15/21 (a)

     2,500        3,143,250   

Grossmont Union High School District, GO, Election of 2008, Series C, 5.50%, 8/01/33

     1,880        2,248,010   

Imperial Irrigation District, Series A, Electric System Revenue (a):

    

5.13%, 11/01/18

     4,085        4,500,730   

5.13%, 11/01/18

     915        1,008,120   

Kern Community College District, GO, Safety Repair & Improvements, Series C, 5.25%, 11/01/32

     5,715        7,129,577   

Los Angeles Municipal Improvement Corp., Refunding LRB, Real Property, Series B (AGC), 5.50%, 4/01/19 (a)

     2,075        2,344,418   

Merced Union High School District, GO, CAB, Refunding (AGM) (b):

    

0.00%, 8/01/40

     3,125        1,127,469   

0.00%, 8/01/42

     3,375        1,092,251   

Mount San Antonio Community College District, GO, Refunding, Election of 2008, Series 2013 A, 5.00%, 8/01/34

     4,500        5,450,400   

Ohlone Community College District, GO, Election of 2010, Series A, 5.25%, 8/01/21 (a)

     8,140        9,898,973   

Orchard School District, GO, Election of 2001, Series A (AGC), 5.00%, 8/01/19 (a)

     7,490        8,472,913   

Oxnard Union High School District California, GO, Refunding, Series A (NPFGC), 6.20%, 8/01/30

     9,645        9,937,436   

Perris Union High School District, GO, Election of 2012, Series B, 5.25%, 9/01/39

     2,715        3,350,907   
Municipal Bonds   

Par  

(000)

    Value  

California (continued)

  

County/City/Special District/School District (continued)

  

Pittsburg Unified School District, GO, Election of 2006, Series B (AGM):

    

5.50%, 8/01/34

   $ 2,000      $ 2,194,980   

5.63%, 8/01/18 (a)

     4,500        4,956,615   

Redlands Unified School District California, GO, Election of 2008 (AGM), 5.25%, 7/01/33

     5,000        5,441,150   

San Diego Unified School District, GO, CAB, Series C (b):

    

Election of 2008, 0.00%, 7/01/42

     2,900        1,250,944   

Election of 2008, 0.00%, 7/01/43

     1,000        416,490   

Election of 2008, 0.00%, 7/01/45

     1,300        504,452   

0.00%, 7/01/47

     830        299,290   

San Jose California Financing Authority, LRB, Convention Center Expansion & Renovation Project, Series A:

    

5.75%, 5/01/36

     2,570        2,581,411   

5.75%, 5/01/42

     4,500        5,371,515   

San Jose California Financing Authority, Refunding LRB, Civic Center Project, Series A:

    

5.00%, 6/01/32

     3,375        4,076,595   

5.00%, 6/01/39

     5,800        6,902,754   

San Juan Unified School District, GO, Election of 2002 (AGM), 5.00%, 8/01/34

     6,475        7,430,580   

San Leandro California Unified School District, GO, Election of 2010, Series A, 5.75%, 8/01/41

     3,000        3,608,880   

Snowline Joint Unified School District, COP, Refunding, Refining Project (AGC), 5.75%, 9/01/19 (a)

     5,600        6,476,232   

Sweetwater Union High School District, GO, Refunding, 4.00%, 8/01/42

     2,500        2,784,175   

Walnut Valley Unified School District, GO, Election of 2007, Series B, 5.75%, 8/01/21 (a)

     7,680        9,527,424   

West Contra Costa California Unified School District, GO:

    

Election of 2010, Series A (AGM), 5.25%, 8/01/41

     6,140        7,323,731   

Election of 2010, Series B, 5.50%, 8/01/39

     3,000        3,716,370   

Election of 2012, Series A, 5.50%, 8/01/39

     2,500        3,096,975   

Westminster Redevelopment Agency Successor Agency, Refunding RB, Westminster Commercial Redevelopment Project No.1 Subordinate Tax Allocation Bonds, (BAM) (c):

    

4.00%, 11/01/34

     2,960        3,324,850   

4.00%, 11/01/35

     3,220        3,601,538   
    

 

 

 
        212,073,930   

Education — 1.5%

  

California Municipal Finance Authority, RB, Emerson College, 6.00%, 1/01/42

     2,750        3,318,810   

California Statewide Communities Development Authority, Refunding RB, CHF Irvine LLC,
5.00%, 5/15/40

     750        907,620   

University of California, RB, 5.25%, 5/15/36

     3,680        4,578,141   
    

 

 

 
        8,804,571   

Health — 11.3%

  

California Health Facilities Financing Authority, RB:

    

Children’s Hospital, Series A, 5.25%, 11/01/41

     10,000        11,689,600   

Providence Health Services, Series B, 5.50%, 10/01/39

     4,205        4,802,825   

Sutter Health, Series A, 5.25%, 11/15/46

     6,970        7,069,950   

Sutter Health, Series B, 6.00%, 8/15/42

     7,715        9,230,072   

California Health Facilities Financing Authority, Refunding RB:

    

Catholic Healthcare West, Series A, 6.00%, 7/01/39

     5,500        6,298,545   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    21


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

Municipal Bonds   

Par  

(000)

    Value  

California (continued)

  

Health (continued)

  

Dignity Health, Series A, 6.00%, 7/01/34

   $ 2,370      $ 2,719,290   

Lucile Salter Packard Children’s Hospital at Stanford, Series B, 5.00%, 8/15/55

     4,500        5,462,100   

California Statewide Communities Development Authority, RB, Sutter Health, Series A, 6.00%, 8/15/42

     5,130        6,164,516   

California Statewide Communities Development Authority, Refunding RB:

    

Catholic Healthcare West, Series D (BHAC), 5.50%, 7/01/31

     865        904,210   

John Muir Health, Series A, 4.00%, 8/15/46

     1,365        1,492,518   

John Muir Health, Series A, 4.00%, 8/15/51

     3,375        3,661,774   

Trinity Health Credit Group Composite Issue, 5.00%, 12/01/41

     2,860        3,322,233   

Washington Township Health Care District, GO, Election of 2004, Series B, 5.50%, 8/01/38

     1,625        2,026,099   
    

 

 

 
        64,843,732   

State — 7.2%

  

State of California, GO, Various Purposes:

    

6.00%, 3/01/33

     5,500        6,490,495   

6.00%, 4/01/38

     17,180        19,506,516   

6.00%, 11/01/39

     3,510        4,081,112   

State of California Public Works Board, LRB:

    

Department of Education, Riverside Campus Project, Series B, 6.50%, 4/01/34

     3,670        4,226,959   

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

     2,575        3,246,200   

Various Capital Projects, Sub-Series I-1, 6.13%, 11/01/29

     3,365        3,945,765   
    

 

 

 
        41,497,047   

Transportation — 17.1%

  

Alameda Corridor Transportation Authority, Refunding RB, 2nd Subordinate Lien, Series B:

    

5.00%, 10/01/36

     2,035        2,473,074   

5.00%, 10/01/37

     1,395        1,693,907   

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

    

Series E, 6.00%, 5/01/39

     9,650        11,034,775   

Special Facility Lease, SFO Fuel, Series A, AMT (AGM), 6.10%, 1/01/20

     705        708,264   

Special Facility Lease, SFO Fuel, Series A, AMT (AGM), 6.13%, 1/01/27

     985        989,472   

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

    

2nd Series 34E (AGM), 5.75%, 5/01/18 (a)

     3,500        3,807,825   

2nd Series 34E (AGM), 5.75%, 5/01/24

     5,000        5,442,500   

2nd Series A, 5.25%, 5/01/33

     1,900        2,252,697   

Series A, 5.00%, 5/01/39

     6,175        7,233,271   

Series A, 5.00%, 5/01/40

     3,785        4,427,844   

City of Los Angeles California Department of Airports, ARB:

    

AMT, Series D, 5.00%, 5/15/35

     2,000        2,401,220   

AMT, Series D, 5.00%, 5/15/36

     1,500        1,795,665   

Los Angeles International Airport, Sub-Series B, 5.00%, 5/15/40

     2,500        2,845,250   

City of Los Angeles California Department of Airports, Refunding ARB, Los Angeles International Airport, Senior Series A, 5.25%, 5/15/29

     4,760        5,356,000   

City of San Jose California, Refunding ARB, Series A-1, AMT, 6.25%, 3/01/34

     1,400        1,688,526   

County of Orange California, ARB, Series B, 5.75%, 7/01/34

     5,000        5,240,950   
Municipal Bonds   

Par  

(000)

    Value  

California (continued)

  

Transportation (continued)

  

County of Sacramento California, ARB:

    

Senior Series B, AMT (AGM), 5.25%, 7/01/33

   $ 7,000      $ 7,575,470   

Senior Series B, AMT (AGM), 5.25%, 7/01/39

     3,300        3,542,385   

County of Sacramento California, ARB (continued):

    

Subordinated & Passenger Facility Charges/Grant, Series C (AGC), 5.75%, 7/01/39

     5,555        6,081,281   

County of San Bernardino California Transportation Authority, RB, Series A, 5.25%, 3/01/40

     4,500        5,517,810   

County of San Diego California Regional Airport Authority, Refunding ARB, Series B, 5.00%, 7/01/40

     6,350        7,220,775   

Los Angeles Harbor Department, RB, Series B, 5.25%, 8/01/39

     2,760        3,121,174   

Port of Los Angeles California Harbor Department, RB, Series B, 5.25%, 8/01/34

     5,530        6,253,656   
    

 

 

 
        98,703,791   

Utilities — 15.3%

  

Anaheim Public Financing Authority, RB, Electric System Distribution Facilities, Series A, 5.38%, 10/01/36

     5,000        5,910,700   

City of Los Angeles California Department of Water & Power, Refunding RB, Series A, 5.25%, 7/01/39

     8,000        9,357,440   

City of Los Angeles California Wastewater System, Refunding RB, Sub-Series A, 5.00%, 6/01/28

     2,000        2,305,160   

City of San Francisco California Public Utilities Commission Water Revenue, RB, Sub-Series A, 5.00%, 11/01/37

     10,000        11,793,600   

City of San Francisco California Public Utilities Commission Water Revenue, Refunding RB, Series A:

    

5.25%, 11/01/31

     6,280        7,158,384   

5.00%, 11/01/36

     5,335        6,551,967   

County of San Diego California Water Authority, COP, Refunding, Series A (AGM), 5.00%, 5/01/18 (a)

     4,895        5,275,292   

Dublin-San Ramon Services District Water Revenue, Refunding RB, 6.00%, 8/01/41

     4,000        4,786,520   

East Bay California Municipal Utility District, Refunding RB, Sub-Series A, 5.00%, 6/01/30

     5,000        5,786,650   

East Bay California Municipal Utility District Wastewater System Revenue, Refunding RB, Sub-Series A (AMBAC), 5.00%, 6/01/17 (a)

     2,500        2,595,550   

East Bay California Municipal Utility District Water System Revenue, Refunding RB, Series A (NPFGC), 5.00%, 6/01/17 (a)

     3,000        3,114,660   

El Dorado Irrigation District / El Dorado County Water Agency, Refunding RB, Series A (AGM), 5.25%, 3/01/39

     5,000        6,095,550   

Metropolitan Water District of Southern California, RB, Series A, 5.00%, 7/01/37

     15,000        15,628,050   

San Diego Public Facilities Financing Authority Sewer, Refunding RB, Senior Series A, 5.25%, 5/15/19 (a)

     2,000        2,256,280   
    

 

 

 
        88,615,803   
Total Municipal Bonds — 89.7%        517,299,604   
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
       

California — 69.4%

  

County/City/Special District/School District — 27.7%

  

County of San Luis Obispo Community College District, GO, Refunding, Election of 2014, Series A, 4.00%, 8/01/40

     6,585        7,320,936   
 

 

See Notes to Financial Statements.

 

                
22    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par  

(000)

    Value  

California (continued)

  

County/City/Special District/School District (continued)

  

County of San Mateo California Community College District, GO, Series A, 5.00%, 9/01/45

   $ 17,615      $ 21,674,009   

Desert Community College District California, GO, Series C (AGM), 5.00%, 8/01/17 (a)

     12,150        12,705,012   

Los Angeles Community College District California, GO, Series A (a):

    

Election of 2001 (AGM), 5.00%, 8/01/17

     12,000        12,548,160   

Election of 2001 (NPFGC), 5.00%, 8/01/17

     26,438        27,645,190   

Election of 2003, Series F-1, 5.00%, 8/01/18

     12,000        13,063,200   

Los Angeles Community College District California, GO, Refunding, Election of 2008, 6.00%, 8/01/19 (a)

     9,596        11,128,042   

Los Angeles Unified School District California, GO, Series I, 5.00%, 1/01/34

     5,000        5,626,250   

Palomar California Community College District, GO, Election of 2006, Series C, 5.00%, 8/01/44

     15,140        18,516,826   

Poway Unified School District, GO, Election of 2002, Improvement District 02, Series 1-B (AGM), 5.00%, 8/01/30

     10,000        10,002,600   

West Valley-Mission Community College District, GO, Election of 2012, Series B, 4.00%, 8/01/40

     17,000        19,383,230   
    

 

 

 
        159,613,455   

Education — 13.6%

  

Los Rios Community College District, GO, Election of 2008, Series A, 5.00%, 8/01/35

     11,000        12,660,560   

University of California, RB:

    

Series AM, 5.25%, 5/15/44

     9,210        11,390,099   

Series O, 5.75%, 5/15/19 (a)

     11,190        12,785,694   

University of California, Refunding RB:

    

Series A, 5.00%, 11/01/43

     13,002        15,998,053   

Series I, 5.00%, 5/15/40

     21,105        25,692,939   
    

 

 

 
        78,527,345   

Health — 11.3%

  

California Health Facilities Financing Authority, RB, Sutter Health, Series A, 5.00%, 8/15/52

     10,000        11,774,800   

California Health Facilities Financing Authority, Refunding RB, Sutter Health, Series A, 5.00%, 8/15/43

     24,940        30,160,940   

California Statewide Communities Development Authority, RB, Kaiser Permanente, Series A, 5.00%, 4/01/42

     19,860        23,178,407   
    

 

 

 
        65,114,147   

Transportation — 3.9%

  

City of Los Angeles California Department of Airports, RB, Senior Revenue, Series A, AMT, 5.00%, 5/15/40

     5,500        6,536,310   

City of Los Angeles California Department of Airports, Series D, AMT, 5.00%, 5/15/41

     13,311        15,819,601   
    

 

 

 
        22,355,911   
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par  

(000)

    Value  

California (continued)

  

Utilities — 12.9%

  

Anaheim Public Financing Authority, RB, Refunding, Series A:

    

5.00%, 5/01/39

   $ 6,000      $ 7,267,800   

5.00%, 5/01/46

     13,500        16,213,095   

City & County of San Francisco California Public Utilities Commission, RB, Water Revenue, Series B, 5.00%, 11/01/39

     4,380        4,955,532   

City of Los Angeles California Department of Water & Power, RB, Power System, Sub-Series A-1 (AMBAC), 5.00%, 7/01/37

     5,029        5,223,210   

City of Los Angeles California Wastewater System, RB, Green Bonds, Series A, 5.00%, 6/01/44

     6,290        7,714,496   

County of San Diego California Water Authority Financing Corp., COP, Refunding, Series A (AGM) (a):

    

5.00%, 5/01/18

     1,412        1,521,577   

5.00%, 5/01/18

     7,098        7,650,076   

Los Angeles Department of Water & Power, RB, Power System, Sub-Series A-1 (AGM), 5.00%, 7/01/37

     13,525        14,046,508   

Rancho Water District Financing Authority, Refunding RB, Series A (AGM), 5.00%, 8/01/34

     9,277        10,082,859   
    

 

 

 
               74,675,153   
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 69.4%
        400,286,011   

Total Long-Term Investments

(Cost — $835,737,579) — 159.1%

  

  

    917,585,615   
    
                  
Short-Term Securities    Shares         

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.26% (e)(f)

     143,051        143,051   

Total Short-Term Securities

(Cost — $143,051) — 0.0%

  

  

    143,051   
Total Investments (Cost — $835,880,630) — 159.1%        917,728,666   
Other Assets Less Liabilities — 0.3%        1,921,425   

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (28.9)%

   

    (166,929,565

Loan for TOB Trust Certificates — (1.7)%

  

    (9,740,175
VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (28.8)%         (166,216,724
    

 

 

 
Net Assets Applicable to Common Shares — 100.0%      $ 576,763,627   
    

 

 

 
 
Notes to Schedule of Investments

 

(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)   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.

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    23


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

 

(e)   During the year ended July 31, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the 1940 Act, were as follows:

 

Affiliate      Shares Held
at July 31,
2015
       Net
Activity
       Shares Held
at July 31,
2016
    Value at
July 31,
2016
       Income  

BIF California Municipal Money Fund

       12,279,624           (12,279,624                       $ 2   

BlackRock Liquidity Funds, MuniCash, Institutional Class

                 143,051           143,051      $ 143,051           859   

Total

                 $ 143,051         $ 861   
                

 

 

 

 

(f)   Current yield as of period end.

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 advisor. 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

 

Contracts
Short
    Issue      Expiration     

Notional
Value

       Unrealized
Appreciation
(Depreciation)
        
  (57   5-Year U.S. Treasury Note      September 2016      $ 6,954,891         $ (14,662  
  (83   10-Year U.S. Treasury Note      September 2016      $ 11,042,891           8,240     
  (46   Long U.S. Treasury Bond      September 2016      $ 8,024,125           (90,535  
  (13   Ultra U.S. Treasury Bond      September 2016      $ 2,476,906           (98,633        

 

Total

  

     $ (195,590  
                

 

 

 

 

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:

 

Assets — Derivative Financial Instruments   Commodity
Contracts
  Credit
Contracts
  Equity
Contracts
  Foreign
Currency
Exchange
Contracts
  Interest
Rate
Contracts
    Other
Contracts
  Total  

Futures contracts

  Net unrealized appreciation1           $ 8,240        $ 8,240   
Liabilities — Derivative Financial Instruments                                       

Futures contracts

  Net unrealized depreciation1           $ 203,830        $ 203,830   

1    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 year ended July 31, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

Net Realized Gain (Loss) from:   Commodity
Contracts
  Credit
Contracts
  Equity
Contracts
  Foreign
Currency
Exchange
Contracts
  Interest
Rate
Contracts
    Other
Contracts
  Total  

Futures contracts

          $ (1,378,147     $ (1,378,147
Net Change in Unrealized Appreciation (Depreciation) on:                        

Futures contracts

          $ (152,476     $ (152,476

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:        

Average notional value of contracts — short

  $ 23,769,986   

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

 

See Notes to Financial Statements.

 

                
24    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (concluded)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

 

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 Investments1

            $ 917,585,615                   $ 917,585,615   

Short-Term Securities

  $ 143,051                               143,051   
 

 

 

      

 

 

      

 

 

      

 

 

 

Total

  $ 143,051         $ 917,585,615                   $ 917,728,666   
 

 

 

      

 

 

      

 

 

      

 

 

 
                
Derivative Financial Instruments2                                         

Assets:

                

Interest rate contracts

  $ 8,240                             $ 8,240   

Liabilities:

                

Interest rate contracts

    (203,830                            (203,830
 

 

 

 

Total

  $ (195,590                          $ (195,590
 

 

 

 

1    See above Schedule of Investments for values in each sector.

 

2    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  

Assets:

                

Cash pledged for futures contracts

  $ 395,750                             $ 395,750   

Liabilities:

                

Bank overdraft

            $ (172,826                  (172,826

TOB Trust Certificates

              (166,692,417                  (166,692,417

Loan for TOB Trust Certificates

              (9,740,175                  (9,740,175

VRDP Shares at Liquidation Value

              (166,500,000                  (166,500,000
 

 

 

 

Total

  $ 395,750         $ (343,105,418                $ (342,709,668
 

 

 

 

During the year ended July 31, 2016, there were no transfers between levels.

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    25


Schedule of Investments July 31, 2016

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

(Percentages shown are based on Net Assets)

 

Municipal Bonds    Par  
(000)
    Value  

New York — 119.4%

                

Corporate — 2.0%

  

 

City of New York New York Industrial Development Agency, Refunding RB, Transportation Infrastructure Properties LLC, Series A, AMT, 5.00%, 7/01/28

   $ 930      $ 1,037,164   

County of Onondaga New York Industrial Development Agency, RB, Bristol-Meyers Squibb Co. Project, AMT, 5.75%, 3/01/24

     2,500        3,207,750   

New York Liberty Development Corp., Refunding RB, Goldman Sachs Headquarters, 5.25%, 10/01/35

     5,725        7,702,873   
    

 

 

 
               11,947,787   

County/City/Special District/School District — 26.0%

  

City of New York New York, GO, Refunding:

    

Fiscal 2012, Series I, 5.00%, 8/01/32

     490        586,378   

Fiscal 2014, Series E, 5.00%, 8/01/32

     2,040        2,487,352   

Series E, 5.50%, 8/01/25

     6,230        8,016,826   

City of New York New York, GO:

    

Series A-1, 5.00%, 8/01/35

     1,950        2,298,212   

Sub-Series A-1, 5.00%, 8/01/33

     2,100        2,551,227   

Sub-Series D-1, 5.00%, 10/01/33

     8,350        9,885,816   

Sub-Series D-1, Fiscal 2014, 5.00%, 8/01/31

     1,300        1,588,925   

City of New York New York Convention Center Development Corp., Refunding RB, Hotel Unit Fee Secured:

    

5.00%, 11/15/40

     6,000        7,286,880   

4.00%, 11/15/45

     965        1,083,512   

5.00%, 11/15/45

     13,995        16,918,975   

City of New York New York Industrial Development Agency, RB, PILOT:

    

CAB, Yankee Stadium Project, Series A (AGC), 0.00%, 3/01/39 (a)

     5,000        2,375,500   

CAB, Yankee Stadium Project, Series A (AGC), 0.00%, 3/01/43 (a)

     4,330        1,774,737   

Queens Baseball Stadium (AGC), 6.38%, 1/01/39

     1,000        1,127,020   

Queens Baseball Stadium (AMBAC), 5.00%, 1/01/36

     6,400        6,491,008   

Queens Baseball Stadium (AMBAC), 5.00%, 1/01/39

     1,750        1,773,783   

Yankee Stadium Project (NPFGC), 5.00%, 3/01/36

     2,250        2,257,898   

Yankee Stadium Project (NPFGC), 5.00%, 3/01/46

     9,650        9,679,529   

City of New York New York Transitional Finance Authority Future Tax Secured, RB:

    

Sub-Series A-1, 5.00%, 11/01/38

     1,000        1,209,910   

Sub-Series B-1, 5.00%, 11/01/35

     2,510        3,090,940   

Sub-Series B-1, 5.00%, 11/01/36

     1,690        2,072,920   

Sub-Series B-1, 5.00%, 11/01/38

     4,000        4,910,600   

Sub-Series E-1, 5.00%, 2/01/30

     1,000        1,271,420   

City of New York New York Transitional Finance Authority Future Tax Secured, Refunding RB, Series C, 5.00%, 11/01/30

     1,470        1,844,012   

Counties of Buffalo & Erie New York Industrial Land Development Corp., Refunding RB, Buffalo State College Foundation Housing Corp. Project, Series A, 5.38%, 10/01/41

     1,040        1,204,351   

County of Erie New York Industrial Development Agency, RB, City School District of Buffalo Project, Series A:

    

5.25%, 5/01/31

     2,305        2,706,831   

5.25%, 5/01/32

     1,000        1,172,820   

County of Erie New York Industrial Development Agency, Refunding RB:

    

5.00%, 5/01/29

     4,060        5,098,710   
Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

County/City/Special District/School District (continued)

  

County of Erie New York Industrial Development Agency, Refunding RB (continued):

    

City School District of Buffalo Project, 5.00%, 5/01/28

   $ 1,000      $ 1,265,830   

County of Nassau New York, GO, Series B, 5.00%, 10/01/30

     2,000        2,505,780   

Hudson Yards Infrastructure Corp., RB:

    

Series A (AGC), 5.00%, 2/15/47

     550        562,672   

Series A (AGC), 5.00%, 2/15/47

     4,300        4,399,072   

Series A (AGM), 5.00%, 2/15/47

     4,580        4,685,523   

Series A (NPFGC), 4.50%, 2/15/47

     14,175        14,454,247   

Series A (NPFGC), 5.00%, 2/15/47

     4,665        4,770,382   

New York Liberty Development Corp., Refunding RB:

    

4 World Trade Center Project, 5.00%, 11/15/31

     2,570        3,024,684   

4 World Trade Center Project, 5.00%, 11/15/44

     2,000        2,333,880   

4 World Trade Center Project, 5.75%, 11/15/51

     3,000        3,629,520   

7 World Trade Center Project, Class 1, 4.00%, 9/15/35

     1,090        1,213,453   

7 World Trade Center Project, Class 2, 5.00%, 9/15/43

     4,725        5,426,993   

Syracuse New York Industrial Development Agency, RB, PILOT, Carousel Center Project, Series A, AMT (Syncora), 5.00%, 1/01/36

     3,400        3,423,528   

Town of North Hempstead New York, GO, Refunding, Series B (NPFGC), 6.40%, 4/01/17

     555        576,656   
    

 

 

 
               155,038,312   

Education — 22.3%

    

Albany Capital Resource Corp., Refunding RB, Albany College of Pharmacy and Health Sciences, Series A:

    

5.00%, 12/01/31

     250        295,948   

5.00%, 12/01/32

     100        118,544   

Amherst Development Corp., Refunding RB, University at Buffalo Foundation Faculty-Student Housing Corp., Series A (AGM), 4.63%, 10/01/40

     2,000        2,172,300   

Build New York City Resource Corp., Refunding RB:

    

New York Law School Project, 5.00%, 7/01/41

     1,065        1,254,943   

New York Law School Project, 4.00%, 7/01/45

     370        396,396   

Series A, 5.00%, 6/01/43

     525        626,131   

City of Albany New York Capital Resource Corp., Refunding RB, Albany College of Pharmacy and Health Sciences, Series A, 4.00%, 12/01/34

     110        120,009   

City of New York New York Trust for Cultural Resources, Refunding RB:

    

American Museum of Natural History, Series A, 5.00%, 7/01/37

     2,265        2,709,189   

American Museum of Natural History, Series A, 5.00%, 7/01/41

     825        980,207   

Carnegie Hall, Series A, 4.75%, 12/01/39

     3,550        3,962,119   

Carnegie Hall, Series A, 5.00%, 12/01/39

     2,150        2,420,147   

Museum of Modern Art, Series 1A, 5.00%, 10/01/18 (b)

     1,000        1,094,920   

Wildlife Conservation Society, Series A, 5.00%, 8/01/42

     750        880,860   

City of Troy New York Capital Resource Corp., Refunding RB, Rensselaer Polytechnic Institute Project, Series A, 5.13%, 9/01/40

     5,740        6,558,868   

County of Madison New York Capital Resource Corp., RB, Colgate University Project, Series B:

    

5.00%, 7/01/40

     815        1,001,904   

5.00%, 7/01/43

     2,940        3,600,853   

County of Monroe New York Industrial Development Corp., RB, University of Rochester Project, Series B, 4.50%, 7/01/35

     3,885        4,445,955   
 

 

See Notes to Financial Statements.

 

                
26    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

Education (continued)

  

County of Monroe New York Industrial Development Corp., Refunding RB, University of Rochester Project, Series A:

    

5.00%, 7/01/38

   $ 1,440      $ 1,695,528   

4.00%, 7/01/39

     500        555,415   

County of Onondaga New York, RB, Syracuse University Project:

    

5.00%, 12/01/30

     1,190        1,403,129   

5.00%, 12/01/36

     1,150        1,361,152   

County of St. Lawrence New York Industrial Development Agency, RB, Clarkson University Project, 5.38%, 9/01/41

     500        591,705   

County of Tompkins New York Development Corp., RB, Ithaca College Project (AGM):

    

5.50%, 7/01/33

     500        581,995   

5.25%, 7/01/36

     860        991,898   

County of Tompkins New York Industrial Development Agency, RB, Civic Facility Cornell University Project, Series A, 5.00%, 7/01/37

     675        777,607   

State of New York Dormitory Authority, RB:

    

Columbia University, Series A-2, 5.00%, 10/01/46

     1,250        1,912,800   

Convent of the Sacred Heart (AGM), 5.75%, 11/01/40

     2,075        2,450,720   

Fordham University, Series A, 5.00%, 7/01/28

     325        385,145   

Fordham University, Series A, 5.50%, 7/01/36

     1,550        1,866,804   

General Purpose, Series A, 5.00%, 2/15/36

     5,500        6,563,205   

New School (AGM), 5.50%, 7/01/43

     4,050        4,724,568   

New York University Mount Sinai School of Medicine, 5.13%, 7/01/19 (b)

     665        748,730   

New York University, Series 1 (AMBAC), 5.50%, 7/01/40

     4,580        6,617,276   

New York University, Series B, 5.00%, 7/01/34

     1,000        1,120,610   

New York University, Series B, 5.00%, 7/01/37

     600        718,194   

New York University, Series B, 5.00%, 7/01/42

     3,240        3,831,883   

New York University, Series C, 5.00%, 7/01/18 (b)

     2,000        2,167,120   

State University Dormitory Facilities, Series A, 5.00%, 7/01/35

     800        921,608   

State University Dormitory Facilities, Series A, 5.00%, 7/01/40

     2,035        2,328,305   

State University Dormitory Facilities, Series A, 5.00%, 7/01/41

     1,500        1,745,100   

State of New York Dormitory Authority, Refunding RB:

    

5.00%, 7/01/46

     1,210        1,475,522   

3rd General Resolution, State University Educational Facilities Issue, Series A, 5.00%, 5/15/29

     1,000        1,199,540   

Barnard College, Series A, 5.00%, 7/01/34

     1,150        1,401,218   

Barnard College, Series A, 4.00%, 7/01/36

     530        590,971   

Barnard College, Series A, 4.00%, 7/01/37

     400        444,332   

Barnard College, Series A, 5.00%, 7/01/43

     2,500        2,994,800   

Cornell University, Series A, 5.00%, 7/01/40

     1,000        1,149,520   

Fordham University, 5.00%, 7/01/44

     2,130        2,523,965   

Icahn School of Medicine at Mount Sinai, Series A, 5.00%, 7/01/35

     1,600        1,933,728   

New York University Mount Sinai School of Medicine (NPFGC), 5.00%, 7/01/17 (b)

     6,100        6,351,076   

New York University, Series A, 5.00%, 7/01/31

     3,955        4,781,437   

New York University, Series A, 5.00%, 7/01/37

     4,775        5,715,627   

Rochester Institute of Technology, 5.00%, 7/01/42

     750        875,520   

St. John’s University, Series A, 5.00%, 7/01/37

     2,680        3,198,607   

State University Dormitory Facilities, Series A, 5.25%, 7/01/30

     4,195        5,179,021   
Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

Education (continued)

  

State of New York Dormitory Authority, Refunding RB (continued):

    

State University Dormitory Facilities, Series A, 5.25%, 7/01/31

   $ 8,735      $ 10,694,348   

State University Dormitory Facilities, Series A, 5.00%, 7/01/42

     1,490        1,739,366   

State University Dormitory Facilities, Series B, 5.00%, 7/01/32

     500        618,325   

State University Dormitory Facilities, Series B, 5.00%, 7/01/33

     1,140        1,403,522   
    

 

 

 
        132,970,235   

Health — 9.6%

  

City of New York New York Health & Hospital Corp., Refunding RB, Health System, Series A, 5.00%, 2/15/30

     2,200        2,470,490   

County of Dutchess New York Industrial Development Agency, RB, Vassar Brothers Medical Center (AGC):

    

5.50%, 4/01/34

     490        565,534   

5.50%, 4/01/30

     250        289,963   

County of Dutchess New York Local Development Corp., RB, Health Quest Systems, Inc., Series B:

    

3.00%, 7/01/36

     1,360        1,337,886   

4.00%, 7/01/41

     2,050        2,233,946   

County of Monroe New York Industrial Development Corp., RB, Rochester General Hospital Project, Series A:

    

5.00%, 12/01/32

     830        960,924   

5.00%, 12/01/37

     350        400,768   

County of Monroe New York Industrial Development Corp., Refunding RB, Unity Hospital of Rochester Project (FHA), 5.50%, 8/15/40

     5,650        6,654,174   

County of Suffolk New York EDC, RB, Catholic Health Services, Series C, 5.00%, 7/01/32

     625        733,225   

County of Westchester New York Healthcare Corp., Refunding RB, Senior Lien, Remarketing, Series A, 5.00%, 11/01/30

     1,790        2,046,167   

State of New York Dormitory Authority, RB:

    

Healthcare, Series A, 5.00%, 3/15/38

     2,000        2,216,980   

Hudson Valley Hospital (BHAC) (FHA), 5.00%, 8/15/36

     6,500        6,786,390   

New York University Hospitals Center, Series A, 5.75%, 7/01/20 (b)

     3,450        4,116,954   

New York University Hospitals Center, Series A, 6.00%, 7/01/20 (b)

     1,100        1,323,267   

North Shore-Long Island Jewish Obligated Group, Series A, 5.50%, 5/01/19 (b)

     2,075        2,349,170   

North Shore-Long Island Jewish Obligated Group, Series C, 4.25%, 5/01/39

     1,000        1,100,000   

North Shore-Long Island Jewish Obligated Group, Series D, 4.25%, 5/01/39

     300        330,000   

State of New York Dormitory Authority, Refunding RB, Series A:

    

New York University Hospitals Center, 5.00%, 7/01/17 (b)

     1,500        1,561,740   

North Shore-Long Island Jewish Obligated Group, 5.00%, 5/01/32

     4,000        4,652,160   

North Shore-Long Island Jewish Obligated Group, 5.00%, 5/01/32

     3,525        4,307,021   

North Shore-Long Island Jewish Obligated Group, 5.25%, 5/01/34

     9,220        10,814,876   
    

 

 

 
        57,251,635   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    27


Schedule of Investments (continued)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

Housing — 4.5%

  

City of New York New York Housing Development Corp., RB, M/F Housing:

    

Fund Grant Program, New York City Housing Authority Program, Series B1, 5.25%, 7/01/32

   $ 6,865      $ 8,246,444   

Fund Grant Program, New York City Housing Authority Program, Series B1, 5.00%, 7/01/33

     1,675        1,967,539   

Series A-1-A, AMT, 5.00%, 11/01/30

     750        772,058   

Series A-1-A, AMT, 5.45%, 11/01/46

     1,335        1,369,149   

Series C-1-A, Sustainable Neighborhood Bonds, 3.40%, 11/01/47

     3,150        3,209,157   

Series H-1, AMT, 4.70%, 11/01/40

     1,340        1,346,271   

Series H-2-A, AMT, 5.20%, 11/01/35

     840        865,192   

Series H-2-A, AMT, 5.35%, 5/01/41

     600        626,856   

City of New York New York Housing Development Corp., Refunding RB, M/F Housing, 8 Spruce Street, Class F, 4.50%, 2/15/48

     1,230        1,323,566   

City of Yonkers New York Industrial Development Agency, RB, Monastery Manor Associates LP Project, AMT (SONYMA), 5.25%, 4/01/37

     2,445        2,452,775   

County of Monroe New York Industrial Development Agency, IDRB, Southview Towers Project, AMT (SONYMA):

    

6.13%, 2/01/20

     350        351,330   

6.25%, 2/01/31

     1,125        1,128,611   

State of New York HFA, RB:

    

Affordable Housing Revenue Bonds, Series D, 3.20%, 11/01/46

     1,460        1,466,482   

St. Philip’s Housing, Series A, AMT (Fannie Mae), 4.65%, 11/15/38

     1,500        1,505,805   
    

 

 

 
        26,631,235   

State — 12.2%

  

City of New York New York Transitional Finance Authority, BARB:

    

Fiscal 2008, Series S-1, 4.50%, 1/15/38

     1,700        1,786,513   

Fiscal 2009, Series S-1 (AGC), 5.50%, 7/15/38

     6,000        6,557,700   

Fiscal 2009, Series S-4 (AGC), 5.50%, 1/15/33

     5,500        6,158,350   

Fiscal 2009, Series S-4 (AGC), 5.50%, 1/15/39

     1,500        1,679,550   

Series S-2 (AGM) (NPFGC), 5.00%, 1/15/37

     5,000        5,100,650   

Series S-2 (NPFGC), 4.25%, 1/15/34

     4,025        4,081,431   

City of New York New York Transitional Finance Authority, RB, Series S-1, 5.00%, 7/15/37

     2,000        2,409,620   

Metropolitan Transportation Authority, RB, Dedicated Tax Fund, Series A (NPFGC), 5.00%, 11/15/16 (b)

     1,500        1,520,235   

Metropolitan Transportation Authority, Refunding RB, Dedicated Tax Fund:

    

Series B, 5.00%, 11/15/34

     1,500        1,703,970   

Sub-Series B-1, 5.00%, 11/15/31

     3,465        4,238,249   

Sales Tax Asset Receivable Corp., Refunding RB, Series A, 4.00%, 10/15/32

     3,835        4,447,680   

State of New York Dormitory Authority, RB:

    

General Purpose, Series B, 5.00%, 3/15/37

     1,000        1,192,360   

General Purpose, Series B, 5.00%, 3/15/42

     7,500        8,837,850   

Master BOCES Program Lease (AGC), 5.00%, 8/15/28

     1,750        1,936,375   

School Districts Financing Program, Series C (AGM), 5.00%, 10/01/37

     4,050        4,250,110   

Series B, 5.00%, 3/15/37

     2,000        2,468,220   

State Personal Income Tax, Series A, 5.00%, 2/15/43

     1,000        1,170,450   
Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

State (continued)

  

State of New York Dormitory Authority, RB (continued):

    

State Supported Debt, Series A, 5.00%, 3/15/44

   $ 5,550      $ 6,696,186   

State of New York Dormitory Authority, Refunding RB, School Districts Financing Program, Series A (AGM), 5.00%, 10/01/17 (b)

     550        578,721   

State of New York Thruway Authority, RB:

    

2nd General Highway & Bridge Trust, Series B, 5.00%, 10/01/17 (b)

     1,500        1,577,325   

Transportation, Series A, 5.00%, 3/15/32

     1,130        1,365,933   

State of New York Urban Development Corp., RB, State Personal Income Tax, Series C, 5.00%, 3/15/32

     2,000        2,417,580   

State of New York Urban Development Corp., Refunding RB, State Personal Income Tax, Series A, 4.00%, 3/15/37

     550        619,190   
    

 

 

 
        72,794,248   

Tobacco — 1.1%

  

County of Chautauqua New York Tobacco Asset Securitization Corp., Refunding RB, 4.75%, 6/01/39

     2,190        2,264,460   

County of Niagara New York Tobacco Asset Securitization Corp., Refunding RB, Asset-Backed:

    

5.25%, 5/15/34

     1,650        1,943,898   

5.25%, 5/15/40

     2,250        2,630,092   
    

 

 

 
        6,838,450   

Transportation — 26.6%

  

Metropolitan Transportation Authority, RB:

    

Series A, 5.00%, 11/15/27

     1,000        1,176,160   

Series A, 5.00%, 11/15/30

     1,000        1,224,540   

Series A-1, 5.25%, 11/15/33

     2,565        3,173,238   

Series A-1, 5.25%, 11/15/34

     2,840        3,502,515   

Series C, 6.50%, 11/15/18 (b)

     2,390        2,707,153   

Series C, 6.50%, 11/15/28

     810        917,609   

Series D, 5.25%, 11/15/41

     3,450        4,124,475   

Series E, 5.00%, 11/15/38

     7,785        9,350,953   

Series E, 5.00%, 11/15/43

     4,000        4,786,600   

Series H, 5.00%, 11/15/25

     1,000        1,219,360   

Series H, 5.00%, 11/15/31

     1,690        2,045,120   

Sub-Series B, 5.00%, 11/15/25

     3,250        4,040,107   

Metropolitan Transportation Authority, Refunding RB:

    

Green Bonds, Series A-1, 4.00%, 11/15/46

     315        348,311   

Green Bonds, Series A-1, 5.25%, 11/15/56

     3,110        3,808,599   

Series C-1, 5.25%, 11/15/56

     1,355        1,672,924   

Series D, 5.25%, 11/15/29

     1,000        1,181,900   

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

     3,500        4,213,755   

New York Transportation Development Corp., RB, LaGuardia Airport Terminal B Redevelopment Project, Series A, AMT, 5.25%, 1/01/50

     12,950        15,000,503   

Niagara Falls Bridge Commission, Refunding RB, Toll Bridge System, Series A (AGC), 4.00%, 10/01/19

     1,560        1,649,404   

Port Authority of New York & New Jersey, ARB:

    

Consolidated, 163rd Series, 5.00%, 7/15/35

     2,500        2,877,000   

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

     1,000        1,126,090   

Consolidated, 183rd Series, 4.00%, 6/15/44

     2,350        2,621,942   

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

     8,160        8,339,602   

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

    

178th Series, AMT, 5.00%, 12/01/33

     1,140        1,348,415   
 

 

See Notes to Financial Statements.

 

                
28    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

Transportation (continued)

  

Port Authority of New York & New Jersey, Refunding ARB (continued):

    

179th Series, 5.00%, 12/01/38

   $ 1,390      $ 1,688,086   

Consolidated, 146th Series, AMT (AGM), 4.50%, 12/01/34

     6,090        6,149,926   

Consolidated, 147th Series, AMT, 4.75%, 4/15/37

     2,250        2,294,370   

Consolidated, 177th Series, AMT, 4.00%, 1/15/43

     735        785,443   

Consolidated, 178th Series, AMT, 5.00%, 12/01/43

     750        876,630   

Consolidated, 186th Series, AMT, 5.00%, 10/15/44

     1,000        1,186,950   

Consolidated, 189th Series, 5.00%, 5/01/45

     2,875        3,489,848   

Port Authority of New York & New Jersey, Refunding RB, Series G (AGM), 5.75%, 12/01/25

     3,500        3,569,895   

State of New York Thruway Authority, RB, Junior Lien, Series A:

    

4.00%, 1/01/51

     1,400        1,528,562   

5.25%, 1/01/56

     3,880        4,788,618   

State of New York Thruway Authority, Refunding RB:

    

5.00%, 1/01/29

     2,225        2,753,593   

5.00%, 1/01/31

     1,500        1,831,575   

General, Series I, 5.00%, 1/01/37

     4,750        5,558,592   

General, Series I, 5.00%, 1/01/42

     3,250        3,783,097   

General, Series K, 5.00%, 1/01/32

     3,500        4,255,615   

Series J, 5.00%, 1/01/41

     6,275        7,378,082   

Triborough Bridge & Tunnel Authority, RB, Series B:

    

5.00%, 11/15/40

     1,010        1,250,340   

5.00%, 11/15/45

     1,500        1,837,125   

Triborough Bridge & Tunnel Authority, Refunding RB:

    

General, CAB, Series B, 0.00%, 11/15/32 (a)

     9,590        6,333,811   

General, Series A, 5.00%, 11/15/38

     1,000        1,175,930   

General, Series A, 5.25%, 11/15/45

     1,460        1,824,839   

General, Series A, 5.00%, 11/15/50

     4,500        5,442,345   

Series C, 5.00%, 11/15/38

     2,000        2,186,800   

Sub-Series A, 5.00%, 11/15/28

     2,500        3,051,875   

Sub-Series A, 5.00%, 11/15/29

     875        1,062,338   
    

 

 

 
        158,540,560   

Utilities — 15.1%

  

City of New York New York Municipal Water Finance Authority, Refunding RB, Water & Sewer System:

    

2nd General Resolution, Fiscal 2010, Series FF, 5.00%, 6/15/31

     1,500        1,725,105   

2nd General Resolution, Fiscal 2011, Series BB, 5.00%, 6/15/31

     1,000        1,150,070   

2nd General Resolution, Fiscal 2011, Series GG, 5.00%, 6/15/43

     1,000        1,166,680   

2nd General Resolution, Fiscal 2015, Series HH, 5.00%, 6/15/39

     3,000        3,663,180   

2nd General Resolution, Series DD, 5.00%, 6/15/32

     6,750        7,306,267   

Fiscal 2016, Series A, 3.00%, 6/15/36

     1,750        1,827,070   

Long Island Power Authority, RB, General, Electric Systems, Series A (AGM), 5.00%, 5/01/36

     3,775        4,348,574   

Long Island Power Authority, Refunding RB, Series A:

    

Electric System, 5.00%, 9/01/34

     1,000        1,200,680   

Electric Systems (AGC), 5.75%, 4/01/39

     1,015        1,142,596   

General, Electric Systems (AGC), 6.00%, 5/01/19 (b)

     1,500        1,716,435   

State of New York Environmental Facilities Corp., RB:

    

5.00%, 3/15/45

     5,145        6,239,805   

Series B, Revolving Funds, Green Bonds, 5.00%, 9/15/40

     1,195        1,468,201   
Municipal Bonds    Par  
(000)
    Value  

New York (continued)

                

Utilities (continued)

  

State of New York Environmental Facilities Corp., Refunding RB:

    

3.00%, 6/15/35

   $ 2,985      $ 3,101,594   

4.00%, 6/15/46

     1,000        1,132,420   

Revolving Funds, New York City Municipal Water, Series B, 5.00%, 6/15/33

     1,040        1,124,687   

Revolving Funds, New York City Municipal Water, Series B, 5.00%, 6/15/36

     2,100        2,477,160   

Series A, 5.00%, 6/15/40

     4,275        5,278,129   

Series A, 5.00%, 6/15/45

     18,920        23,051,371   

State of New York Power Authority, Refunding RB, Series A, 5.00%, 11/15/38

     4,920        5,828,970   

Utility Debt Securitization Authority, Refunding RB, Restructuring:

    

3.00%, 12/15/32

     1,600        1,706,336   

Series E, 5.00%, 12/15/41

     9,960        12,137,156   

Western Nassau County Water Authority, RB, Series A, 5.00%, 4/01/40

     1,185        1,420,779   
    

 

 

 
        90,213,265   
Total Municipal Bonds in New York        712,225,727   
    

Guam — 0.3%

  

Utilities — 0.3%

  

Guam Power Authority, RB, Series A (AGM), 5.00%, 10/01/37

     1,380        1,570,247   
    

Puerto Rico — 0.8%

  

Housing — 0.8%

  

Puerto Rico Housing Finance Authority, Refunding RB, M/F Housing, Subordinate, Capital Fund Modernization, 5.13%, 12/01/27

     4,580        4,927,668   
Total Municipal Bonds — 120.5%        718,723,642   
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
       

New York — 38.4%

  

County/City/Special District/School District — 6.3%

  

City of New York New York, GO, Refunding, Series E, 5.00%, 8/01/27

     1,064        1,193,347   

City of New York New York, GO:

    

Sub-Series C-3, 5.75%, 2/15/19 (b)

     916        1,027,847   

Sub-Series C-3, 5.75%, 8/15/28 (d)

     13,484        15,133,273   

Sub-Series I-1, 5.00%, 3/01/36

     3,500        4,200,385   

City of New York New York, Refunding RB, Series E, 5.00%, 8/01/29

     2,000        2,557,640   

City of New York New York Convention Center Development Corp., Refunding RB, Hotel Unit Fee Secured, 5.00%, 11/15/32

     3,500        4,359,565   

City of New York New York Transitional Finance Authority, RB, Future Tax Secured,
Sub-Series D-1, 5.00%, 11/01/38

     4,125        4,883,217   

New York Liberty Development Corp., Refunding RB, 7 World Trade Center Project, Class 1, 5.00%, 9/15/40

     3,645        4,337,477   
    

 

 

 
        37,692,751   

Education — 5.7%

  

City of New York New York Trust for Cultural Resources, Refunding RB, Wildlife Conservation Society, Series A, 5.00%, 8/01/33

     1,981        2,412,786   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    29


Schedule of Investments (continued)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
   Par  
(000)
    Value  

New York (continued)

  

Education (continued)

  

State of New York Dormitory Authority, LRB, State University Dormitory Facilities:

    

5.00%, 7/01/35

   $ 5,198      $ 6,111,822   

5.25%, 7/01/19 (b)

     6,000        6,795,720   

State of New York Dormitory Authority, RB, New York University, Series A (b):

    

5.00%, 7/01/18

     6,498        7,041,125   

(AMBAC), 5.00%, 7/01/17

     5,707        5,942,360   

State of New York Dormitory Authority, Refunding RB, Series E, 5.25%, 3/15/33

     4,500        5,710,230   
    

 

 

 
        34,014,043   

State — 8.3%

  

Hudson Yards Infrastructure Corp., RB, Fiscal 2012, Series A, 5.75%, 2/15/47 (d)

     9,739        11,515,524   

Sales Tax Asset Receivable Corp., Refunding RB, Fiscal 2015, Series A:

    

5.00%, 10/15/31

     7,995        10,022,692   

4.00%, 10/15/32

     8,000        9,278,080   

State of New York Dormitory Authority, ERB, Series B, 5.75%, 3/15/36

     7,850        8,896,170   

State of New York Dormitory Authority, RB, Series C:

    

General Purpose, 5.00%, 3/15/41

     1,650        1,929,131   

Mental Health Services Facilities, AMT (AGM), 5.40%, 2/15/33

     6,297        6,846,176   

State of New York Urban Development Corp., Refunding RB, State Personal Income Tax, Series A, 5.00%, 3/15/45

     1,001        1,215,415   
    

 

 

 
        49,703,188   

Transportation — 12.8%

  

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

     17,999        21,670,116   

Port Authority of New York & New Jersey, ARB, Consolidated, 169th Series, AMT:

    

5.00%, 10/15/25

     7,990        9,316,320   

5.00%, 10/15/26

     6,000        6,957,660   

Port Authority of New York & New Jersey, Refunding ARB, 194th Series, 5.25%, 10/15/55

     3,900        4,845,906   

State of New York Thruway Authority, Refunding RB:

    

General, Series H (AGM), 5.00%, 1/01/37

     10,000        10,592,700   

Transportation, Personal Income Tax, Series A, 5.00%, 3/15/31

     3,940        4,710,940   
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
  

Par  

(000)

    Value  

New York (continued)

  

Transportation (continued)

  

Triborough Bridge & Tunnel Authority, Refunding RB, Series A, 5.00%, 11/15/46

   $ 15,000      $ 18,533,100   
    

 

 

 
        76,626,742   

Utilities — 5.3%

  

City of New York New York Municipal Water Finance Authority, RB, Water & Sewer System, Fiscal 2009, Series A:

    

5.75%, 6/15/18 (b)

     942        1,033,051   

5.75%, 6/15/40

     3,151        3,454,572   

City of New York New York Municipal Water Finance Authority, Refunding RB, Water & Sewer System, 2nd General Resolution:

    

Fiscal 2011, Series HH, 5.00%, 6/15/32

     9,900        11,678,040   

Fiscal 2012, Series BB, 5.00%, 6/15/44

     3,991        4,717,551   

Series FF-2, 5.50%, 6/15/40

     2,760        3,126,528   

Utility Debt Securitization Authority, Refunding RB, 5.00%, 12/15/41

     5,998        7,309,330   
    

 

 

 
        31,319,072   
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 38.4%
        229,355,796   
Total Long-Term Investments
(Cost — $855,143,612) — 158.9%
        948,079,438   
    
                  
Short-Term Securities    Shares         

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.26% (e)(f)

     1,544,681        1,544,681   

Total Short-Term Securities

(Cost — $1,544,681) — 0.3%

  

  

    1,544,681   
Total Investments (Cost — $856,688,293) — 159.2%        949,624,119   
Other Assets Less Liabilities — 1.2%        7,050,939   

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (18.8)%

   

    (112,216,517
Loan for TOB Trust Certificates — (0.1)%        (607,500
VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (41.5)%         (247,323,042
    

 

 

 
Net Assets Applicable to Common Shares — 100.0%      $ 596,527,999   
    

 

 

 
 
Notes to Schedule of Investments

 

(a)   Zero-coupon bond.

 

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

 

(c)   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 agreements, which expire between February 15, 2017 to February 15, 2019 is $12,782,274. See Note 4 of the Notes to Financial Statements for details.

 

(e)   During the year ended July 31, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the 1940 Act, were as follows:

 

Affiliate      Shares Held
at July 31,
2015
       Net
Activity
       Shares Held
at July 31,
2016
    Value at
July 31,
2016
       Income  

BIF New York Municipal Money Fund

       19,904,130           (19,904,130                       $ 1,420   

BlackRock Liquidity Funds, MuniCash, Institutional Class

                 1,544,681           1,544,681      $ 1,544,681           3,081   

Total

                 $ 1,544,681         $ 4,501   
                

 

 

      

 

 

 

 

(f)   Current yield as of period end.

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 advisor. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

See Notes to Financial Statements.

 

                
30    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Contracts
Short
    Issue      Expiration        Notional Value     Unrealized
Depreciation
        
  (59   5-Year U.S. Treasury Note        September 2016         $ 7,198,922      $ (1,933  
  (162   10-Year U.S. Treasury Note        September 2016         $ 21,553,594        (98,654  
  (69   Long U.S. Treasury Bond        September 2016         $ 12,036,187        (326,573  
  (16   Ultra U.S. Treasury Bond        September 2016         $ 3,048,500        (82,045        
  Total                  $ (509,205  
             

 

 

 

 

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:

 

Liabilities — Derivative Financial Instruments   Commodity
Contracts
    Credit
Contracts
    Equity
Contracts
    Foreign
Currency
Exchange
Contracts
    Interest
Rate
Contracts
    Other
Contracts
    Total  

Futures contracts

  Net unrealized depreciation1                               $ 509,205             $ 509,205   

1    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 year ended July 31, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

Net Realized Gain (Loss) from:   Commodity
Contracts
    Credit
Contracts
    Equity
Contracts
    Foreign
Currency
Exchange
Contracts
    Interest
Rate
Contracts
    Other
Contracts
    Total  

Futures contracts

                              $ (2,176,441          $ (2,176,441
Net Change in Unrealized Appreciation (Depreciation) on:                                     

Futures contracts

                              $ (347,595          $ (347,595

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments      

 

Futures contracts:       

Average notional value of contracts — short

  $ 31,943,355   

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 Investments1

            $ 948,079,438                   $ 948,079,438   

Short-Term Securities

  $ 1,544,681                               1,544,681   
 

 

 

 

Total

  $ 1,544,681         $ 948,079,438                   $ 949,624,119   
 

 

 

 
                
Derivative Financial Instruments2                                         

Liabilities:

                

Interest rate contracts

  $ (509,205                          $ (509,205

1    See above Schedule of Investments for values in each sector.

 

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

       

       

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    31


Schedule of Investments (concluded)

  

BlackRock MuniYield New York Quality Fund, Inc. (MYN)

 

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  

Assets:

                

Cash

  $ 1,720                             $ 1,720   

Cash pledged for futures contracts

    604,350                               604,350   

Liabilities:

                

TOB Trust Certificates

            $ (112,104,987                  (112,104,987

Loan for TOB Trust Certificates

              (607,500                  (607,500

VRDP Shares at Liquidation Value

              (247,700,000                  (247,700,000
 

 

 

      

 

 

      

 

 

      

 

 

 

Total

  $ 606,070         $ (360,412,487                $ (359,806,417
 

 

 

      

 

 

      

 

 

      

 

 

 

During the year ended July 31, 2016, there were no transfers between levels.

 

See Notes to Financial Statements.

 

                
32    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments July 31, 2016

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

(Percentages shown are based on Net Assets)

 

Municipal Bonds   

Par  

(000)

    Value  

Alabama — 0.7%

    

City of Birmingham Alabama Special Care Facilities Financing Authority, RB, Children’s Hospital (AGC), 6.00%, 6/01/19 (a)

   $ 3,605      $ 4,131,907   

City of Birmingham Alabama, GO, Convertible CAB, Series A1, 0.00%, 3/01/45 (b)

     2,920        3,075,198   
    

 

 

 
        7,207,105   

Alaska — 1.4%

    

Alaska Industrial Development & Export Authority, RB, Providence Health Services, Series A, 5.50%, 10/01/41

     2,690        3,140,279   

Borough of Matanuska-Susitna Alaska, RB, Goose Creek Correctional Center (AGC) (a):

    

6.00%, 9/01/19

     6,450        7,491,224   

6.00%, 9/01/19

     3,700        4,297,291   
    

 

 

 
        14,928,794   

Arizona — 0.7%

    

City of Phoenix & County of Maricopa Arizona IDA, Refunding RB, S/F Housing, Series A-2, AMT (Fannie Mae), 5.80%, 7/01/40

     120        124,179   

Salt River Project Agricultural Improvement & Power District, RB, Series A, 5.00%, 1/01/38

     3,500        3,708,460   

State of Arizona, COP, Department of Administration, Series A (AGM), 5.00%, 10/01/27

     3,075        3,451,657   
    

 

 

 
        7,284,296   

California — 14.4%

    

Alameda Corridor Transportation Authority, Refunding RB, CAB, Subordinate Lien, Series A (AMBAC), 5.40%, 10/01/17 (a)(b)

     10,000        10,572,500   

Alameda County Joint Powers Authority, Refunding RB, 5.00%, 12/01/34

     6,990        7,391,785   

California Health Facilities Financing Authority, RB:

    

St. Joseph Health System, Series A, 5.75%, 7/01/39

     1,550        1,762,458   

Sutter Health, Series B, 5.88%, 8/15/31

     3,200        3,832,288   

California Health Facilities Financing Authority, Refunding RB, St. Joseph Health System, Series A, 5.00%, 7/01/37

     2,965        3,524,644   

California State University, RB, Systemwide, Series A, 5.50%, 5/01/19 (a)

     1,525        1,728,145   

California State University, Refunding RB, Series A:

    

5.00%, 5/01/17 (a)

     1,510        1,561,521   

5.00%, 11/01/37

     2,035        2,100,914   

California Statewide Communities Development Authority, RB:

    

Kaiser Permanente, Series A, 5.00%, 4/01/42

     4,030        4,703,373   

St. Joseph Health System, Series E (AGM), 5.25%, 7/01/47

     4,000        4,273,000   

City of Redding California, COP, Refunding, Series A (AGM), 5.00%, 6/01/30

     1,900        2,035,983   

City of San Jose California, Refunding ARB, AMT:

    

Series A (AMBAC), 5.50%, 3/01/32

     11,965        12,290,927   

Series A-1, 5.75%, 3/01/34

     2,300        2,723,292   

Coast Community College District, GO, Election of 2002, Series C (AGM), 0.00%, 8/01/16 (a)(c)

     8,100        3,236,274   

County of Orange California Sanitation District, COP, Series B (AGM), 5.00%, 2/01/17 (a)

     5,000        5,113,200   

County of Sacramento California, ARB, Senior Series A, 5.00%, 7/01/41

     10,000        10,768,600   

County of San Joaquin California Transportation Authority, Refunding RB, Limited Tax, Measure K, Series A, 6.00%, 3/01/36

     1,830        2,232,344   

Dublin Unified School District California, GO, CAB, Election of 2004, Series D, 0.00%, 8/01/34 (c)

     5,000        1,873,400   
Municipal Bonds   

Par  

(000)

    Value  

California (continued)

    

Grossmont Union High School District, GO, CAB, Election of 2004, 0.00%, 8/01/31 (c)

   $ 5,110      $ 3,417,006   

Long Beach Unified School District, GO, CAB, Election of 2008, Series B, 0.00%, 8/01/34 (c)

     5,000        2,890,200   

Los Angeles Community College District California, GO, Election of 2001, Series A (AGM), 5.00%, 8/01/17 (a)

     1,200        1,254,816   

Mount San Antonio Community College District, GO, Refunding, CAB, Election of 2008, Series A, 0.00%, 8/01/43 (b)

     3,975        3,491,799   

Norwalk-La Mirada Unified School District, GO, Refunding, CAB, Election of 2002, Series E (AGC), 0.00%, 8/01/38 (c)

     7,620        3,589,630   

Oceanside Unified School District, GO, Series A (AGC), 5.25%, 8/01/33

     2,500        2,711,350   

Poway Unified School District, GO, Refunding, CAB, School Facilities Improvement, Election of 2008, Series B (c):

    

0.00%, 8/01/35

     7,820        4,482,189   

0.00%, 8/01/36

     10,000        5,468,400   

Rio Hondo Community College District California, GO, CAB, Election of 2004, Series C (c):

    

0.00%, 8/01/37

     8,000        4,253,520   

0.00%, 8/01/38

     12,940        6,676,264   

San Bernardino Community College District, GO, Election of 2002, Series C (AGM), 5.00%, 8/01/16 (a)

     2,165        2,165,541   

San Diego California Unified School District, GO, CAB, Election of 2008, Series G (c):

    

0.00%, 7/01/34

     1,860        887,871   

0.00%, 7/01/35

     1,970        884,333   

0.00%, 7/01/36

     2,960        1,249,594   

0.00%, 7/01/37

     1,975        784,944   

San Diego California Unified School District, GO, Refunding, CAB, Series R-1, 0.00%, 7/01/31 (c)

     3,485        2,298,079   

San Marcos Unified School District, GO, Election of 2010, Series A:

    

5.00%, 8/01/34

     1,800        2,109,042   

5.00%, 8/01/38

     1,600        1,870,480   

State of California, GO, Refunding, Various Purposes:

    

5.00%, 9/01/41

     2,700        3,172,878   

5.00%, 10/01/41

     2,555        3,037,614   

State of California, GO, Series 2007-2 (NPFGC), 5.50%, 4/01/30

     10        10,041   

State of California Public Works Board, LRB, Various Capital Projects, Series I, 5.00%, 11/01/38

     5,040        6,071,386   

Walnut Valley Unified School District, GO, CAB, Election of 2007, Series B, 0.00%, 8/01/36 (c)

     6,545        3,482,398   

West Valley-Mission Community College District, GO:

    

5.00%, 8/01/16 (a)

     3,025        3,025,786   

5.00%, 8/01/30

     575        577,173   
    

 

 

 
        151,586,982   

Colorado — 0.6%

    

Regional Transportation District, COP, Series A, 5.00%, 6/01/39

     5,655        6,612,052   

Florida — 12.5%

    

City of Tallahassee Florida Energy System Revenue, RB, (NPFGC), 5.00%, 10/01/32

     3,300        3,463,845   

County of Brevard Florida Health Facilities Authority, Refunding RB, Health First, Inc. Project, 5.00%, 4/01/39

     4,535        5,332,298   

County of Broward Florida School Board, COP, Series A (AGM), 5.25%, 7/01/18 (a)

     13,100        14,254,503   

County of Broward Florida Water & Sewer Utility, Refunding RB, Series A, 5.25%, 10/01/18 (a)

     2,250        2,473,110   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    33


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par  

(000)

    Value  

Florida (continued)

    

County of Highlands Florida Health Facilities Authority, RB, Adventist Health System/Sunbelt, Series B, 6.00%, 11/15/37

   $ 1,750      $ 2,017,523   

County of Lee Florida, Refunding ARB, Series A, AMT:

    

5.63%, 10/01/26

     2,600        3,056,794   

5.38%, 10/01/32

     3,440        3,993,565   

County of Miami-Dade Florida, GO, Building Better Communities Program (a):

    

Series B, 6.38%, 7/01/18

     6,000        6,663,660   

Series B-1, 5.75%, 7/01/18

     3,700        4,065,116   

County of Miami-Dade Florida, RB, Seaport:

    

Series A, 6.00%, 10/01/38

     5,695        7,136,291   

Series B, AMT, 6.00%, 10/01/30

     1,820        2,285,083   

Series B, AMT, 6.25%, 10/01/38

     1,165        1,482,637   

Series B, AMT, 6.00%, 10/01/42

     1,865        2,295,218   

County of Miami-Dade Florida, Refunding RB, Water & Sewer System, Series C (BHAC), 6.00%, 10/01/18 (a)

     20,095        22,412,154   

County of Miami-Dade Florida Aviation, Refunding ARB, AMT:

    

5.00%, 10/01/34

     530        623,089   

Miami International Airport, Series A (AGM), 5.50%, 10/01/41

     19,020        20,739,028   

County of Miami-Dade Florida Educational Facilities Authority, RB, University Miami, Series A, 5.00%, 4/01/40

     14,360        17,105,919   

County of Miami-Dade Florida Transit System, RB, Surtax (AGM), 5.00%, 7/01/35

     2,800        3,010,756   

County of Palm Beach Florida Solid Waste Authority, Refunding RB, 5.00%, 10/01/31

     3,100        3,654,900   

County of Sarasota Florida Public Hospital District, RB, Sarasota Memorial Hospital Project, Series A, 5.63%, 7/01/39

     5,135        5,721,160   
    

 

 

 
        131,786,649   

Georgia — 2.1%

    

County of Burke Georgia Development Authority, Refunding RB, Oglethorpe Power-Vogtle Project, Series C, 5.70%, 1/01/43

     6,450        6,858,414   

County of Gainesville Georgia & Hall Hospital Authority, Refunding RB, Northeast Georgia Health System, Inc. Project, Series A, 5.50%, 8/15/54

     1,405        1,742,003   

Metropolitan Atlanta Rapid Transit Authority, Refunding RB, 3rd Indenture, Series B, 5.00%, 7/01/17 (a)

     10,000        10,412,500   

Private Colleges & Universities Authority, RB, Savannah College of Art & Design:

    

5.00%, 4/01/33

     395        462,936   

5.00%, 4/01/44

     1,775        2,049,486   
    

 

 

 
        21,525,339   

Hawaii — 0.4%

    

State of Hawaii Department of Transportation, COP, AMT:

    

5.00%, 8/01/27

     2,000        2,367,920   

5.00%, 8/01/28

     1,775        2,082,821   
    

 

 

 
        4,450,741   

Illinois — 17.5%

    

City of Chicago Illinois, GARB, O’Hare International Airport, 3rd Lien, Series A, 5.75%, 1/01/39

     9,000        10,550,520   

City of Chicago Illinois, GO, Refunding, Series A:

    

5.00%, 1/01/35

     7,280        7,433,535   

Project, 5.25%, 1/01/33

     2,340        2,427,188   

City of Chicago Illinois, RB, Motor Fuel Tax Project, Series A (AGC), 5.00%, 1/01/38

     3,175        3,316,986   
Municipal Bonds   

Par  

(000)

    Value  

Illinois (continued)

    

City of Chicago Illinois, Refunding GARB, O’Hare International Airport, AMT, Series B, 5.00%, 1/01/31

   $ 2,425      $ 2,745,051   

City of Chicago Illinois, Refunding RB, Series A:

    

Sales Tax Receipts, 5.00%, 1/01/41

     2,715        2,886,887   

Waterworks, 2nd Lien (AMBAC), 5.00%, 11/01/36

     3,500        3,537,345   

City of Chicago Illinois Midway International Airport, Refunding RB, 2nd Lien, Series A, AMT, 5.00%, 1/01/34

     3,035        3,508,217   

City of Chicago Illinois Transit Authority, RB, Sales Tax Receipts, 5.25%, 12/01/36

     1,620        1,805,279   

County of Cook Illinois Community College District No. 508, GO, City College of Chicago, 5.13%, 12/01/38

     3,250        3,700,612   

County of Cook Illinois Forest Preserve District, GO, Refunding, Limited Tax Project, Series B, 5.00%, 12/15/37

     615        688,548   

Illinois Finance Authority, RB, Carle Foundation, Series A, 5.75%, 8/15/34

     8,700        10,359,264   

Illinois Finance Authority, Refunding RB:

    

Northwestern Memorial Hospital, Series A, 6.00%, 8/15/39

     5,250        6,060,862   

Silver Cross Hospital and Medical Centers, 4.13%, 8/15/37

     1,965        2,101,961   

Silver Cross Hospital and Medical Centers, 5.00%, 8/15/44

     985        1,137,488   

Illinois Municipal Electric Agency, RB, Series A (NPFGC) (a):

    

5.00%, 2/01/17

     17,935        18,342,842   

5.25%, 2/01/17

     15,000        15,360,000   

Metropolitan Pier & Exposition Authority, RB, CAB, McCormick Place Expansion Project, Series A (NPFGC) (c):

    

0.00%, 12/15/26

     8,500        6,084,385   

0.00%, 6/15/32

     14,000        7,797,720   

0.00%, 12/15/33

     20,000        10,415,400   

0.00%, 12/15/34

     41,880        20,705,053   

Metropolitan Pier & Exposition Authority, Refunding RB, CAB, McCormick Place Expansion Project, Series B (AGM), 0.00%, 6/15/44 (c)

     9,430        3,143,208   

Railsplitter Tobacco Settlement Authority, RB, 6.00%, 6/01/28

     1,700        2,038,572   

Regional Transportation Authority, RB, Series C (NPFGC), 7.75%, 6/01/20

     720        830,225   

State of Illinois, GO:

    

5.25%, 7/01/29

     3,160        3,517,807   

5.25%, 2/01/33

     5,860        6,507,237   

5.50%, 7/01/33

     2,235        2,513,459   

5.25%, 2/01/34

     5,360        5,933,413   

5.50%, 7/01/38

     1,200        1,337,004   

5.00%, 2/01/39

     7,500        8,098,200   

State of Illinois Toll Highway Authority, RB, Series B, 5.50%, 1/01/18 (a)

     4,000        4,279,520   

State of lllinois Toll Highway Authority, RB, Series B (BHAC), 5.50%, 1/01/18 (a)

     2,000        2,139,760   

University of Illinois, RB, Auxiliary Facilities System, Series A, 5.00%, 4/01/39

     2,580        2,977,036   
    

 

 

 
        184,280,584   

Indiana — 3.1%

    

City of Indianapolis Indiana, Refunding RB, Series B (AGC), 5.25%, 8/15/27

     5,000        5,416,350   

Indiana Finance Authority, RB, Series A:

    

CWA Authority Project, 1st Lien, 5.25%, 10/01/38

     2,900        3,453,552   
 

 

See Notes to Financial Statements.

 

                
34    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par  

(000)

    Value  

Indiana (continued)

    

Indiana Finance Authority, RB, Series A (continued):

    

Private Activity Bond, Ohio River Bridges East End Crossing Project, AMT, 5.00%, 7/01/44

   $ 1,400      $ 1,573,810   

Private Activity Bond, Ohio River Bridges, AMT, 5.00%, 7/01/40

     2,425        2,750,387   

Indiana Municipal Power Agency, RB (a):

    

Series A (NPFGC), 5.00%, 1/01/17

     3,850        3,921,802   

Series B, 6.00%, 1/01/19

     5,000        5,639,200   

Indianapolis Local Public Improvement Bond Bank, Refunding RB, Waterworks Project, Series A:

    

5.75%, 1/01/38

     2,900        3,253,365   

(AGC), 5.25%, 1/01/29

     1,350        1,494,855   

(AGC), 5.50%, 1/01/38

     4,250        4,750,012   
    

 

 

 
        32,253,333   

Iowa — 2.5%

    

Iowa Finance Authority, RB, Iowa Health Care Facilities, Series A (AGC), 5.63%, 8/15/19 (a)

     12,650        14,522,453   

Iowa Student Loan Liquidity Corp., RB, Senior Series A-2, AMT:

    

5.60%, 12/01/26

     2,805        3,031,812   

5.70%, 12/01/27

     2,800        3,007,844   

5.75%, 12/01/28

     1,480        1,589,046   

5.80%, 12/01/29

     1,890        2,027,252   

5.85%, 12/01/30

     1,965        2,109,290   
    

 

 

 
        26,287,697   

Kentucky — 1.2%

    

Kentucky Economic Development Finance Authority, RB, Catholic Health Initiatives, Series A, 5.38%, 1/01/40

     1,000        1,160,570   

Kentucky Public Transportation Infrastructure Authority, RB, Downtown Crossing Project, Convertible CAB, 1st Tier, Series C, 0.00%, 7/01/39 (b)

     8,225        7,308,241   

Kentucky State Property & Building Commission, Refunding RB, Project No. 93, (AGC):

    

5.25%, 2/01/19 (a)

     3,545        3,948,988   

5.25%, 2/01/28

     455        502,302   
    

 

 

 
        12,920,101   

Louisiana — 1.2%

    

City of New Orleans Louisiana Aviation Board, RB, AMT:

    

Series A (AGM), 5.25%, 1/01/32

     6,405        6,736,074   

Series B, 5.00%, 1/01/40

     4,825        5,608,532   
    

 

 

 
        12,344,606   

Maine — 0.3%

    

Maine Health & Higher Educational Facilities Authority, RB, Series A, 5.00%, 7/01/46

     2,945        3,400,680   

Massachusetts — 1.1%

    

Massachusetts DFA, Refunding RB, Series A, 5.00%, 10/01/43

     1,045        1,224,019   

Massachusetts HFA, RB, M/F Housing, Series B, 7.00%, 12/01/38

     3,150        3,398,283   

Massachusetts HFA, Refunding RB, Series C, AMT, 5.35%, 12/01/42

     2,555        2,711,341   

Massachusetts School Building Authority, RB, Dedicated Sales Tax, Senior Series A, 5.00%, 5/15/43

     3,495        4,160,378   
    

 

 

 
        11,494,021   

Michigan — 7.5%

    

City of Detroit Michigan Water Supply System, RB, 2nd Lien, Series B (AGM), 6.25%, 7/01/36

     1,075        1,210,235   
Municipal Bonds   

Par  

(000)

    Value  

Michigan (continued)

    

City of Detroit Michigan Water Supply System, Refunding RB, 2nd Lien, Series D (NPFGC), 5.00%, 7/01/33

   $ 5,000      $ 5,017,300   

City of Lansing Michigan, RB, Board of Water & Light Utilities System, Series A, 5.50%, 7/01/41

     3,185        3,790,628   

Michigan Finance Authority, Refunding RB, Trinity Health Credit Group:

    

5.00%, 12/01/21 (a)

     60        72,701   

5.00%, 12/01/39

     16,040        18,703,442   

Royal Oak Hospital Finance Authority Michigan, Refunding RB, William Beaumont Hospital, Series D, 5.00%, 9/01/39

     1,330        1,546,537   

State of Michigan, RB, GAB (AGM) (a):

    

5.25%, 9/15/17

     10,000        10,529,500   

5.25%, 9/15/17

     6,650        7,002,117   

State of Michigan Building Authority, Refunding RB, Facilities Program:

    

Series I, 6.25%, 10/15/18 (a)

     1,890        2,123,850   

Series I, 6.25%, 10/15/38

     1,235        1,378,989   

Series I (AGC), 5.25%, 10/15/24

     1,750        1,981,735   

Series I (AGC), 5.25%, 10/15/25

     3,250        3,675,977   

Series I-A, 5.38%, 10/15/36

     2,075        2,426,132   

Series I-A, 5.38%, 10/15/41

     1,900        2,221,518   

Series II-A (AGM), 5.25%, 10/15/36

     8,040        9,380,429   

State of Michigan HDA, RB, S/F Housing, Series C, AMT, 5.50%, 12/01/28

     1,515        1,631,625   

Wayne County Airport Authority, Refunding RB, AMT (AGC), 5.38%, 12/01/32

     5,000        5,476,000   

Western Michigan University, Refunding RB, General, University and College Improvements (AGM), 5.00%, 11/15/39

     1,080        1,267,628   
    

 

 

 
        79,436,343   

Minnesota — 0.6%

    

City of Minneapolis Minnesota, Refunding RB, Fairview Health Services, Series B (AGC):

    

6.50%, 11/15/18 (a)

     845        957,748   

6.50%, 11/15/38

     4,655        5,209,504   
    

 

 

 
        6,167,252   

Nebraska — 0.7%

    

Central Plains Energy Project Nebraska, RB, Gas Project No. 3, 5.25%, 9/01/37

     6,825        7,829,026   

Nevada — 1.0%

    

City of Las Vegas Nevada, GO, Limited Tax, Performing Arts Center, 6.00%, 4/01/19 (a)

     2,250        2,567,070   

County of Clark Nevada, ARB, Las Vegas-McCarran International Airport, Series A:

    

5.25%, 7/01/42

     2,000        2,247,120   

(AGM), 5.25%, 7/01/39

     5,170        5,812,476   
    

 

 

 
        10,626,666   

New Jersey — 7.9%

    

New Jersey EDA, RB:

    

Goethals Bridge Replacement Project, Private Activity Bond, AMT, 5.38%, 1/01/43

     4,920        5,724,223   

Private Activity Bond, The Goethals Bridge Replacement Project, AMT, 5.13%, 1/01/34

     1,930        2,248,489   

Series WW, 5.25%, 6/15/33

     445        506,882   

Series WW, 5.00%, 6/15/34

     570        636,582   

Series WW, 5.00%, 6/15/36

     2,635        2,934,283   

Series WW, 5.25%, 6/15/40

     1,025        1,163,334   

New Jersey EDA, Refunding RB, School Facilities Construction:

    

Series N-1 (AMBAC), 5.50%, 9/01/24

     6,325        7,566,724   

Series N-1 (NPFGC), 5.50%, 9/01/28

     1,685        2,128,323   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    35


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par  

(000)

    Value  

New Jersey (continued)

    

New Jersey Higher Education Student Assistance Authority, Refunding RB, Series 1, AMT:

    

5.50%, 12/01/25

   $ 1,005      $ 1,145,871   

5.50%, 12/01/26

     1,450        1,650,027   

5.75%, 12/01/28

     160        182,283   

5.88%, 12/01/33

     6,895        7,873,194   

New Jersey Housing & Mortgage Finance Agency, Refunding RB, M/F Housing, Series 2, AMT, 4.35%, 11/01/33

     2,645        2,830,044   

New Jersey Transportation Trust Fund Authority, RB:

    

CAB, Transportation System, Series A, 0.00%, 12/15/35 (c)

     18,525        8,231,584   

CAB, Transportation System, Series C (AGC) (AMBAC), 0.00%, 12/15/25 (c)

     8,550        6,361,029   

Transportation Program, Series AA, 5.25%, 6/15/33

     4,150        4,649,577   

Transportation Program, Series AA, 5.00%, 6/15/38

     4,990        5,537,553   

Transportation System, Series A (NPFGC), 5.75%, 6/15/25

     4,000        4,997,640   

Transportation System, Series AA, 5.50%, 6/15/39

     5,625        6,365,869   

Transportation System, Series B, 5.50%, 6/15/31

     1,000        1,133,980   

Transportation System, Series B, 5.00%, 6/15/42

     6,500        7,024,290   

Transportation System, Series D, 5.00%, 6/15/32

     1,825        2,057,523   
    

 

 

 
        82,949,304   

New Mexico — 0.1%

    

New Mexico Hospital Equipment Loan Council, Refunding RB, Presbyterian Healthcare Services, 5.00%, 8/01/44

     1,040        1,249,425   

New York — 2.7%

    

City of New York New York Transitional Finance Authority, RB, Fiscal 2009, Series S-4, 5.50%, 1/15/34

     7,250        8,117,825   

City of New York New York Transitional Finance Authority, Refunding RB, Future Tax Secured, Series B, 5.00%, 11/01/32

     4,150        5,061,215   

Hudson Yards Infrastructure Corp., RB, Series A, 5.75%, 2/15/47

     1,920        2,270,208   

New York Transportation Development Corp., RB, LaGuardia Airport Terminal B Redevelopment Project, Series A (AMT), 5.00%, 7/01/46

     8,300        9,504,164   

State of New York Dormitory Authority, ERB, Series B, 5.25%, 3/15/38

     3,250        3,623,685   
    

 

 

 
        28,577,097   

Ohio — 2.2%

    

County of Lucas Ohio, Refunding RB, Promedica Healthcare, Series A, 6.50%, 11/15/37

     3,000        3,758,880   

County of Montgomery Ohio, RB, Catholic Health Initiatives, Series D-2, 5.45%, 10/01/38

     11,135        13,254,659   

State of Ohio Turnpike Commission, RB, Junior Lien, Infrastructure Projects, Series A-1:

    

5.25%, 2/15/32

     1,950        2,374,320   

5.25%, 2/15/33

     2,730        3,314,629   
    

 

 

 
        22,702,488   

Pennsylvania — 5.0%

    

Commonwealth Financing Authority, RB, Series B, 5.00%, 6/01/42

     3,305        3,797,643   

County of Westmoreland Municipal Authority, RB, (BAM), 5.00%, 8/15/42 (d)

     2,555        3,021,747   
Municipal Bonds   

Par  

(000)

    Value  

Pennsylvania (continued)

    

Pennsylvania Economic Development Financing Authority, RB, AMT:

    

Pennsylvania Bridge Finco LP, 5.00%, 12/31/38

   $ 5,850      $ 6,896,741   

The Pennsylvania Rapid Bridge Replacement Project, 5.00%, 12/31/34

     7,115        8,408,294   

Pennsylvania Higher Educational Facilities Authority, Refunding RB, Thomas Jefferson University, Series A, 5.25%, 9/01/50

     9,075        10,853,518   

Pennsylvania Turnpike Commission, RB:

    

Series A, 5.00%, 12/01/38

     1,775        2,139,709   

Series A-1, 5.00%, 12/01/46

     3,240        3,858,386   

Series C, 5.50%, 12/01/33

     1,565        1,941,930   

Sub-Series C (AGC), 6.25%, 6/01/18 (a)

     5,695        6,284,376   

Subordinate, Special Motor License Fund, 6.00%, 12/01/36

     2,575        3,047,925   

Pennsylvania Turnpike Commission, Refunding RB, Series A-1, 5.00%, 12/01/40

     2,165        2,572,886   
    

 

 

 
        52,823,155   

Rhode Island — 1.1%

    

Rhode Island Commerce Corp., RB:

    

5.00%, 7/01/41

     295        350,879   

5.00%, 7/01/46

     325        384,706   

Tobacco Settlement Financing Corp., Refunding RB, Series B:

    

4.50%, 6/01/45

     3,000        3,207,420   

5.00%, 6/01/50

     7,465        7,998,598   
    

 

 

 
        11,941,603   

South Carolina — 3.7%

    

South Carolina Jobs EDA, Refunding RB, Palmetto Health, Series A (AGM), 6.50%, 8/01/39

     3,600        4,439,448   

South Carolina Ports Authority, RB, AMT, 5.25%, 7/01/50

     6,530        7,655,772   

South Carolina State Public Service Authority, Refunding RB, Series E, 5.25%, 12/01/55

     2,985        3,609,492   

State of South Carolina Public Service Authority, RB, Santee Cooper:

    

Series A, 5.50%, 12/01/54

     11,450        13,787,632   

Series E, 5.50%, 12/01/53

     2,025        2,409,183   

State of South Carolina Public Service Authority, Refunding RB, Santee Cooper, Series B, 5.00%, 12/01/38

     5,870        6,917,149   
    

 

 

 
        38,818,676   

Texas — 15.7%

    

Central Texas Turnpike System, Refunding RB, CAB, Series B, 0.00%, 8/15/37 (c)

     5,065        2,271,298   

City of Houston Texas Combined Utility System Revenue, Refunding RB, Combined 1st Lien:

    

Series A (AGC), 5.38%, 5/15/19 (a)

     3,460        3,908,900   

Series A (AGC), 6.00%, 5/15/19 (a)

     5,400        6,193,854   

Series A (AGC), 6.00%, 11/15/35

     300        344,976   

Series A (AGC), 5.38%, 11/15/38

     190        212,272   

Series A (AGM), 5.00%, 11/15/17 (a)

     10,000        10,569,800   

City of San Antonio Texas Public Service Board, RB, Junior Lien, 5.00%, 2/01/38

     1,450        1,721,904   

County of Midland Texas Fresh Water Supply District No. 1, RB, CAB, City of Midland Project, Series A, 0.00%, 9/15/36 (c)

     5,810        2,718,267   

County of Tarrant Texas Cultural Education Facilities Finance Corp., Refunding RB, Cook Children’s Medical Center, 5.25%, 12/01/39

     2,095        2,511,654   

Dallas ISD, GO, School Building (PSF-GTD), 6.38%, 2/15/18 (a)

     10,000        10,892,500   
 

 

See Notes to Financial Statements.

 

                
36    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par  

(000)

    Value  

Texas (continued)

    

Dallas-Fort Worth International Airport, ARB, Joint Improvement, Series D, AMT, 5.00%, 11/01/38

   $ 10,980      $ 12,491,727   

Dallas-Fort Worth International Airport, Refunding ARB, Series F:

    

5.25%, 11/01/33

     2,745        3,340,500   

5.00%, 11/01/35

     5,000        5,685,100   

Grand Prairie ISD, GO, Refunding, CAB, 0.00%, 8/15/18 (a)(c)

     10,000        5,040,200   

Judson ISD Texas, GO, School Building (AGC), 5.00%, 2/01/17 (a)

     10,000        10,227,500   

Leander ISD, GO, Refunding, CAB, Series D, 0.00%, 8/15/38 (c)

     9,685        4,146,245   

North Texas Tollway Authority, RB, CAB, Special Project System, Series B, 0.00%, 9/01/43 (c)

     25,000        7,214,000   

North Texas Tollway Authority, Refunding RB:

    

1st Tier System, Series A, 6.00%, 1/01/19 (a)

     5,100        5,751,984   

1st Tier System, Series A, 5.13%, 1/01/28

     2,460        2,591,069   

1st Tier System, Series A (NPFGC), 5.13%, 1/01/18 (a)

     17,540        18,662,209   

1st Tier System, Series A (NPFGC), 6.00%, 1/01/28

     1,175        1,320,371   

1st Tier System, Series S, 5.75%, 1/01/18 (a)

     8,540        9,161,883   

1st Tier System, Series SE, 5.75%, 1/01/40

     1,460        1,558,973   

Series B, 5.00%, 1/01/40

     3,420        4,008,411   

San Antonio Public Facilities Corp., Refunding RB, Convention Center Refinancing and Expansion Project, CAB (c):

    

0.00%, 9/15/35

     680        304,048   

0.00%, 9/15/36

     12,195        5,130,071   

0.00%, 9/15/37

     8,730        3,461,009   

Texas Municipal Gas Acquisition & Supply Corp. III, RB:

    

5.00%, 12/15/32

     3,930        4,451,275   

Natural Gas Utility Improvements, 5.00%, 12/15/31

     1,665        1,895,253   

Texas Private Activity Bond Surface Transportation Corp., RB, Senior Lien, AMT, Blueridge Transportation Group:

    

5.00%, 12/31/45

     2,330        2,710,908   

5.00%, 12/31/50

     1,300        1,513,096   

Texas Transportation Commission, Refunding RB, Central Texas Turnpike System, 1st Tier, Series A, 5.00%, 8/15/41

     11,345        13,203,311   
    

 

 

 
        165,214,568   

Utah — 1.8%

    

Utah Transit Authority, Refunding RB, CAB (c):

    

Sub-Series A (AGC), 0.00%, 6/15/20

     10,000        8,636,300   

Sub-Series A (NPFGC), 0.00%, 6/15/24

     13,930        9,854,500   
    

 

 

 
        18,490,800   

Washington — 1.3%

    

Port of Seattle Washington, RB, Series C, AMT, 5.00%, 4/01/40

     2,830        3,324,769   

Washington Health Care Facilities Authority, RB:

    

MultiCare Health System, Remarketing, Series B, 5.00%, 8/15/44

     1,000        1,134,630   

Providence Health & Services, Series A, 5.25%, 10/01/39

     2,725        3,057,559   

Washington Health Care Facilities Authority, Refunding RB, Catholic Health Initiatives, Series D, 6.38%, 10/01/36

     5,400        5,997,294   
    

 

 

 
        13,514,252   

Wisconsin — 0.5%

    

Public Finance Authority, RB, KU Campus Development Corp., Central District Development Project, 5.00%, 3/01/46

     875        1,035,073   
Municipal Bonds   

Par  

(000)

    Value  

Wisconsin (continued)

    

State of Wisconsin Health & Educational Facilities Authority, RB, Ascension Health Senior Credit Group, Series E, 5.00%, 11/15/33

   $ 3,745      $ 4,238,029   
    

 

 

 
        5,273,102   
Total Municipal Bonds — 111.5%        1,173,976,737   
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
              

Arizona — 1.0%

    

Arizona School Facilities Board, COP, (AGC), 5.13%, 9/01/18 (a)(f)

     10,000        10,942,200   

California — 6.6%

    

California State University, RB, Systemwide, Series A (AGM):

    

5.00%, 5/01/18 (a)

     7,793        8,406,158   

5.00%, 11/01/33

     204        219,966   

California State University, Refunding RB, Systemwide, Series A (AGM), 5.00%, 11/01/37 (f)

     18,435        19,045,634   

City of Riverside California, RB, Issue D (AGM), 5.00%, 10/01/38

     20,000        21,715,600   

County of San Diego California Water Authority Financing Corp., COP, Refunding, Series A (AGM) (a):

    

5.00%, 5/01/18

     1,554        1,675,344   

5.00%, 5/01/18

     7,816        8,423,173   

Los Angeles Community College District California, GO, Refunding, Election of 2008, Series A, 6.00%, 8/01/19 (a)

     5,248        6,085,648   

San Diego Community College District California, GO, Election of 2002, 5.25%, 8/01/33

     1,047        1,190,316   

University of California, RB, Series O, 5.75%, 5/15/19 (a)

     2,205        2,519,433   
    

 

 

 
        69,281,272   

Colorado — 0.3%

    

Colorado Health Facilities Authority, Refunding RB, Catholic Health Initiatives, Series A, 5.50%, 7/01/34 (f)

     2,469        2,769,858   

Connecticut — 1.0%

    

Connecticut State Health & Educational Facility Authority, RB, Yale University, Series T-1, 4.70%, 7/01/29

     5,019        5,202,819   

Connecticut State Health & Educational Facility Authority, Refunding RB, Trinity Health Credit Group, 5.00%, 12/01/45

     3,932        4,746,008   
    

 

 

 
        9,948,827   

District of Columbia — 2.5%

    

District of Columbia, RB, Series A, 5.50%, 12/01/30 (f)

     2,594        3,000,700   

District of Columbia Water & Sewer Authority, Refunding RB, Senior Lien, Series A, 6.00%, 10/01/35 (a)(f)

     4,277        4,771,808   

Metropolitan Washington Airports Authority, RB, Series B, AMT, 5.00%, 10/01/32

     10,000        10,456,700   

Metropolitan Washington Airports Authority, Refunding ARB, Series A, AMT, 5.00%, 10/01/30

     6,880        8,011,829   
    

 

 

 
        26,241,037   

Florida — 5.0%

    

City of Miami Beach Florida, RB, 5.00%, 9/01/45

     8,760        10,530,483   
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    37


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
  

Par  

(000)

    Value  

Florida (continued)

    

County of Highlands Florida Health Facilities Authority, RB, Adventist, Series C, 5.25%, 11/15/16

   $ 5,400      $ 5,472,252   

County of Miami-Dade Florida, Refunding RB, Transit System Sales Surtax, 5.00%, 7/01/42

     4,840        5,685,548   

County of Miami-Dade Florida Water & Sewer System, (AGC), 5.00%, 10/01/39

     11,702        13,406,577   

County of Orange Florida School Board, COP, Series A (AGC), 5.50%, 8/01/19 (a)

     12,013        13,725,084   

State of Florida Board of Education, GO, Refunding, Series C, 5.00%, 6/01/18 (f)

     3,299        3,455,463   
    

 

 

 
        52,275,407   

Illinois — 3.3%

    

Metropolitan Pier & Exposition Authority, RB, McCormick Place Expansion Project, Series A, 5.00%, 6/15/42 (f)

     719        781,684   

State of Illinois, RB, Build Illinois, Series B, 5.25%, 6/15/34 (f)

     3,499        3,879,554   

State of Illinois Finance Authority, RB, University of Chicago, Series B, 6.25%, 7/01/18 (a)

     10,000        11,080,200   

State of Illinois Toll Highway Authority, RB:

    

Senior Priority, Series A, 5.00%, 1/01/40

     7,621        9,156,596   

Senior, Series B, 5.00%, 1/01/40

     2,939        3,533,142   

Series A, 5.00%, 1/01/38

     5,836        6,763,762   
    

 

 

 
        35,194,938   

Kentucky — 0.6%

    

Kentucky State Property & Building Commission, Refunding RB, Project No. 93 (AGC), 5.25%, 2/01/27

     5,985        6,615,096   

Massachusetts — 0.5%

    

Commonwealth of Massachusetts, GO, Series A, 5.00%, 3/01/46

     4,204        5,038,268   

Michigan — 0.9%

    

Michigan Finance Authority, RB, Beaumont Health Credit Group, 5.00%, 11/01/44

     5,591        6,663,118   

Michigan State Building Authority, Refunding RB, Facilities Program, Series I, 5.00%, 10/15/45

     2,410        2,880,986   
    

 

 

 
        9,544,104   

Nevada — 1.7%

    

County of Clark Nevada Water Reclamation District, GO, Series B:

    

Limited Tax, 5.75%, 7/01/34

     4,813        5,508,386   

5.50%, 7/01/29

     510        576,851   

Las Vegas Valley Water District Nevada, GO, Refunding, Water Improvement, Series A, 5.00%, 6/01/46

     9,840        12,021,626   
    

 

 

 
        18,106,863   

New Jersey — 2.0%

    

County of Hudson New Jersey Improvement Authority, RB, Hudson County Vocational-Technical Schools Project, 5.25%, 5/01/51

     2,320        2,869,190   

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

     10,000        13,074,500   

New Jersey Transportation Trust Fund Authority, RB, Transportation System, Series B, 5.25%, 6/15/36 (f)

     4,961        5,487,711   
    

 

 

 
        21,431,401   
Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
  

Par  

(000)

    Value  

New York — 7.8%

    

City of New York New York Municipal Water Finance Authority, Refunding RB, Water & Sewer System, 2nd General Resolution, Series DD:

    

5.00%, 6/15/18 (a)

   $ 2,586      $ 2,791,955   

5.00%, 6/15/37

     14,981        16,175,132   

City of New York New York Municipal Water Finance Authority, Refunding RB, Water & Sewer System, 2nd General Resolution, Fiscal 2013, Series CC, 5.00%, 6/15/47

     15,521        18,532,009   

City of New York New York Water & Sewer System, Refunding RB, 2nd General Resolution, Fiscal 2014, Series DD, 5.00%, 6/15/35

     4,740        5,806,405   

Metropolitan Transportation Authority, RB, Sub-Series D-1, 5.25%, 11/15/44

     9,850        12,217,251   

Metropolitan Transportation Authority, Refunding RB, Series C-1, 5.25%, 11/15/56

     4,280        5,283,843   

New York State Urban Development Corp., RB, Personal Income Tax, General Purpose, Series A-1, 5.00%, 3/15/43

     14,280        16,742,586   

Triborough Bridge & Tunnel Authority, RB, General, Series A-2, 5.25%, 11/15/34 (f)

     4,500        4,958,820   
    

 

 

 
        82,508,001   

North Carolina — 0.5%

    

North Carolina HFA, RB, S/F Housing, Series 31-A, AMT, 5.25%, 7/01/38

     5,040        5,121,497   

Ohio — 0.7%

    

County of Montgomery Ohio, RB, Catholic Health, Series C-1 (AGM), 5.00%, 4/28/18 (a)

     4,990        5,371,386   

State of Ohio, RB, Cleveland Clinic Health Obligated Group, Series B, 5.50%, 1/01/34

     1,520        1,693,751   
    

 

 

 
               7,065,137   

South Carolina — 1.2%

    

State of South Carolina Public Service Authority, Refunding RB, Series B, 5.00%, 12/01/56

     10,740        12,668,260   

Texas — 4.5%

    

County of Tarrant Texas Cultural Education Facilities Finance Corp., RB, Baylor Health Care System Project, Series A, 5.00%, 11/15/38

     1,799        2,104,767   

Dallas Fort Worth International Airport, ARB, Series H, AMT, 5.00%, 11/01/37 (f)

     8,868        10,088,801   

Friendswood ISD Texas, GO, Schoolhouse (PSF-GTD), 5.00%, 2/15/18 (a)

     12,953        13,833,850   

Houston ISD, GO, Schoolhouse (PSF-GTD), 5.00%, 2/15/17 (a)

     10,000        10,245,000   

Texas State University Systems, Refunding RB, 5.25%, 3/15/18 (a)

     10,000        10,758,100   
    

 

 

 
               47,030,518   

Virginia — 0.4%

    

University of Virginia, Refunding RB, GO, 5.00%, 6/01/40

     3,944        4,257,344   

Washington — 2.7%

    

Central Puget Sound Regional Transit Authority, RB, Series A (AGM), 5.00%, 11/01/17 (a)

     16,770        17,942,139   

Washington Health Care Facilities Authority, Refunding RB, Seattle Children’s Hospital, Series B, 5.00%, 10/01/38

     8,205        10,712,202   
    

 

 

 
               28,654,341   

Wisconsin — 2.6%

    

State of Wisconsin, Refunding RB, Series A, 6.00%, 5/01/36

     14,780        16,792,149   
 

 

See Notes to Financial Statements.

 

                
38    ANNUAL REPORT    JULY 31, 2016   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
  

Par  

(000)

    Value  

Wisconsin (continued)

    

Wisconsin Health & Educational Facilities Authority, Refunding RB, Froedtert & Community Health, Inc., Obligated Group:

    

Series A, 5.00%, 4/01/42

   $ 2,490      $ 2,843,904   

Series C, 5.25%, 4/01/39 (f)

     7,459        8,128,981   
    

 

 

 
               27,765,034   
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 45.8%
        482,459,403   
Total Long-Term Investments
(Cost — $1,479,808,423) — 157.3%
        1,656,436,140   
Short-Term Securities   

Shares

    Value  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.26% (g)(h)

     5,108,362      $ 5,108,362   

Total Short-Term Securities

(Cost — $5,108,362) — 0.5%

             5,108,362   
Total Investments (Cost — $1,484,916,785) — 157.8%        1,661,544,502   
Other Assets Less Liabilities — 0.9%        9,706,231   

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (24.9)%

   

    (262,116,137
VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (33.8)%         (355,902,911
    

 

 

 
Net Assets Applicable to Common Shares — 100.0%      $ 1,053,231,685   
    

 

 

 
 
Notes to Schedule of Investments

 

(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)   Step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate as of period end.

 

(c)   Zero-coupon bond.

 

(d)   When-issued security.

 

(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 September 1, 2016 to December 1, 2029 is $34,528,361. See Note 4 of the Notes to Financial Statements for details.

 

(g)   During the year ended July 31, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the 1940 Act, were as follows:

 

Affiliate      Shares Held
at July 31,
2015
       Net
Activity
       Shares Held
at July 31,
2016
    Value at
July 31,
2016
       Income         

BlackRock Liquidity Funds, MuniCash, Institutional Class

                 5,108,362           5,108,362      $ 5,108,362         $ 3,919     

FFI Institutional Tax-Exempt Fund

       7,593,721           (7,593,721                         2,356           

Total

                 $ 5,108,362         $ 6,275     
                

 

 

 

 

(h)   Current yield as of period end.

 

Derivative Financial Instruments Outstanding as of Period End                        

Futures Contracts

 

Contracts
Short
    Issue      Expiration        Notional
Value
       Unrealized
Appreciation
(Depreciation)
               
  (71   5-Year U.S. Treasury Note        September 2016         $ 8,663,109         $ 9,814       
  (128   10-Year U.S. Treasury Note        September 2016         $ 17,030,000           (13,236    
  (98   Long U.S. Treasury Bond        September 2016         $ 17,094,875           (432,014    
  (18   Ultra U.S. Treasury Bond        September 2016         $ 3,429,563           (120,527                
  Total                     $ (555,963    
                

 

 

 

 

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:

 

Assets — Derivative Financial Instruments    Commodity
Contracts
   Credit
Contracts
   Equity
Contracts
   Foreign
Currency
Exchange
Contracts
   Interest
Rate
Contracts
     Other
Contracts
     Total  

Futures contracts

  Net unrealized appreciation1                        $ 9,814       $ 9,814   
Liabilities — Derivative Financial Instruments                                          

Futures contracts

  Net unrealized depreciation1                        $ 565,777       $ 565,777   

1    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

        

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2016    39


Schedule of Investments (concluded)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

For the year ended July 31, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

Net Realized Gain (Loss) from:   Commodity
Contracts
  Credit
Contracts
  Equity
Contracts
  Foreign
Currency
Exchange
Contracts
  Interest Rate
Contracts
    Other
Contracts
  Total  

Futures contracts

          $ (2,443,658     $ (2,443,658
Net Change in Unrealized Appreciation (Depreciation) on:                        

Futures contracts

          $ (196,251     $ (196,251

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:        

Average notional value of contracts — short

  $ 38,101,574   

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 Investments1

            $ 1,656,436,140                   $ 1,656,436,140   

Short-Term Securities

  $ 5,108,362                               5,108,362   
 

 

 

      

 

 

      

 

 

      

 

 

 

Total

  $ 5,108,362         $ 1,656,436,140                   $ 1,661,544,502   
 

 

 

      

 

 

      

 

 

      

 

 

 
                
Derivative Financial Instruments2                                         

Assets:

                

Interest rate contracts

  $ 9,814                             $ 9,814   

Liabilities:

                

Interest rate contracts

    (565,777                            (565,777
 

 

 

      

 

 

      

 

 

      

 

 

 

Total

  $ (555,963                          $ (555,963
 

 

 

      

 

 

      

 

 

      

 

 

 

1   See above Schedule of Investments for values in each state or political subdivision.

      

2   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  

Assets:

                

Cash

  $ 19,665                             $ 19,665   

Cash pledged for futures contracts

    687,600                               687,600   

Liabilities:

                

TOB Trust Certificates

            $ (261,802,639                  (261,802,639

VRDP Shares at Liquidation Value

              (356,400,000                  (356,400,000
 

 

 

      

 

 

      

 

 

      

 

 

 

Total

  $ 707,265         $ (618,202,639                $ (617,495,374
 

 

 

      

 

 

      

 

 

      

 

 

 

During the year ended July 31, 2016, there were no transfers between levels.

 

See Notes to Financial Statements.

 

                
40    ANNUAL REPORT    JULY 31, 2016   


Statements of Assets and Liabilities     

 

July 31, 2016   BlackRock
MuniHoldings
Quality
Fund II, Inc.
(MUE)
    BlackRock
MuniYield
California
Quality
Fund, Inc.
(MCA)
    BlackRock
MuniYield
New York
Quality
Fund, Inc.
(MYN)
    BlackRock
MuniYield
Quality
Fund III, Inc.
(MYI)
 
       
Assets   

Investments at value — unaffiliated1

  $ 532,775,861      $ 917,585,615      $ 948,079,438      $ 1,656,436,140   

Investments at value — affiliated2

    627,379        143,051        1,544,681        5,108,362   

Cash

    6,004               1,720        19,665   

Cash pledged for futures contracts

    180,800        395,750        604,350        687,600   
Receivables:   

Interest

    5,322,717        13,269,841        9,063,654        17,574,633   

Investments sold

                  496,497        2,296,640   

Dividends — affiliated

    745        130        472        1,844   

Prepaid expenses

    30,987        35,846        36,880        47,528   
 

 

 

 

Total assets

    538,944,493        931,430,233        959,827,692        1,682,172,412   
 

 

 

 
       
Accrued Liabilities   

Bank overdraft

           172,826                 
Payables:   

Investments purchased

    8,966,441        8,433,655               4,679,680   

Income dividends — Common Shares

    1,440,974        2,235,782        2,137,676        4,623,273   

Investment advisory fees

    243,731        391,787        406,180        706,551   

Interest expense and fees

    54,156        237,148        111,530        313,498   

Officer’s and Directors’ fees

    5,069        247,304        260,703        447,736   

Variation margin on futures contracts

    59,047        127,016        195,376        217,251   

Other accrued expenses

    132,702        171,772        152,699        247,188   
 

 

 

 

Total accrued liabilities

    10,902,120        12,017,290        3,264,164        11,235,177   
 

 

 

 
       
Other Liabilities   

TOB Trust Certificates

    57,549,366        166,692,417        112,104,987        261,802,639   

Loan for TOB Trust Certificates

           9,740,175        607,500          

VRDP Shares, at liquidation value of $100,000 per share, net of deferred offering costs3,4

           166,216,724        247,323,042        355,902,911   

VMTP Shares, at liquidation value of $100,000 per share3,4

    131,000,000                        
 

 

 

 

Total other liabilities

    188,549,366        342,649,316        360,035,529        617,705,550   
 

 

 

 

Total liabilities

    199,451,486        354,666,606        363,299,693        628,940,727   
 

 

 

 

Net Assets Applicable to Common Shareholders

  $ 339,493,007      $ 576,763,627      $ 596,527,999      $ 1,053,231,685   
 

 

 

 
       
Net Assets Applicable to Common Shareholders Consist of   

Paid-in capital5,6

  $ 300,037,517      $ 492,897,905      $ 530,160,582      $ 923,529,563   

Undistributed net investment income

    2,160,168        2,743,421        3,525,453        12,352,410   

Accumulated net realized loss

    (21,009,846     (530,145     (29,584,657     (58,722,042

Net unrealized appreciation (depreciation)

    58,305,168        81,652,446        92,426,621        176,071,754   
 

 

 

 

Net Assets Applicable to Common Shareholders

  $ 339,493,007      $ 576,763,627      $ 596,527,999      $ 1,053,231,685   
 

 

 

 

Net asset value, per Common Share

  $ 15.08      $ 16.77      $ 15.07      $ 15.49   
 

 

 

 

1    Investments at cost — unaffiliated

  $ 474,409,677      $ 835,737,579      $ 855,143,612      $ 1,479,808,423   

2    Investments at cost — affiliated

  $ 627,379      $ 143,051      $ 1,544,681      $ 5,108,362   

3    Preferred Shares outstanding, par value $0.10 per share

    1,310        1,665        2,477        3,564   

4    Preferred Shares authorized, including Auction Market Preferred Shares (“AMPS”)

    9,490        12,665        14,637        26,364   

5    Common Shares outstanding, par value $0.10 per share

    22,515,224        34,396,651        39,586,584        67,989,316   

6    Common Shares authorized

    199,990,510        199,987,335        199,985,363        199,973,636   

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2016    41


Statements of Operations     

 

Year Ended July 31, 2016   BlackRock
MuniHoldings
Quality
Fund II, Inc.
(MUE)
    BlackRock
MuniYield
California
Quality
Fund, Inc.
(MCA)
   

BlackRock
MuniYield
New York
Quality

Fund, Inc.
(MYN)

    BlackRock
MuniYield
Quality
Fund III, Inc.
(MYI)
 
       
Investment Income                                

Interest — unaffiliated

  $ 22,787,480      $ 36,029,442      $ 36,264,233      $ 72,003,669   

Dividends — affiliated

    2,471        861        4,501        6,275   
 

 

 

 

Total income

    22,789,951        36,030,303        36,268,734        72,009,944   
 

 

 

 
       
Expenses                                

Investment advisory

    2,848,032        4,535,921        4,630,620        8,147,368   

Professional

    82,067        123,619        134,632        201,159   

Accounting services

    70,420        104,564        110,104        157,945   

Officer and Directors

    34,621        72,388        74,608        131,730   

Transfer agent

    33,472        35,418        44,743        77,705   

Custodian

    28,080        35,127        39,604        60,380   

Registration

    8,086        11,527        13,276        22,664   

Printing

    9,571        12,142        12,433        16,997   

Rating agency

    36,798        36,848        36,962        37,115   

Miscellaneous

    41,023        49,008        62,496        87,440   
 

 

 

 

Total expenses excluding interest expense, fees and amortization of offering costs

    3,192,170        5,016,562        5,159,478        8,940,503   

Interest expense, fees and amortization of offering costs1

    1,992,371        3,218,037        3,509,426        5,872,028   
 

 

 

 

Total expenses

    5,184,541        8,234,599        8,668,904        14,812,531   
Less:        

Fees waived by the Manager

    (42,149     (2,010     (8,992     (1,904

Fees paid indirectly

    (1,639     (129     (593     (325
 

 

 

 

Total expenses after fees waived and paid indirectly

    5,140,753        8,232,460        8,659,319        14,810,302   
 

 

 

 

Net investment income

    17,649,198        27,797,843        27,609,415        57,199,642   
 

 

 

 
       
Realized and Unrealized Gain (Loss)                                
Net realized gain (loss) from:        

Investments

    852,903        2,760,683        3,049,056        1,732,742   

Futures contracts

    (1,033,461     (1,378,147     (2,176,441     (2,443,658
 

 

 

 
    (180,558     1,382,536        872,615        (710,916
 

 

 

 
Net change in unrealized appreciation (depreciation) on:        

Investments

    14,330,592        22,946,911        36,882,343        50,860,729   

Futures contracts

    (25,060     (152,476     (347,595     (196,251
 

 

 

 
    14,305,532        22,794,435        36,534,748        50,664,478   
 

 

 

 

Net realized and unrealized gain

    14,124,974        24,176,971        37,407,363        49,953,562   
 

 

 

 

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations

  $ 31,774,172      $ 51,974,814      $ 65,016,778      $ 107,153,204   
 

 

 

 

1    Related to TOB Trusts, VMTP Shares and/or VRDP Shares.

       

 

 

See Notes to Financial Statements.      
                
42    ANNUAL REPORT    JULY 31, 2016   


Statements of Changes in Net Assets     

 

    BlackRock MuniHoldings Quality
Fund II, Inc. (MUE)
          BlackRock MuniYield California
Quality Fund, Inc. (MCA)
 
    Year Ended July 31,           Year Ended July 31,  
Increase (Decrease) in Net Assets Applicable to Common Shareholders:   2016     2015           2016     2015  
         
Operations                                        

Net investment income

  $ 17,649,198      $ 17,910,018        $ 27,797,843      $ 28,470,659   

Net realized gain (loss)

    (180,558     (182,209       1,382,536        4,705,645   

Net change in unrealized appreciation (depreciation)

    14,305,532        2,386,525          22,794,435        (4,111,716
 

 

 

     

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    31,774,172        20,114,334          51,974,814        29,064,588   
 

 

 

     

 

 

 
         
Distributions to Common Shareholders1                                        

From net investment income

    (18,192,301     (18,766,439       (29,271,550     (30,131,466
 

 

 

     

 

 

 
         
Net Assets Applicable to Common Shareholders                                        

Total increase (decrease) in net assets applicable to Common Shareholders

    13,581,871        1,347,895          22,703,264        (1,066,878

Beginning of year

    325,911,136        324,563,241          554,060,363        555,127,241   
 

 

 

     

 

 

 

End of year

  $ 339,493,007      $ 325,911,136        $ 576,763,627      $ 554,060,363   
 

 

 

     

 

 

 

Undistributed net investment income, end of year

  $ 2,160,168      $ 2,677,255        $ 2,743,421      $ 3,977,109   
 

 

 

     

 

 

 

1    Distributions for annual periods determined in accordance with federal income tax regulations.

         

 

    BlackRock MuniYield New York
Quality Fund, Inc. (MYN)
          BlackRock MuniYield Quality
Fund III, Inc. (MYI)
 
    Year Ended July 31,           Year Ended July 31,  
Increase (Decrease) in Net Assets Applicable to Common Shareholders:   2016     2015           2016     2015  
         
Operations                                        

Net investment income

  $ 27,609,415      $ 29,525,683        $ 57,199,642      $ 59,136,661   

Net realized gain (loss)

    872,615        (434,124       (710,916     2,435,047   

Net change in unrealized appreciation (depreciation)

    36,534,748        4,215,207          50,664,478        (4,905,446
 

 

 

     

 

 

 

Net increase in net assets applicable to Common Shareholders resulting from operations

    65,016,778        33,306,766          107,153,204        56,666,262   
 

 

 

     

 

 

 
         
Distributions to Common Shareholders1                                        

From net investment income

    (28,860,756     (30,541,049       (59,486,296     (60,336,418
 

 

 

     

 

 

 
         
Capital Share Transactions                                   

Reinvestment of common distributions

                    1,943,879          
 

 

 

     

 

 

 
         
Net Assets Applicable to Common Shareholders                                        

Total increase (decrease) in net assets applicable to Common Shareholders

    36,156,022        2,765,717          49,610,787        (3,670,156

Beginning of year

    560,371,977        557,606,260          1,003,620,898        1,007,291,054   
 

 

 

     

 

 

 

End of year

  $ 596,527,999      $ 560,371,977        $ 1,053,231,685      $ 1,003,620,898   
 

 

 

     

 

 

 

Undistributed net investment income, end of year

  $ 3,525,453      $ 4,861,917        $ 12,352,410      $ 15,310,295   
 

 

 

     

 

 

 

1    Distributions for annual periods determined in accordance with federal income tax regulations.

         

 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2016    43


Statements of Cash Flows     

 

Year Ended July 31, 2016   BlackRock
MuniHoldings
Quality
Fund II, Inc.
(MUE)
    BlackRock
MuniYield
California
Quality
Fund, Inc.
(MCA)
    BlackRock
MuniYield
New York
Quality
Fund, Inc.
(MYN)
    BlackRock
MuniYield
Quality
Fund III, Inc.
(MYI)
 
       
Cash Provided by (Used for) Operating Activities                                

Net increase in net assets resulting from operations

  $ 31,774,172      $ 51,974,814      $ 65,016,778      $ 107,153,204   

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

    76,539,500        208,392,708        136,212,101        167,972,123   

Purchases of long-term investments

    (87,289,955     (225,379,782     (173,958,115     (182,000,281

Net proceeds from sales of short-term securities

    4,878,829        12,136,573        18,359,449        2,485,359   

Amortization of premium and accretion of discount on investments and other fees

    1,745,389        4,926,311        3,966,598        (2,482,571

Net unrealized gain on investments

    (14,330,592     (22,946,911     (36,882,343     (50,860,729

Net realized gain on investments

    (938,950     (2,835,585     (3,083,156     (1,922,181

(Increase) decrease in assets:

  

Cash pledged for futures contracts

    127,000        (260,750     (63,000     72,000   

Receivables:

       

Interest — unaffiliated

    39,647        (840,074     (102,079     (266,532

Dividends — affiliated

    (745     (130     (472     (1,844

Prepaid expenses

    (2,384     (3,217     (3,001     (4,024

Increase (decrease) in liabilities:

  

Payables:

       

Investment advisory fees

    10,958        13,950        28,502        29,166   

Interest expense and fees

    38,872        204,150        81,198        244,841   

Officer’s and Directors’ fees

    1,250        27,696        28,471        50,642   

Other accrued expenses

    16,930        26,755        6,342        21,995   

Variation margin on futures contracts

    (76,328     67,641        (42,718     (108,187
 

 

 

 

Net cash provided by operating activities

    12,533,593        25,504,149        9,564,555        40,382,981   
 

 

 

 
       
Cash Provided by (Used for) Financing Activities                                

Cash dividends paid to Common Shareholders

    (18,282,362     (29,546,724     (29,177,448     (57,940,958

Proceeds from TOB Trust Certificates

    6,196,831        26,935,740        23,304,109        49,380,100   

Repayments of TOB Trust Certificates

    (442,058     (32,817,634     (4,312,252     (31,822,516

Proceeds from Loan for TOB Trust Certificates

           11,046,963        4,310,586        13,374,969   

Repayments of Loan for TOB Trust Certificates

           (1,306,788     (3,703,086     (13,374,969

Increase in bank overdraft

           172,826                 

Amortization of deferred offering costs

           11,468        15,256        20,058   
 

 

 

 

Net cash used for financing activities

    (12,527,589     (25,504,149     (9,562,835     (40,363,316
 

 

 

 
       
Cash                                

Net increase in cash

    6,004               1,720        19,665   

Cash at beginning of year

                           
 

 

 

 

Cash at end of year

  $ 6,004             $ 1,720      $ 19,665   
 

 

 

 
       
Supplemental Disclosure of Cash Flow Information                                

Cash paid during the year for interest expense

  $ 1,953,499      $ 3,013,887      $ 3,428,228      $ 5,627,187   
 

 

 

 
       
Non-Cash Financing Activities                                

Capital shares issued in reinvestment of distributions paid to Common Shareholders

                       $ 1,943,879   
 

 

 

 

 

 

See Notes to Financial Statements.      
                
44    ANNUAL REPORT    JULY 31, 2016   


Financial Highlights    BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

    Year Ended July 31,  
    2016     2015     2014     2013     2012  
         
Per Share Operating Performance   

Net asset value, beginning of year

  $ 14.48      $ 14.42      $ 13.27      $ 15.18      $ 13.07   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income1

    0.78        0.80        0.82        0.81        0.86   

Net realized and unrealized gain (loss)

    0.63        0.09        1.18        (1.87     2.14   

Distributions to AMPS Shareholders from net investment income

                                (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

    1.41        0.89        2.00        (1.06     2.99   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.81     (0.83     (0.85     (0.85     (0.88
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

  $ 15.08      $ 14.48      $ 14.42      $ 13.27      $ 15.18   
 

 

 

 

Market price, end of year

  $ 14.94      $ 13.13      $ 12.94      $ 12.32      $ 15.55   
 

 

 

 
         
Total Return Applicable to Common Shareholders3    

Based on net asset value

    10.33%        6.84%        16.19%        (7.41)%        23.64%   
 

 

 

 

Based on market price

    20.55%        7.96%        12.30%        (16.08)%        32.85%   
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders   

Total expenses

    1.56%        1.50%        1.61%        1.66%        1.52% 4 
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.55%        1.49%        1.56%        1.60%        1.46% 4 
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs5

    0.95%        0.96%        0.95%        0.97%        1.00% 4,6 
 

 

 

 

Net investment income

    5.32%        5.41%        6.01%        5.36%        6.05% 4 
 

 

 

 

Distributions to AMPS Shareholders

                                0.04%   
 

 

 

 

Net investment income to Common Shareholders

    5.32%        5.41%        6.01%        5.36%        6.01%   
 

 

 

 
         
Supplemental Data   

Net assets applicable to Common Shareholders, end of year (000)

  $  339,493      $  325,911      $  324,563      $  298,707      $  341,144   
 

 

 

 

VMTP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 131,000      $ 131,000      $ 131,000      $ 131,000      $ 131,000   
 

 

 

 

Asset coverage per VMTP Shares at $100,000 liquidation value, end of year

  $ 359,155      $ 348,787      $ 347,758      $ 328,021      $ 360,416   
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 57,549      $ 51,795      $ 52,497      $ 81,123      $ 88,921   
 

 

 

 

Portfolio turnover rate

    15%        13%        28%        40%        36%   
 

 

 

 

 

  1   

Based on average Common Shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

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.

 

  4   

Does not reflect the effect of distributions to AMPS Shareholders.

 

  5   

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.

 

  6   

For the year ended July 31, 2012, the total expense ratio after fees waived and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees was 0.97%.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2016    45


Financial Highlights    BlackRock MuniYield California Quality Fund, Inc.  (MCA)

 

    Year Ended July, 31  
    2016     2015     2014     2013     2012  
         
Per Share Operating Performance   

Net asset value, beginning of year

  $ 16.11      $ 16.14      $ 14.83      $ 16.60      $ 14.31   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income1

    0.81        0.83        0.87        0.88        0.90   

Net realized and unrealized gain (loss)

    0.70        0.02        1.35        (1.74     2.28   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

    1.51        0.85        2.22        (0.86     3.18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.85     (0.88     (0.91     (0.91     (0.89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

  $ 16.77      $ 16.11      $ 16.14      $ 14.83      $ 16.60   
 

 

 

 

Market price, end of year

  $ 16.75      $ 14.71      $ 14.37      $ 13.66      $ 16.59   
 

 

 

 
         
Total Return Applicable to Common Shareholders3    

Based on net asset value

    9.84%        5.76%        16.04%        (5.41)%        23.15%   
 

 

 

 

Based on market price

    20.15%        8.47%        12.16%        (12.83)%        35.48%   
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders   

Total expenses

    1.46%        1.32%        1.40%        1.48%        1.62%   
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.46%        1.32%        1.40%        1.48%        1.61%   
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.89%        0.86%        0.90%        0.92%        1.20% 5 
 

 

 

 

Net investment income

    4.94%        5.09%        5.63%        5.37%        5.79%   
 

 

 

 

Net investment income to Common Shareholders

    4.94%        5.09%        5.63%        5.37%        5.79%   
 

 

 

 
         
Supplemental Data   

Net assets applicable to Common Shareholders, end of year (000)

  $ 576,764      $ 554,060      $ 555,127      $ 510,018      $ 570,559   
 

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $  166,500      $  166,500      $  166,500      $  166,500      $  166,500   
 

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 446,404      $ 432,769      $ 433,410      $ 406,317      $ 442,678   
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 176,433      $ 172,574      $ 127,397      $ 188,185      $ 199,874   
 

 

 

 

Portfolio turnover rate

    23%        36%        15%        25%        34%   
 

 

 

 

 

  1   

Based on average Common Shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

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.

 

  4   

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.

 

  5   

For the year ended July 31, 2012, the total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees was 0.95%.

 

 

See Notes to Financial Statements.      
                
46    ANNUAL REPORT    JULY 31, 2016   


Financial Highlights    BlackRock MuniYield New York Quality Fund, Inc.  (MYN)

 

    Year Ended July 31,  
    2016     2015     2014     2013     2012  
         
Per Share Operating Performance   

Net asset value, beginning of year

  $ 14.16      $ 14.09      $ 13.17      $ 15.07      $ 13.44   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income1

    0.70        0.75        0.78        0.83        0.83   

Net realized and unrealized gain (loss)

    0.94        0.09        0.97        (1.88     1.65   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

    1.64        0.84        1.75        (1.05     2.48   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.73     (0.77     (0.83     (0.85     (0.85 ) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

  $ 15.07      $ 14.16      $ 14.09      $ 13.17      $ 15.07   
 

 

 

 

Market price, end of year

  $ 14.40      $ 13.13      $ 12.71      $ 12.34      $ 15.11   
 

 

 

 
         
Total Return Applicable to Common Shareholders3    

Based on net asset value

    12.19%        6.54%        14.21%        (7.33)%        19.10%   
 

 

 

 

Based on market price

    15.60%        9.52%        9.95%        (13.40)%        27.38%   
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders   

Total expenses

    1.51%        1.44%        1.50%        1.53%        1.65%   
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.50%        1.44%        1.50%        1.53%        1.65%   
 

 

 

 

Total expenses after fees waived and paid indireclty and excluding interest expense, fees and amortization of offering costs4

    0.89%        0.89%        0.91%        0.91%        1.27% 5 
 

 

 

 

Net investment income

    4.79%        5.22%        5.82%        5.59%        5.78%   
 

 

 

 

Net investment income to Common Shareholders

    4.79%        5.22%        5.82%        5.59%        5.78%   
 

 

 

 
         
Supplemental Data   

Net assets applicable to Common Shareholders, end of year (000)

  $  596,528      $  560,372      $  557,606      $  521,263      $  594,807   
 

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 247,700      $ 247,700      $ 247,700      $ 247,700      $ 247,700   
 

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 340,827      $ 326,230      $ 325,114      $ 310,441      $ 340,132   
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 112,712      $ 93,113      $ 89,734      $ 108,615      $ 117,960   
 

 

 

 

Portfolio turnover rate

    15%        20%        18%        10%        17%   
 

 

 

 

 

  1   

Based on average Common Shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

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.

 

  4   

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.

 

  5   

For the year ended July 31, 2012, the total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees was 0.92%.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2016    47


Financial Highlights    BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

    Year Ended July 31,  
    2016     2015     2014     2013     2012  
         
Per Share Operating Performance   

Net asset value, beginning of year

  $ 14.79      $ 14.84      $ 13.64      $ 15.32      $ 13.19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income1

    0.84        0.87       0.89        0.89        0.87   

Net realized and unrealized gain (loss)

    0.74        (0.03 )     1.18        (1.70     2.13   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

    1.58        0.84        2.07        (0.81     3.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.88     (0.89 )     (0.87     (0.87     (0.87
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

  $ 15.49      $ 14.79      $ 14.84      $ 13.64      $ 15.32   
 

 

 

 

Market price, end of year

  $ 15.63      $ 14.04      $ 13.46      $ 12.80      $ 15.81   
 

 

 

 
         
Total Return Applicable to Common Shareholders3    

Based on net asset value

    11.08%        6.12%        16.23%        (5.66)%        23.45%   
 

 

 

 

Based on market price

    18.07%        11.06%        12.35%        (14.21)%        38.08%   
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders   

Total expenses

    1.45%        1.39%        1.47%        1.43%        1.57%   
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.45%        1.39%        1.47%        1.43%        1.56%   
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.88%        0.88%        0.91%        0.89%        1.19% 5 
 

 

 

 

Net investment income

    5.60%        5.78%        6.35%        5.83%        6.04%   
 

 

 

 

Net investment income to Common Shareholders

    5.60%        5.78%        6.35%        5.83%        6.04%   
 

 

 

 
         
Supplemental Data   

Net assets applicable to Common Shareholders, end of year (000)

  $  1,053,232      $  1,003,621      $  1,007,291      $     925,812      $  1,036,022   
 

 

 

 

VRDP Shares outstanding at $100,000 liquidation value, end of year (000)

  $ 356,400      $ 356,400      $ 356,400      $ 356,400      $ 356,400   
 

 

 

 

Asset coverage per VRDP Shares at $100,000 liquidation value, end of year

  $ 395,520      $ 381,600      $ 382,629      $ 359,768      $ 390,691   
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 261,803      $ 244,245      $ 262,507      $ 287,426      $ 249,148   
 

 

 

 

Portfolio turnover rate

    10%        11%        15%        9%        18%   
 

 

 

 

 

  1   

Based on average Common Shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

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.

 

  4   

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.

 

  5   

For the year ended July 31, 2012, the total expense ratio after fees waived and paid indirectly and excluding interest expense, fees, amortization of offering costs, liquidity and remarketing fees was 0.90%.

 

 

See Notes to Financial Statements.      
                
48    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements     

 

1. Organization:

The following are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as closed-end management investment companies and are referred to herein collectively as the “Funds”, or individually, a “Fund”:

 

Fund Name   Herein Referred To As    Organized      Diversification
Classification
 

BlackRock MuniHoldings Quality Fund ll, Inc.

  MUE      Maryland         Non-diversified   

BlackRock MuniYield California Quality Fund, Inc.

  MCA      Maryland         Non-diversified   

BlackRock MuniYield New York Quality Fund, Inc.

  MYN      Maryland         Non-diversified   

BlackRock MuniYield Quality Fund III, Inc.

  MYI      Maryland         Non-diversified   

The Boards of Directors of the Funds are collectively referred to throughout this report as the “Board of Directors” or the “Board,” and the directors thereof are collectively referred to throughout this report as “Directors.” The Funds determine and make available for publication the NAVs of their Common Shares on a daily basis.

The Funds, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, are included in a complex of closed-end funds referred to as the Closed-End 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:

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.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.

Distributions: Distributions from net investment income are declared monthly and paid monthly. Distributions of capital gains are recorded on the ex-dividend date and made at least annually. The character and timing of distributions are determined in accordance with 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 other BlackRock Closed-End Funds selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.

The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of each Fund, if applicable. Deferred compensation liabilities are included in officer’s and directors’ fees payable in the Statements of Assets and Liabilities and will remain as a liability of the Funds until such amounts are distributed in accordance with the Plan.

Recent Accounting Standard: The Funds have adopted the Financial Accounting Standards Board Accounting Standards Update, “Simplifying the Presentation of Debt Issuance Costs.” Under the new standard, a Fund is required to present such costs in the Statements of Assets and Liabilities as a direct deduction from the carrying value of the related debt liability. This change in accounting policy had no impact on the net assets of the Funds.

The deferred offering costs that are now presented as a deduction from the VRDP Shares at liquidation value in the Statements of Assets and Liabilities and amortization included in interest expense, fees and amortization of offering costs in the Statements of Operations were as follows:

 

     MUE      MCA      MYN      MYI  

Deferred offering costs

          $ 283,276       $ 376,958       $ 497,089   

Amortization of deferred offering costs

          $ 11,469       $ 15,255       $ 20,058   

 

                
   ANNUAL REPORT    JULY 31, 2016    49


Notes to Financial Statements (continued)     

 

Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against a Fund, which cannot be predicted with any certainty.

Other: Expenses directly related to a Fund are charged to that Fund. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.

Through May 31, 2016, the Funds had an arrangement with their custodian whereby credits were earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. Credits previously earned may be utilized until December 31, 2016. Under current arrangements effective June 1, 2016, the Funds no longer earn credits on uninvested cash, and may incur charges on uninvested cash balances and overdrafts, subject to certain conditions.

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) (or if the reporting date falls on a day the NYSE is closed, investments are valued at fair value as of the report date). U.S. GAAP defines fair value as the price the Fund 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 of Directors of each Fund (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 (or “techniques”) 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 instruments, 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”). 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 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. The significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments are typically categorized as Level 3. The fair value hierarchy for each Fund’s investments and derivative financial instruments has been included in the Schedules of Investments.

 

                
50    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements (continued)     

 

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 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 generally 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 generally issued to the participating funds that contributed the municipal bonds to the TOB Trust. The TOB Trust Certificates have interest rates that generally 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 generally provide the Fund with the right to cause the holders of a proportional share of the TOB Trust Certificates to tender their certificates to the TOB Trust at par plus accrued interest. The Funds may withdraw a corresponding share of the municipal bonds from the TOB Trust. Other funds managed by the investment adviser may also contribute municipal bonds to a TOB Trust into which each 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 generally 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 may be purchased by the Liquidity Provider and are usually remarketed by a Remarketing Agent, which is typically an affiliated entity of the Liquidity Provider. The Remarketing Agent may also purchase the tendered TOB Trust Certificates for its own account in the event of a failed remarketing.

The TOB Trust may be collapsed without the consent of a Fund, upon the occurrence of tender option termination events (“TOTEs”) or mandatory termination events (“MTEs”), as defined in the TOB Trust agreements. TOTEs include the bankruptcy or default of the issuer of the municipal bonds held in the TOB Trust, a substantial downgrade in the credit quality of the issuer of the municipal bonds held in the TOB Trust, failure of any scheduled payment of principal or interest on the municipal bonds, and/or a judgment or ruling that interest on the municipal bond is subject to federal income taxation. MTEs may include, among other things, a failed remarketing of the TOB Trust Certificates, the inability of the TOB Trust to obtain renewal of the liquidity support agreement and a substantial decline in the market value of the municipal bonds held in the TOB Trust. Upon the occurrence of a TOTE or an MTE, the 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. In the case of an MTE, after the payment of fees, the TOB Trust Certificates holders would be paid before the TOB Residuals holders (i.e., the Funds). In contrast, in the case of a TOTE, after payment of fees, the TOB Trust Certificates holders and the TOB Residuals holders would be paid pro rata in proportion to the respective face values of their certificates. During the year ended July 31, 2016, no TOB Trusts in which a Fund participated were terminated without the consent of a Fund.

While a Fund’s investment policies and restrictions expressly permit investments in inverse floating rate securities, such as TOB Residuals, they generally restrict the ability of a Fund to borrow money for purposes of making investments. The Funds’ management believes that a Fund’s restrictions on borrowings do not apply to the Funds’ TOB Trust transactions. Each Fund’s transfer of the municipal bonds to a TOB Trust is considered a secured borrowing for financial reporting purposes. The cash received by the TOB Trust from the sale of the TOB Trust Certificates, less certain transaction expenses, is paid to a Fund. A Fund typically invests the cash received in additional municipal bonds. 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 would be shown as Loan for TOB Trust Certificates.

Volcker Rule Impact: On December 10, 2013, regulators published final rules implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), which precludes banking entities and their affiliates from sponsoring and investing in TOB Trusts. Banking entities subject to the Volcker Rule were required to fully comply by July 21, 2015, with respect to investments in and relationships with TOB Trusts

 

                
   ANNUAL REPORT    JULY 31, 2016    51


Notes to Financial Statements (continued)     

 

established after December 31, 2013 (“Non-Legacy TOB Trusts”), and by July 21, 2017, with respect to investments in and relationships with TOB Trusts established prior to December 31, 2013 (“Legacy TOB Trusts”).

As a result, a new structure for TOB Trusts has been designed in which no banking entity would sponsor the TOB Trust. Specifically, a Fund establishes, structures and “sponsors” the TOB Trusts in which it holds TOB Residuals. In such a structure, certain responsibilities that previously belonged to a third party bank are performed by, or on behalf of, the Funds. The Funds have restructured any Non-Legacy TOB Trusts and are in the process of restructuring Legacy TOB Trusts in conformity with regulatory guidelines. Until all restructurings are completed, a Fund may, for a period of time, hold TOB Residuals in both Legacy TOB Trusts and new or restructured non-bank sponsored TOB Trusts.

Under the new TOB Trust structure, the Liquidity Provider or Remarketing Agent will no longer purchase the tendered TOB Trust Certificates even in the event of failed remarketing. This may increase the likelihood that a TOB Trust will need to be collapsed and liquidated in order to purchase the tendered TOB Trust Certificates. 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 the number of days the loan is outstanding.

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, or Loan for 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.

For the year ended July 31, 2016, the following table is a summary of each Fund’s TOB Trusts:

 

     Underlying
Municipal
Bonds
Transferred to
TOB Trusts1
     Liability for
TOB Trust
Certificates2
    

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

 

MUE

  $ 109,180,339       $ 57,549,366         0.47% - 0.69%       $ 55,249,290         0.82%   

MCA

  $ 400,286,011       $ 166,692,417         0.46% - 0.64%       $ 176,772,019         0.77%   

MYN

  $ 229,355,796       $ 112,104,987         0.46% - 0.59%       $ 102,592,774         0.80%   

MYI

  $ 482,459,403       $ 261,802,639         0.46% - 1.02%       $ 250,659,072         0.77%   

 

  1   

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 municipal bonds transferred to TOB Trusts with a credit enhancement are identified in the Schedules of Investments including the maximum potential amounts owed by the Funds.

 

  2   

The Funds may invest in TOB Trusts that are 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. In such an event, the Liquidity Provider will typically either (i) fund the full amount owed under the liquidity facility and be subsequently reimbursed from only the proceeds of the liquidation of all or a portion of the municipal bonds held in the TOB Trust or the remarketing of the TOB Trust Certificates, or (ii) liquidate all or a portion of the municipal bonds held in the TOB Trust and then fund the balance, if any, of the amount owed under the liquidity facility over the liquidation proceeds (the “Liquidation Shortfall”). If a Fund invests in a TOB Trust on a recourse basis, the Funds will usually enter into a reimbursement agreement with the Liquidity Provider where the Funds are required to reimburse the Liquidity Provider the amount of any 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 the Funds at July 31, 2016, 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 the Funds at July 31, 2016.

For the year ended July 31, 2016, the following table is a summary of each Fund’s Loan for TOB Trust Certificates:

 

    

Loan
Outstanding at
period end

     Interest Rates
on Loan at
period end
     Average Loan 
Outstanding
    

Daily Weighted
Average Rate
of Interest and
Other Expenses
on Loan

 

MCA

  $ 9,740,175         0.25%       $ 1,315,452         0.78%   

MYN

  $ 607,500         0.25%       $ 237,161         0.78%   

MYI

                  $ 837,006         0.78%   

 

 

                
52    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements (continued)     

 

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 over-the-counter (“OTC”).

Futures Contracts: Certain Funds invest in long and/or short positions in futures and options on futures contracts to gain exposure to, or manage exposure to changes in interest rates (interest rate risk), 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.

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 value of the contract at the time it was opened and the value 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:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

Investment Advisory

Each Fund entered into an Investment Advisory Agreement with the Manager, the Funds’ investment adviser, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration 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, which is determined by calculating a percentage of each Fund’s average daily net assets, plus the proceeds of any debt securities or outstanding borrowings used for leverage, based on the following annual rates:

 

     MUE      MCA      MYN      MYI  

Investment advisory fee

    0.55%         0.50%         0.50%         0.50%   

“Net assets” means the total assets of a Fund minus the sum of its accrued liabilities (which does not include liabilities represented by TOB Trusts and the liquidation preference of preferred shares (other than accumulated dividends)).

Waivers

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. These amounts are included in fees waived by the Manager in the Statements of Operations shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Fund’s investments in other affiliated investment companies, if any. For the year ended July 31, 2016, the amounts waived were as follows:

 

     MUE      MCA      MYN      MYI  

Amounts waived

  $ 643       $ 2,010       $ 8,992       $ 1,904   

The Manager, for MUE, 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 preferred shares). This amount is included in fees waived by the Manager in the Statements of Operations. For the year ended July 31, 2016 the amount waived was $41,506.

Officers and Directors

Certain officers and/or Directors of the Funds are officers and/or directors of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Funds’ Chief Compliance Officer, which is included in Officer and Directors in the Statements of Operations.

 

 

                
   ANNUAL REPORT    JULY 31, 2016    53


Notes to Financial Statements (continued)     

 

Other Transactions

The Funds 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 directors. For the year ended July 31, 2016, the purchase and sale transactions which resulted in net realized gains (losses) with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were as follows:

 

     Purchases      Sales     

Net Realized

Gain (Loss)

 

MYN

  $ 4,375,066                   

7. Purchases and Sales:

For the year ended July 31, 2016, purchases and sales of investments excluding short-term securities, were as follows:

 

     MUE      MCA      MYN      MYI  

Purchases

  $ 96,256,396       $ 222,975,642       $ 165,112,680       $ 180,045,320   

Sales

  $ 76,539,500       $ 208,392,708       $ 136,668,598       $ 168,873,388   

8. Income Tax Information:

It is the Funds’ policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required.

Each Fund files 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, 2016. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Funds as of July 31, 2016, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. As of period end, the following permanent differences attributable to amortization methods on fixed income securities, non-deductible expenses, the expiration of capital loss carryforwards, distributions received from a regulated investment company and the sale of bonds received from tender option bond trusts were reclassified to the following accounts:

 

     MUE      MCA      MYN      MYI  

Paid-in capital

  $       $ (11,469    $ (2,345,544    $ (25,341,354

Undistributed net investment income

  $ 26,016       $ 240,019       $ (85,123    $ (671,231

Accumulated net realized (loss)

  $ (26,016    $ (228,550    $ 2,430,667       $ 26,012,585   

The tax character of distributions paid was as follows:

 

            MUE      MCA      MYN      MYI  

Tax-exempt income1

    7/31/16      $ 19,704,376       $ 31,026,504       $ 31,428,254       $ 63,226,052   
    7/31/15      $ 20,135,266       $ 31,779,610       $ 32,992,225       $ 63,792,025   

Ordinary income2

    7/31/16        29                 44,987         17,196   
    7/31/15      $ 141       $ 343       $ 1,258       $ 74,872   
   

 

 

    

 

 

    

 

 

    

 

 

 

Total

    7/31/16      $ 19,704,405       $ 31,026,504       $ 31,473,241       $ 63,243,248   
   

 

 

    

 

 

    

 

 

    

 

 

 
    7/31/15      $ 20,135,407       $ 31,779,953       $ 32,993,483       $ 63,866,897   
   

 

 

    

 

 

    

 

 

    

 

 

 

 

  1   

The Funds designate these amounts paid during the fiscal year ended July 31, 2016, as exempt-interest dividends.

 

  2   

Ordinary income consists primarily of taxable income recognized from market discount. Additionally, all ordinary income distributions are comprised of interest-related dividends for non-U.S. residents and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

As of period end, the tax components of accumulated net earnings were as follows:

 

     MUE      MCA      MYN      MYI  

Undistributed tax-exempt income

  $ 1,660,722       $ 2,623,911       $ 2,243,964       $ 9,288,849   

Undistributed ordinary income

                    85,038         32,524   

Capital loss carryforwards

    (20,025,719              (27,677,143      (51,871,595

Net unrealized gains1

    57,820,487         81,975,972         91,715,558         172,252,344   

Qualified late-year losses2

            (734,161                
 

 

 

    

 

 

    

 

 

    

 

 

 

Total

  $ 39,455,490       $ 83,865,722       $ 66,367,417       $ 129,702,122   
 

 

 

    

 

 

    

 

 

    

 

 

 

 

  1   

The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the tax deferral of losses on wash sales and straddles, amortization methods of premiums and discounts on fixed income securities, the realization for tax purposes of unrealized gains/losses on certain futures contracts, the treatment of residual interests in tender option bond trusts and the deferral of compensation to Directors.

 

  2   

The Funds have elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.

 

                
54    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements (continued)     

 

As of July 31, 2016, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

 

Expires July 31,   MUE      MYN      MYI  

No expiration date3

  $ 10,627,007       $ 20,723,468       $ 4,160,266   

2017

    3,385,582         2,295,738         21,251,301   

2018

    6,013,130         3,370,191         26,460,028   

2019

            1,287,746           
 

 

 

    

 

 

    

 

 

 

Total

  $ 20,025,719       $ 27,677,143       $ 51,871,595   
 

 

 

    

 

 

    

 

 

 

 

  3   

Must be utilized prior to losses subject to expiration.

During the year ended July 31, 2016, the Funds listed below utilized the following amounts of their respective capital loss carryforward:

 

     MCA      MYN  
  $ 1,967,494       $ 634,871   
 

 

 

    

 

 

 

As of July 31, 2016, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

     MUE      MCA      MYN      MYI  

Tax cost

  $ 418,029,318       $ 659,073,613       $ 744,914,079       $ 1,227,054,019   
 

 

 

    

 

 

    

 

 

    

 

 

 

Gross unrealized appreciation

  $ 58,183,373       $ 82,222,461       $ 92,921,243       $ 176,742,030   

Gross unrealized depreciation

    (358,817              (923,690      (4,054,186
 

 

 

    

 

 

    

 

 

    

 

 

 

Net unrealized appreciation

  $ 57,824,556       $ 82,222,461       $ 91,997,553       $ 172,687,844   
 

 

 

    

 

 

    

 

 

    

 

 

 

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 and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer to meet all its obligations, including the ability to pay principal and interest when due (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers of securities owned by the Funds. Changes arising from the general economy, the overall market and local, regional or global political and/or social instability, as well as currency, interest rate and price fluctuations, may also affect the securities’ value.

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.

It is possible that regulators could take positions that could limit the market for non-bank sponsored TOB Trust transactions or the Funds’ ability to hold TOB Residuals. Under the new TOB Trust structure, the Funds will have certain additional duties and responsibilities, which may give rise to certain additional risks including, but not limited to, compliance, securities law and operational risks.

There can be no assurance that the Funds can successfully enter into restructured TOB Trust transactions in order to refinance their existing TOB Residuals holdings prior to the compliance date for the Volcker Rule, which may require that the Funds unwind existing TOB Trusts. There can be no assurance that alternative forms of leverage will be available to the Funds and any alternative forms of leverage may be more or less advantageous to the Funds than existing TOB leverage.

Should short-term interest rates rise, the Funds’ investments in TOB Trust transactions 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.

 

                
   ANNUAL REPORT    JULY 31, 2016    55


Notes to Financial Statements (continued)     

 

The SEC and various federal banking and housing agencies have adopted credit risk retention rules for securitizations (the “Risk Retention Rules”), which take effect in December 2016. 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 Trust transactions constitute an important component of the municipal bond market. Accordingly, implementation of the Volcker Rule and Risk Retention Rules may adversely impact the municipal market, including through reduced demand for and liquidity of municipal bonds and increased financing costs for municipal issuers. Any such developments could adversely affect the Funds. The ultimate impact of these rules on the TOB Trust market and the overall municipal market is not yet certain.

Counterparty Credit Risk: Similar to issuer 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: MCA and MYN invest a substantial amount of their 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, MUE and MYI invested a significant portion of their assets in securities in the transportation sector, and MCA and MYN invested a significant portion of their assets in securities in the country, city, special district and school district and state sectors. Changes in economic conditions affecting such sectors would have a greater impact on the Funds and could affect the value, income and/or liquidity of positions in such securities.

Certain Funds invest a significant portion of their assets in fixed-income securities and/or uses 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.

Certain Funds may invest in municipal bonds below investment grade quality (sometimes called “junk bonds”), which are predominantly speculative, have greater credit risk and generally are less liquid and have more volatile prices than higher quality securities.

10. Capital Share Transactions:

Each Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Fund’s Common Shares is $0.10. The par value for each Fund’s Preferred Shares outstanding is $0.10. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without approval of Common Shareholders.

Common Shares

For the years shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:

 

Year Ended July 31,   MUE      MCA      MYN      MYI  

2016

                            126,962   

2015

                              

 

                
56    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements (continued)     

 

Preferred Shares

Each Fund’s Preferred Shares rank prior to the Fund’s Common Shares as to the payment of dividends by the Fund and distribution of assets upon dissolution or liquidation of a Fund. The 1940 Act prohibits the declaration of any dividend on a Fund’s Common Shares or the repurchase of a Fund’s Common Shares if a Fund fails to maintain asset coverage of at least 200% of the liquidation preference of the Fund’s outstanding Preferred Shares. In addition, pursuant to the Preferred Shares’ governing instruments, a Fund is restricted from declaring and paying dividends on classes of shares ranking junior to or on parity with the Fund’s Preferred Shares or repurchasing such shares if a 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.

The holders of Preferred Shares have voting rights equal to the voting rights of the holders of Common Shares (one vote per share) and will vote together with holders of Common Shares (one vote per share) as a single class on certain matters. However, the holders of Preferred Shares, voting as a separate class, are also entitled to elect two Directors to the Board of each Fund. The holders of Preferred Shares are also entitled to elect the full Board of Directors if dividends on the Preferred Shares are not paid for a period of two years. The holders of Preferred Shares are also generally entitled to 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

MCA, MYN and MYI (collectively, the “VRDP Funds”), have issued Series W-7 VRDP Shares, $100,000 liquidation preference per share, in privately negotiated offerings. The VRDP Shares were offered to qualified institutional buyers as defined pursuant to Rule 144A under the Securities Act of 1933, as amended, (the “Securities Act”). The VRDP Shares include a liquidity feature and are currently in a special rate period, each as described below.

As of period end, the VRDP Shares outstanding of each Fund were as follows:

 

     Issue Date      Shares Issued      Aggregate Principal      Maturity Date  

MCA

    4/21/11         1,665       $ 166,500,000         5/01/41   

MYN

    4/21/11         2,477       $ 247,700,000         5/01/41   

MYI

    5/19/11         3,564       $ 356,400,000         6/01/41   

Redemption Terms: Each 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, each VRDP Fund is required to begin to segregate liquid assets with the Fund’s custodian to fund the redemption. In addition, VRDP Funds are required to redeem certain of their 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 VRDP Funds. The redemption price per VRDP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends. In the event of an optional redemption of the VRDP Shares during the period commencing on the date of issuance and ending on the initial termination date of the fee agreement, VRDP Funds must pay the respective liquidity provider fees on such redeemed VRDP Shares for the remaining term of the fee agreement up to such initial termination date.

Liquidity Feature: Each VRDP Fund entered into a fee agreement with the liquidity provider that requires an upfront initial commitment and a per annum liquidity fee payable to the liquidity provider. These fees, if applicable, are shown as liquidity fees in the Statements of Operations.

The fee agreement between the VRDP Funds and the liquidity provider was scheduled to expire on July 7, 2016. The VRDP Funds renewed the fee agreement, which is scheduled to expire on July 6, 2017 unless renewed or terminated in advance.

In the event the fee agreement is not renewed or is terminated in advance, and the VRDP Funds do not enter into a fee agreement with an alternate liquidity provider, the VRDP Shares will be subject to mandatory purchase by the liquidity provider prior to the termination of the fee agreement. In the event of such mandatory purchase, VRDP Funds are required to redeem the VRDP Shares six months after the purchase date. Immediately after such mandatory purchase, VRDP Funds are required to begin to segregate liquid assets with their custodian to fund the redemption. There is no assurance the VRDP Funds will replace such redeemed VRDP Shares with any other preferred shares or other form of leverage.

Remarketing: The VRDP Funds may incur remarketing fees of 0.10% on the aggregate principal amount of all the Fund’s 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), the VRDP Funds may incur no/nominal remarketing fees.

Dividends: 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. 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

 

                
   ANNUAL REPORT    JULY 31, 2016    57


Notes to Financial Statements (continued)     

 

Shares and the length of time that the VRDP Shares fail to be remarketed. At the date of issuance, the VRDP Shares were assigned long-term ratings of Aaa from Moody’s and AAA from Fitch. Subsequent to the issuance of the VRDP Shares, Moody’s completed a review of its methodology for rating securities issued by registered closed-end funds. As of period end, the VRDP Shares were assigned a long-term rating of Aa1 from Moody’s under its new ratings methodology. The VRDP Shares continue to be assigned a long-term rating of AAA from Fitch.

For the year ended July 31, 2016, the annualized dividend rates for the VRDP Shares were as follows:

 

     MCA      MYN      MYI  

Rate

    1.05%         1.05%         1.05%   

Ratings: The short-term ratings on the VRDP Shares are directly related to the short-term ratings of the liquidity provider for such VRDP Shares. Changes in the credit quality of the liquidity provider could cause a change in the short-term credit ratings of the VRDP Shares as rated by Moody’s, Fitch and/or S&P. A change in the short-term credit rating of the liquidity provider or the VRDP Shares may adversely affect the dividend rate paid on such shares, although the dividend rate paid on the VRDP Shares is not directly 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.

Special Rate Period: On June 21, 2012, the VRDP Funds commenced a three-year term ending June 24, 2015 (the “special rate period”) with respect to their VRDP Shares. In May 2015, the special rate period was extended to June 22, 2016. In May 2016, the special rate period was extended to June 21, 2017. The implementation of the special rate period resulted in a mandatory tender of the VRDP Shares prior to the commencement of the special rate period. The mandatory tender event was not the result of a failed remarketing. The short-term ratings on the VRDP Shares for were withdrawn by Moody’s, Fitch and/or S&P at the commencement of the special rate period.

During the special rate period, the liquidity and fee agreements remain in effect and the VRDP Shares remain subject to mandatory redemption by the VRDP Funds on the maturity date. The VRDP Shares will not be remarketed or subject to optional or mandatory tender events during the special rate period. During the special rate period, the VRDP Funds are 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. The VRDP Funds will not pay any fees to the liquidity provider and remarketing agent during the special rate period. The VRDP Funds will also 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.

If VRDP Funds redeem the VRDP Shares prior to the 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. Prior to June 21, 2017, the holder of the VRDP Shares and may mutually agree to extend the special rate period. If the 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.

For the year ended July 31, 2016, VRDP Shares issued and outstanding of MCA, MYN and MYI remained constant.

VMTP Shares

MUE has issued Series W-7 VMTP Shares, $100,000 liquidation preference per share, in a privately negotiated offering and sale of VMTP Shares exempt from registration under the Securities Act. The VMTP Shares are subject to certain restrictions on transfer, and MUE may also be required to register the VMTP Shares for sale under the Securities Act under certain circumstances. In addition, amendments to the VMTP governing documents generally require the consent of the holders of VMTP Shares.

As of period end, the VMTP Shares outstanding of MUE were as follows:

 

     Issue Date      Shares Issued      Aggregate Principal      Term
Redemption Date
 

MUE

    12/16/11         1,310       $ 131,000,000         1/02/19   

Redemption Terms: MUE 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 the term of MUE’s VMTP Shares will be extended further or that MUE’s 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, MUE is required to begin to segregate liquid assets with MUE’s custodian to fund the redemption. In addition, MUE 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, MUE’s VMTP Shares may be redeemed, in whole or in part, at any time at the option of MUE. The redemption price per VMTP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends and applicable redemption premium. If MUE redeems the VMTP Shares prior to the term redemption date and the VMTP Shares have long-term ratings above A1/A+ or its equivalent by the ratings agencies then

 

                
58    ANNUAL REPORT    JULY 31, 2016   


Notes to Financial Statements (concluded)     

 

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. 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. At the date of issuance, the VMTP Shares were assigned long-term ratings of Aaa from Moody’s and AAA from Fitch. Subsequent to the issuance of the VMTP Shares, Moody’s completed a review of its methodology for rating securities issued by registered closed-end funds. As of period end, the VMTP Shares were assigned a long-term rating of Aa1 from Moody’s under its new rating methodology. The VMTP Shares continue to be assigned a long-term rating of AAA from Fitch. The dividend rate on the VMTP Shares is subject to a step-up spread if the MUE fails to comply with certain provisions, including, among other things, the timely payment of dividends, redemptions or gross-up payments, and complying with certain asset coverage and leverage requirements.

For the year ended July 31, 2016, the average annualized dividend rate for MUE’s VMTP Shares was 1.15%.

For the year ended July 31, 2016, MUE’s VMTP Shares issued and outstanding remained constant.

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

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial statements were issued and the following items were noted:

 

     Common Dividend Per Share      Preferred Shares3  
     Paid1      Declared2      Shares      Series      Declared  

MUE

  $ 0.0640       $ 0.0640         VMTP         W-7       $ 164,537   

MCA

  $ 0.0650       $ 0.0650         VRDP         W-7       $ 195,023   

MYN

  $ 0.0540       $ 0.0540         VRDP         W-7       $ 290,134   

MYI

  $ 0.0680       $ 0.0680         VRDP         W-7       $ 417,455   

 

  1   

Net investment income dividend paid on September 1, 2016 to Common Shareholders of record on August 15, 2016.

 

  2   

Net investment income dividend declared on September 1, 2016, payable to Common Shareholders of record on September 15, 2016.

 

  3   

Dividends declared for August 1, 2016 to August 31, 2016.

 

                
   ANNUAL REPORT    JULY 31, 2016    59


Report of Independent Registered Public Accounting Firm      

 

To the Shareholders and Board of Directors of BlackRock MuniHoldings Quality Fund II, Inc., BlackRock MuniYield California Quality Fund, Inc., BlackRock MuniYield New York Quality Fund, Inc. and BlackRock MuniYield Quality Fund III, Inc.:

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of BlackRock MuniHoldings Quality Fund II, Inc., BlackRock MuniYield California Quality Fund, Inc., BlackRock MuniYield New York Quality Fund, Inc. and BlackRock MuniYield Quality Fund III, Inc. (collectively, the “Funds”) as of July 31, 2016, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2016, by correspondence with the custodian, brokers and other financial intermediaries; when replies were not received from brokers and other financial intermediaries, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of BlackRock MuniHoldings Quality Fund II, Inc., BlackRock MuniYield California Quality Fund, Inc., BlackRock MuniYield New York Quality Fund, Inc. and BlackRock MuniYield Quality Fund III, Inc., as of July 31, 2016, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts

September 26, 2016

 

      

 

                
60    ANNUAL REPORT    JULY 31, 2016   


Disclosure of Investment Advisory Agreements     

 

The Board of Directors (the “Board,” the members of which are referred to as “Board Members”) of BlackRock MuniHoldings Quality Fund II, Inc. (“MUE”), BlackRock MuniYield California Quality Fund, Inc. (“MCA”), BlackRock MuniYield Quality Fund III, Inc. (“MYI”) and BlackRock MuniYield New York Quality Fund, Inc. (“MYN and together with MUE, MCA and MYI, each a “Fund,” and, collectively, the “Funds”) met in person on April 28, 2016 (the “April Meeting”) and June 9-10, 2016 (the “June Meeting”) to consider the approval of each Fund’s investment advisory agreement (each an “Agreement,” and, collectively, the “Agreements”) with BlackRock Advisors, LLC (the “Manager”), each Fund’s investment advisor. The Manager is also referred to herein as “BlackRock”.

Activities and Composition of the Board

On the date of the June Meeting, the Board of each Fund consisted of eleven individuals, nine of whom were not “interested persons” of the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of its Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chair of each Board is an Independent Board Member. Each Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee, and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreements

Pursuant to the 1940 Act, each Board is required to consider the continuation of the Agreement for its Fund on an annual basis. Each Board has four quarterly meetings per year, each extending over two days, a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Agreement for its Fund and additional in-person and telephonic meetings as needed. In connection with this year-long deliberative process, each Board assessed, among other things, the nature, extent and quality of the services provided to its Fund by BlackRock, BlackRock’s personnel and affiliates, including, as applicable; investment management, administrative, and shareholder services; the oversight of fund service providers; marketing; risk oversight; compliance; and ability to meet applicable legal and regulatory requirements.

Each Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement for its Fund, including the services and support provided by BlackRock to the Fund and its shareholders. BlackRock also furnished additional information to each Board in response to specific questions from the Board. This additional information is discussed further below in the section titled “Board Considerations in Approving the Agreements.” Among the matters each Board considered were: (a) investment performance for one-year, three-year, five-year, ten-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and performance metrics, as applicable, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, paid to BlackRock and its affiliates by the Fund for services; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective(s), policies and restrictions, and meeting regulatory requirements; (e) the Fund’s compliance with its compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund and institutional account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Fund; (l) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.

The Board of each Fund considered BlackRock’s efforts during the past several years with regard to the redemption of outstanding auction rate preferred securities (“AMPS”). As of the date of this report, each Fund has redeemed all of its outstanding AMPS.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April Meeting, each Board requested and received materials specifically relating to the Agreement for its Fund. Each Board is continuously engaged in a process with its independent legal counsel and BlackRock to review the nature and scope of the information provided to better assist its deliberations. The materials provided to the Board of each Fund in connection with the April Meeting included (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”) on Fund fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of the Fund as compared with a peer group of funds as determined by Broadridge1 and a customized peer group selected by BlackRock (“Customized Peer Group”); (b) information on the profits realized by BlackRock and its affiliates pursuant to the Fund’s Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients, sub-advised mutual funds, and open-end funds, under similar investment mandates, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; and (f) a summary of aggregate amounts paid by the Fund to BlackRock.

 

 

 

1   

Funds are ranked by Broadridge in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable.

 

                
   ANNUAL REPORT    JULY 31, 2016    61


Disclosure of Investment Advisory Agreements (continued)

 

At the April Meeting, each Board reviewed materials relating to its consideration of the Agreement for its Fund. As a result of the discussions that occurred during the April Meeting, and as a culmination of each Board’s year-long deliberative process, each Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the June Meeting.

At the June Meeting, each Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and its Fund for a one-year term ending June 30, 2017. In approving the continuation of the Agreement for its Fund, each Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Fund’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance metrics as previously discussed; (e) the sharing of potential economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with the Fund; and (g) other factors deemed relevant by the Board Members.

Each Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, services related to the valuation and pricing of Fund portfolio holdings, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. Each Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: Each Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of its Fund. Throughout the year, each Board compared its Fund’s performance to the performance of a comparable group of closed-end funds, relevant benchmark, and performance metrics, as applicable. Each Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. Each Board also reviewed the materials provided by its Fund’s portfolio management team discussing the Fund’s performance and the Fund’s investment objective(s), strategies and outlook.

Each Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and its Fund’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. Each Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, each Board considered the quality of the administrative and other non-investment advisory services provided to its Fund. BlackRock and its affiliates provide each Fund with certain administrative, shareholder, and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide each Fund with administrative services including, among others: (i) preparing disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of the Fund; (iii) oversight of daily accounting and pricing; (iv) preparing periodic filings with regulators and stock exchanges; (v) overseeing and coordinating the activities of other service providers; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. Each Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Funds and BlackRock: Each Board, including the Independent Board Members, also reviewed and considered the performance history of its Fund. In preparation for the April Meeting, the Board of each Fund was provided with reports independently prepared by Broadridge, which included a comprehensive analysis of the Fund’s performance. Each Board also reviewed a narrative and statistical analysis of the Broadridge data that was prepared by BlackRock. In connection with its review, the Board of each Fund received and reviewed information regarding the investment performance, based on net asset value (NAV), of the Fund as compared to other funds in its applicable Broadridge category and its Customized Peer Group. Each Board was provided with a description of the methodology used by Broadridge to select peer funds and periodically meets with Broadridge representatives to review its methodology. Each Board was provided with information on the composition of the Broadridge performance universes and expense universes. Each Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of its Fund throughout the year.

In evaluating performance, each Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. Further, each Board recognized that it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect long-term performance disproportionately.

 

                
62    ANNUAL REPORT    JULY 31, 2016   


Disclosure of Investment Advisory Agreements (continued)

 

The Board of MUE noted that for each of the one-, three- and five-year periods reported, MUE ranked in the second quartile, against its Customized Peer Group Composite. BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MUE. The Composite measures a blend of total return and yield.

The Board of MCA noted that for the one-, three- and five-year periods reported, MCA ranked in the second, second and fourth quartiles, respectively, against its Customized Peer Group Composite. BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MCA. The Composite measures a blend of total return and yield.

The Board of MYI noted that for each of the one-, three- and five-year periods reported, MYI ranked in the second quartile, against its Customized Peer Group Composite. BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MYI. The Composite measures a blend of total return and yield.

The Board of MYN noted that for the one-, three- and five-year periods reported, MYN ranked first out of four funds, first out of four funds, and second out of four funds, respectively, against its Customized Peer Group Composite. BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for MYN. The Composite measures a blend of total return and yield.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Funds: Each Board, including the Independent Board Members, reviewed its Fund’s contractual management fee rate compared with the other funds in its Broadridge category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. Each Board also compared its Fund’s total expense ratio, as well as its actual management fee rate as a percentage of total assets, to those of other funds in its Broadridge category. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. Each Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).

Each Board received and reviewed statements relating to BlackRock’s financial condition. Each Board reviewed BlackRock’s profitability methodology and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to its Fund. Each Board reviewed BlackRock’s profitability with respect to its Fund and other funds the Board currently oversees for the year ended December 31, 2015 compared to available aggregate profitability data provided for the prior two years. Each Board reviewed BlackRock’s profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. Each Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. Each Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund level is difficult.

Each Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. Each Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly-traded asset management firms. Each Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, each Board considered the cost of the services provided to its Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management of its Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, each Board reviewed BlackRock’s methodology in allocating its costs of managing its Fund, to the Fund. Each Board may receive and review information from independent third parties as part of its annual evaluation. Each Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Fund’s Agreement and to continue to provide the high quality of services that is expected by the Board. Each Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing its Fund in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, ETF, closed-end fund, sub-advised mutual fund and institutional account product channels, as applicable.

Each Board noted that its Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked in the first quartile, relative to the Expense Peers.

D. Economies of Scale: Each Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of its Fund increase. Each Board also considered the extent to which its Fund benefits from such economies in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to more fully participate in these economies of scale. The Board considered the Fund’s asset levels and whether the current fee was appropriate.

Based on each Board’s review and consideration of the issue, each Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. They are typically priced at scale at a fund’s inception.

 

                
   ANNUAL REPORT    JULY 31, 2016    63


Disclosure of Investment Advisory Agreements (concluded)

 

E. Other Factors Deemed Relevant by the Board Members: Each Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with its Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Fund, including for administrative, securities lending and cash management services. Each Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. Each Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. Each Board further noted that it had considered the investment by BlackRock’s funds in affiliated exchange traded funds (i.e., ETFs) without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Agreement for its Fund, each Board also received information regarding BlackRock’s brokerage and soft dollar practices. Each Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

Each Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that the Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.

Each Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included the redemption of AMPS for the BlackRock closed-end funds with AMPS outstanding; developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communications efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: continuing communications concerning the redemption efforts related to AMPS; sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.

Conclusion

Each Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and its Fund for a one-year term ending June 30, 2017. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, each Board, including the Independent Board Members, was satisfied that the terms of Agreement for its Fund were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreement for its Fund, each Board did not identify any single factor or group of factors as, all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for each Fund reflect the results of several years of review by the Fund’s Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

 

                
64    ANNUAL REPORT    JULY 31, 2016   


Automatic Dividend Reinvestment Plans      

 

Pursuant to each Fund’s Dividend Reinvestment Plan (the “Reinvestment Plan”), Common Shareholders are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A. (the “Reinvestment Plan Agent”) in the respective Fund’s shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.

After the Funds declare a dividend or determine to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares for the participants’ accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Funds (“newly issued shares”) or (ii) by purchase of outstanding shares on the open market or on the Fund’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset value per share (“NAV”) is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share plus estimated brokerage commissions (such condition often referred to as a “market discount”), the Reinvestment Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent will invest any un-invested portion in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above and the date of issue for such newly issued shares will substitute for the dividend payment date.

You may elect not to participate in the Reinvestment Plan and to receive all dividends in cash by contacting the Reinvestment Plan Agent, at the address set forth below.

Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date but prior to the payable date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable date, such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.

The Reinvestment Plan Agent’s fees for the handling of the reinvestment of distributions will be paid by each Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agent’s open market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not relieve participants of any federal, state or local income tax that may be payable on such dividends or distributions.

Each Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants in MUE, MCA and MYI that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share fee. Per share fees include any applicable brokerage commissions the Reinvestment Plan Agent is required to pay. Participants in MYN that request a sale of shares are subject to a $0.02 per share sold brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at http://www.computershare.com/blackrock, or in writing to Computershare, P.O. Box 30170, College Station, TX 77842-3170, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 211 Quality Circle, Suite 210, College Station, TX 77845.

 

                
   ANNUAL REPORT    JULY 31, 2016    65


Officers and Directors     

 

Name, Address1
and Year of Birth
  Position(s)
Held with
the Funds
  Length
of Time
Served as
a Director3
  Principal Occupation(s) During Past Five Years   Number of BlackRock-
Advised Registered
Investment Companies
(“RICs”) Consisting of
Investment Portfolios
(“Portfolios”) Overseen4
 

Public Company and
Investment Company
Directorships During
Past Five Years

Independent Directors               

Richard E. Cavanagh

 

1946

  Chair of the Board and Director  

Since

2007

  Director, The Guardian Life Insurance Company of America since 1998; Director, Arch Chemical (chemical and allied products) from 1999 to 2011; Trustee, Educational Testing Service from 1997 to 2009 and Chairman thereof from 2005 to 2009; Senior Advisor, The Fremont Group since 2008 and Director thereof since 1996; Faculty Member/Adjunct Lecturer, Harvard University since 2007; President and Chief Executive Officer, The Conference Board, Inc. (global business research organization) from 1995 to 2007.  

74 RICs consisting of

74 Portfolios

  None

Karen P. Robards

 

1950

  Vice Chair of the Board and Director  

Since

2007

  Principal of Robards & Company, LLC (consulting and private investing) since 1987; Co-founder and Director of the Cooke Center for Learning and Development (a not-for-profit organization) since 1987; Investment Banker at Morgan Stanley from 1976 to 1987.  

74 RICs consisting of

74 Portfolios

  AtriCure, Inc. (medical devices); Greenhill & Co., Inc.

Michael J. Castellano

 

1946

  Director  

Since

2011

  Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) since 2015.  

74 RICs consisting of

74 Portfolios

  None

Cynthia L. Egan

 

1955

  Director  

Since

2016

  Advisor, U.S. Department of the Treasury from 2014 to 2015; a President at T. Rowe Price Group, Inc. from 2007 to 2012.   74 RICs consisting of 74 Portfolios   Unum (insurance); The Hanover Insurance Group (insurance); Envestnet (investment platform) from 2013 until 2016

Frank J. Fabozzi

 

1948

  Director  

Since

2007

  Editor of and Consultant for The Journal of Portfolio Management since 2006; Professor of Finance, EDHEC Business School since 2011; Visiting Professor, Princeton University from 2013 to 2014; Professor in the Practice of Finance and Becton Fellow, Yale University School of Management from 2006 to 2011.  

74 RICs consisting of

74 Portfolios

  None

Jerrold B. Harris

 

1942

 

Director

 

Since

2007

  Trustee, Ursinus College from 2000 to 2012; Director, Ducks Unlimited — Canada (conservation) since 2015; Director, Waterfowl Chesapeake (conservation) since 2014; Director, Ducks Unlimited, Inc. since 2013; Director, Troemner LLC (scientific equipment) since 2000; Director of Delta Waterfowl Foundation from 2010 to 2012; President and Chief Executive Officer, VWR Scientific Products Corporation from 1990 to 1999.  

74 RICs consisting of

74 Portfolios

  BlackRock Capital Investment Corp. (business development company)

R. Glenn Hubbard

 

1958

 

Director

  Since
2007
  Dean, Columbia Business School since 2004; Faculty member, Columbia Business School since 1988.  

74 RICs consisting of

74 Portfolios

  ADP (data and information services); Metropolitan Life Insurance Company (insurance)

 

                
66    ANNUAL REPORT    JULY 31, 2016   


Officers and Directors (continued)     

 

Name, Address1
and Year of Birth
 

Position(s)

Held with
the Funds

  Length
of Time
Served as
a Director(s)3
  Principal Occupation(s) During Past Five Years   Number of BlackRock-
Advised Registered
Investment Companies
(“RICs”) Consisting of
Investment Portfolios
(“Portfolios”) Overseen4
 

Public Company and
Investment Company
Directorships During
Past Five Years

Independent Directors2               

W. Carl Kester

 

1951

  Director  

Since

2007

  George Fisher Baker Jr. Professor of Business Administration, Harvard Business School since 2008, Deputy Dean for Academic Affairs from 2006 to 2010, Chairman of the Finance Unit, from 2005 to 2006, Senior Associate Dean and Chairman of the MBA Program from 1999 to 2005; Member of the faculty of Harvard Business School since 1981.  

74 RICs consisting of

74 Portfolios

  None

Catherine A. Lynch

 

1961

  Director  

Since

2016

  Chief Executive Officer, Chief Investment Officer and various other positions, National Railroad Retirement Investment Trust from 2003 to 2016; Associate Vice President for Treasury Management, The George Washington University from 1999 to 2003; Assistant Treasurer, Episcopal Church of America from 1995 to 1999.   74 RICs consisting of 74 Portfolios   None
Interested Directors5               

Barbara G. Novick

 

1960

 

Director

 

Since

2014

  Vice Chairman of BlackRock, Inc. since 2006; Chair of BlackRock’s Government Relations Steering Committee since 2009; Head of the Global Client Group of BlackRock, Inc. from 1988 to 2008.   100 RICs consisting of 218 Portfolios   None

John M. Perlowski

 

1964

  Director, President and Chief Executive Officer   Since 2014 (Director); Since 2011 (President and Chief Executive Officer)   Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Fund & Accounting Services since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.   128 RICs consisting of 316 Portfolios   None
 

1    The address of each Director is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055.

 

2    Each Independent Director serves until his or her successor is elected and qualifies, or until his or her earlier death, resignation, retirement or removal, or until December 31 of the year in which he or she turns 75. The maximum age limitation may be waived as to any Director by action of a majority of the Directors upon finding of good cause therefor.

 

3    Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. As a result, although the chart shows certain Directors as joining the Funds’ board in 2007, those Directors first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: Richard E. Cavanagh, 1994; Frank J. Fabozzi, 1988; Jerrold B. Harris, 1999; R. Glenn Hubbard, 2004; W. Carl Kester, 1995 and Karen P. Robards, 1998.

 

4    For purposes of this chart, “RICs” refers to investment companies registered under the 1940 Act and “Portfolios” refers to the investment programs of the BlackRock-advised funds. The Closed-End Complex is comprised of 75 RICs. Mr. Perlowski and Ms. Novick are also board members of certain complexes of BlackRock registered open-end funds. Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and the Equity-Liquidity Complex, and Ms. Novick is also a board member of the BlackRock Equity-Liquidity Complex.

 

5    Mr. Perlowski and Ms. Novick are both “interested persons,” as defined in the 1940 Act, of the Funds based on their positions with BlackRock, Inc. and its affiliate. Mr. Perlowski and Ms. Novick are also board members of certain complexes of BlackRock registered open-end funds. Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and the BlackRock Equity-Liquidity Complex, and Ms. Novick is a board member of the BlackRock Equity-Liquidity Complex. Interested Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The maximum age limitation may be waived as to any Director by action of a majority of the Directors upon a finding of good cause therefor.

 

                
   ANNUAL REPORT    JULY 31, 2016    67


Officers and Directors (concluded)     

 

 

Name, Address1
and Year of Birth
  Position(s)
Held with
the Funds
  Length
of Time
Served as
an Officer
  Principal Occupation(s) During Past Five Years
Officers Who Are Not Directors2          

Jonathan Diorio

 

1980

  Vice President   Since
2015
  Managing Director of BlackRock, Inc. since 2015; Director of BlackRock, Inc. from 2011 to 2015; Director of Deutsche Asset & Wealth Management from 2009 to 2011.

Neal J. Andrews

 

1966

  Chief Financial Officer   Since
2007
  Managing Director of BlackRock, Inc. since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.

Jay M. Fife

 

1970

  Treasurer   Since
2007
  Managing Director of BlackRock, Inc. since 2007; Director of BlackRock, Inc. in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.

Charles Park

 

1967

  Chief Compliance Officer   Since
2014
  Anti-Money Laundering Compliance Officer for the BlackRock-advised Funds in the Equity-Bond Complex, the Equity-Liquidity Complex and the Closed-End Complex from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the Equity-Bond Complex, the Equity-Liquidity Complex and the Closed-End Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012.

Janey Ahn

 

1975

  Secretary   Since
2012
  Director of BlackRock, Inc. since 2009; Assistant Secretary of the funds in the Closed-End Complex from 2008 to 2012.
 

1    The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, NY 10055.

 

2    Officers of the Funds serve at the pleasure of the Board.

 

Effective April 1, 2016, Cynthia L. Egan was appointed to serve as a Director of the Funds.

As of the date of this report:

 

 

The portfolio managers of MUE are Ted Jaeckel and Phillip Soccio.

 

 

The portfolio managers of MCA are Walter O’Connor and Michael Perilli.

 

 

The portfolio managers of MYN are Timothy Browse and Walter O’Connor.

 

 

The portfolio managers of MYI are Michael Kalinoski and Walter O’Connor.

 

         

Investment Adviser

BlackRock Advisors, LLC Wilmington, DE 19809

 

Accounting Agent and Custodian

State Street Bank and
Trust Company

Boston, MA 02110

 

VRDP Tender and Paying Agent

and VMTP Redemption and Paying Agent

The Bank of New York Mellon New York, NY 10289

  

Independent Registered Public Accounting Firm Deloitte & Touche LLP Boston, MA 02116

 

Legal Counsel

Skadden, Arps, Slate, Meagher & Flom LLP Boston, MA 02116

  Transfer Agent Computershare Trust
Company, N.A.
Canton, MA 02021
 

VRDP Remarketing Agent Citigroup Global Markets Inc. New York, NY 10179

     Address of the Funds 100 Bellevue Parkway Wilmington, DE 19809
    VRDP Liquidity Provider Citibank, N.A.
New York, NY 10179
    

 

                
68    ANNUAL REPORT    JULY 31, 2016   


Additional Information     

 

Proxy Results

The Annual Meeting of Shareholders was held on July 26, 2016 for shareholders of record on May 31, 2016, to elect director nominees for each Fund. There were no broker non-votes with regard to any of the Funds.

 

     

Michael J. Castellano

  

Richard E. Cavanagh

  

Cynthia L. Egan

      Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain

MUE

   20,869,174    607,374    0    20,857,936    618,612    0    20,938,767    537,781    0

MCA

   31,941,714    1,141,210    0    32,005,829    1,077,095    0    32,039,926    1,042,998    0

MYI

   62,176,341    1,866,923    0    62,062,508    1,980,756    0    62,316,124    1,727,140    0

MYN

   32,374,063    1,813,258    0    32,360,052    1,827,269    0    32,367,956    1,819,365    0
    

Frank J. Fabozzi1

  

Jerrold B. Harris

  

R. Glenn Hubbard

      Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain

MUE

   1,310    0    0    20,829,295    647,253    0    20,832,154    644,394    0

MCA

   1,665    0    0    32,005,829    1,077,095    0    31,978,151    1,104,773    0

MYI

   3,564    0    0    61,928,805    2,114,459    0    62,159,734    1,883,530    0

MYN

   2,477    0    0    32,268,935    1,918,386    0    32,129,320    2,058,001    0
    

W. Carl Kester1

  

Catherine A. Lynch

  

Barbara G. Novick

      Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain

MUE

   1,310    0    0    20,918,663    557,885    0    20,983,485    493,063    0

MCA

   1,665    0    0    32,021,170    1,061,754    0    32,027,883    1,055,041    0

MYI

   3,564    0    0    62,469,782    1,573,482    0    62,419,884    1,623,380    0

MYN

   2,477    0    0    32,347,773    1,839,548    0    32,479,211    1,708,110    0
    

John M. Perlowski

  

Karen P. Robards

         
      Votes For    Votes
Withheld
   Abstain    Votes For    Votes
Withheld
   Abstain               

MUE

   20,855,640    620,908    0    20,985,014    491,534    0         

MCA

   31,981,253    1,101,671    0    32,027,295    1,055,629    0         

MYI

   62,138,283    1,904,981    0    62,358,829    1,684,435    0         

MYN

   32,308,886    1,878,435    0    32,362,660    1,824,661    0               

 

  ¹   Voted on by holders of preferred shares only.

 

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    69


Additional Information (continued)     

 

 

General Information

The Funds do not make available copies of their Statements of Additional Information because the Funds’ shares are not continuously offered, which means that the Statement of Additional Information of each Fund has not been updated after completion of the respective Fund’s offerings and the information contained in each Fund’s Statement of Additional Information may have become outdated.

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 described on page 68, there have been no changes in the persons who are primarily responsible for the day-to-day management of the Funds’ portfolios.

Effective September 26, 2016 onwards, BlackRock implemented a new methodology for calculating “effective duration” for BlackRock municipal bond portfolios. The new methodology replaces the model previously used by BlackRock to evaluate municipal bond duration, a common indicator of an investment’s sensitivity to interest rate movements. The new methodology will be applied to the Funds’ duration reported for any periods after September 26, 2016.

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Funds, including each Fund’s effective duration and additional information about the new methodology, 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.

Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisers, banks or brokerages may offer this service.

Householding

The Funds will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room or how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available 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.

 

                
70    ANNUAL REPORT    JULY 31, 2016   


Additional Information (concluded)     

 

 

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.

 

                
   ANNUAL REPORT    JULY 31, 2016    71


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.

 

LOGO

 

MHMYINS4-7/16-AR    LOGO


Item 2 – Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, the code of ethics was amended to update certain information and to make other non-material changes. During the period covered by this report, there have been no waivers granted under the code of ethics. The registrant undertakes to provide a copy of the code of ethics to any person upon request, without charge, by calling 1-800-882-0052, option 4.

 

Item 3 – Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent:

Michael Castellano

Frank J. Fabozzi

James T. Flynn

W. Carl Kester

Karen P. Robards

The registrant’s board of directors has determined that W. Carl Kester and Karen P. Robards qualify as financial experts pursuant to Item 3(c)(4) of Form N-CSR.

Prof. Kester has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Prof. Kester has been involved in providing valuation and other financial consulting services to corporate clients since 1978. Prof. Kester’s financial consulting services present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements.

Ms. Robards has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Ms. Robards has been President of Robards & Company, a financial advisory firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years where she was responsible for evaluating and assessing the performance of companies based on their financial results. Ms. Robards has over 30 years of experience analyzing financial statements. She also is a member of the audit committee of one publicly held company and a non-profit organization.

Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.

 

2


Item 4 – Principal Accountant Fees and Services

The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:

 

         
      (a) Audit Fees    (b) Audit-Related Fees1    (c) Tax Fees2    (d) All Other Fees3
                 
Entity Name    Current  
Fiscal Year  
End  
   Previous  
Fiscal Year  
End  
   Current  
Fiscal Year  
End  
   Previous  
Fiscal Year  
End  
   Current  
Fiscal Year  
End  
   Previous  
Fiscal Year  
End  
   Current  
Fiscal Year  
End  
   Previous
Fiscal Year
End
                 

BlackRock

MuniYield Quality

Fund III, Inc.

   $38,663      $38,663      $0      $0      $29,682      $29,682      $0      $0

The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Fund Service Providers”):

 

     Current Fiscal Year End    Previous Fiscal Year End
(b) Audit-Related Fees1    $0    $0
(c) Tax Fees2    $0    $0
(d) All Other Fees3    $2,129,000    $2,391,000

1 The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees.

2 The nature of the services includes tax compliance, tax advice and tax planning.

3 Aggregate fees borne by BlackRock in connection with the review of compliance procedures and attestation thereto performed by D&T with respect to all of the registered closed-end funds and some of the registered open-end funds advised by BlackRock.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Fund Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g.,

 

3


unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Fund Service Providers were:

 

Entity Name   

Current Fiscal Year

End

 

  

Previous Fiscal Year

End

 

BlackRock MuniYield Quality

Fund III, Inc.

   $29,682    $29,682

Additionally, SSAE 16 Review (Formerly, SAS No. 70) fees for the current and previous fiscal years of $2,129,000 and $2,391,000, respectively, were billed by D&T to the Investment Adviser.

(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Fund Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

 

Item 5 – Audit Committee of Listed Registrants

 

  (a) The following individuals are members of the registrant’s separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):

Michael Castellano

Frank J. Fabozzi

James T. Flynn

W. Carl Kester

Karen P. Robards

 

  (b) Not Applicable

 

Item 6 – Investments

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.

 

4


(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

 

Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – The board of directors has delegated the voting of proxies for the Fund’s portfolio securities to the Investment Adviser pursuant to the Investment Adviser’s proxy voting guidelines. Under these guidelines, the Investment Adviser will vote proxies related to Fund securities in the best interests of the Fund and its stockholders. From time to time, a vote may present a conflict between the interests of the Fund’s stockholders, on the one hand, and those of the Investment Adviser, or any affiliated person of the Fund or the Investment Adviser, on the other. In such event, provided that the Investment Adviser’s Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Oversight Committee”) is aware of the real or potential conflict or material non-routine matter and if the Oversight Committee does not reasonably believe it is able to follow its general voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Oversight Committee may retain an independent fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the Investment Adviser’s clients. If the Investment Adviser determines not to retain an independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Oversight Committee shall determine how to vote the proxy after consulting with the Investment Adviser’s Portfolio Management Group and/or the Investment Adviser’s Legal and Compliance Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the Fund’s Proxy Voting Policy and Procedures are attached as Exhibit 99.PROXYPOL. Information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at http://www.sec.gov.

 

Item 8 – Portfolio Managers of Closed-End Management Investment Companies – as of July 31, 2016.

 

  (a)(1) The registrant is managed by a team of investment professionals comprised of Michael Kalinoski, CFA, Director at BlackRock, and Walter O’Connor, CFA, Managing Director at BlackRock. Each is a member of BlackRock’s municipal tax-exempt management group. Each is jointly responsible for the day-to-day management of the registrant’s portfolio, which includes setting the registrant’s overall investment strategy, overseeing the management of the registrant and/or selection of its investments. Messrs. Kalinoski and O’Connor have been members of the registrant’s portfolio management team since 2011 and 2006, respectively.

 

Portfolio Manager    Biography
Michael Kalinoski, CFA    Director of BlackRock since 2006; Director of MLIM from 1999 to 2006.
Walter O’Connor, CFA    Managing Director of BlackRock since 2006; Managing Director of MLIM from 2003 to 2006; Director of MLIM from 1998 to 2003.

 

  (a)(2) As of July 31, 2016:

 

    

(ii) Number of Other Accounts Managed

and Assets by Account Type

 

(iii) Number of Other Accounts and

Assets for Which Advisory Fee is

Performance-Based

 

5


(i) Name of

Portfolio Manager

 

Other  

Registered  

Investment  

Companies  

 

Other Pooled  

Investment  

Vehicles  

 

Other  

Accounts  

 

Other  

Registered  

Investment  

Companies  

 

Other Pooled  

Investment  

Vehicles  

 

Other

Accounts

             

Michael Kalinoski, CFA

 

 

12  

 

 

0  

 

 

0  

 

 

0  

 

 

0  

 

 

0

 

             
   

$12.66 Billion  

 

 

$0  

 

 

$0  

 

 

$0  

 

 

$0  

 

 

$0

 

             

Walter O’Connor, CFA

 

 

41  

 

 

0  

 

 

0  

 

 

0  

 

 

0  

 

 

0

 

             
   

$21.95 Billion  

 

 

$0  

 

 

$0  

 

 

$0  

 

 

$0  

 

 

$0

 

 

  (iv) Portfolio Manager Potential Material Conflicts of Interest

BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock, Inc.’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for a fund. It should also be noted that a portfolio manager may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or long only accounts, subject to incentive fees. Such portfolio managers may therefore be entitled to receive a portion of any incentive fees earned on such accounts. Currently, the portfolio managers of this fund are not entitled to receive a portion of incentive fees of other accounts.

As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base, as appropriate.

 

6


  (a)(3) As of July 31, 2016:

Portfolio Manager Compensation Overview

The discussion below describes the portfolio managers’ compensation as of July 31, 2016.

BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.

Base compensation. Generally, portfolio managers receive base compensation based on their position with the firm.

Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation based on the performance of the Funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are: a combination of market-based indices (e.g., Standard & Poor’s Municipal Bond Index), certain customized indices and certain fund industry peer groups.

Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. For some portfolio managers, discretionary incentive compensation is also distributed in deferred cash awards that notionally track the returns of select BlackRock investment products they manage and that vest ratably over a number of years. The BlackRock, Inc. restricted stock units, upon vesting, will be settled in BlackRock, Inc. common stock. Typically, the cash portion of the discretionary incentive compensation, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of discretionary incentive compensation in BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. Providing a portion of discretionary incentive compensation in deferred cash awards that notionally track the BlackRock investment products they manage provides direct alignment with investment product results.

 

7


Long-Term Incentive Plan Awards — From time to time long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units that, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have unvested long-term incentive awards.

Deferred Compensation Program — A portion of the compensation paid to eligible United States-based BlackRock employees may be voluntarily deferred at their election for defined periods of time into an account that tracks the performance of certain of the firm’s investment products. Any portfolio manager who is either a managing director or director at BlackRock with compensation above a specified threshold is eligible to participate in the deferred compensation program.

Other Compensation Benefits. In addition to base salary and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:

Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($265,000 for 2016). The RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.

(a)(4) Beneficial Ownership of Securities – As of July 31, 2016.

 

Portfolio Manager   Dollar Range of Equity Securities    
of the Fund Beneficially Owned    
Michael Kalinoski, CFA   None    
Walter O’Connor, CFA   None    

(b) Not Applicable

 

8


Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report.

 

Item 10 – Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

 

Item 11 – Controls and Procedures

(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the 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 – Exhibits attached hereto

(a)(1) – Code of Ethics – See Item 2

(a)(2) – Certifications – Attached hereto

(a)(3) – Not Applicable

(b) – Certifications – Attached hereto

 

9


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   BlackRock MuniYield Quality Fund III, Inc.
   By:   /s/ John M. Perlowski                        
    John M. Perlowski
   

Chief Executive Officer (principal executive officer) of

BlackRock MuniYield Quality Fund III, Inc.

   Date:   October 3, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

   By:   /s/ John M. Perlowski                        
    John M. Perlowski
   

Chief Executive Officer (principal executive officer) of

BlackRock MuniYield Quality Fund III, Inc.

   Date:   October 3, 2016

 

   By:   /s/ Neal J. Andrews                        
    Neal J. Andrews
   

Chief Financial Officer (principal financial officer) of

BlackRock MuniYield Quality Fund III, Inc.

  Date:   October 3, 2016

 

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