BLACKROCK MUNIHOLDINGS QUALITY FUND II, 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: 811-09191

Name of Fund: BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

Fund Address:  100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock MuniHoldings Quality Fund II, 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: 07/31/2017

Date of reporting period: 07/31/2017

Explanatory Note:

The Registrant is filing this amendment to its Form N-CSR for the period ended July 31, 2017, filed with the Securities and Exchange Commission on October 4, 2017 (Accession Number 0001193125-17-303165). The sole purpose of this amendment is to attach as an exhibit the Proxy Voting Policy and Procedures referenced in Item 7 of the Form N-CSR. Except as set forth above, this amendment does not amend, update or change any other items or disclosures found in the original Form N-CSR filing.


Item 1 – Report to Stockholders


JULY 31, 2017

 

 

 

 

 

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


The Markets in Review

 

Dear Shareholder,

In the 12 months ended July 31, 2017, risk assets, such as stocks and high-yield bonds, continued to deliver strong performance. These markets showed great resilience during a period with big surprises, including the aftermath of the U.K.’s vote to leave the European Union and the outcome of the U.S. presidential election, which brought only brief spikes in equity market volatility. These expressions of isolationism and discontent were countered by the closely watched and less surprising elections in France, the Netherlands and Australia.

Interest rates rose, which worked against high-quality assets with more interest rate sensitivity. Aside from the shortest-term Treasury bills, most U.S. Treasuries posted negative returns, as rising energy prices, modest wage increases and steady job growth led to expectations of higher inflation and anticipation of interest rate increases by the U.S. Federal Reserve (the “Fed”).

The global reflationary theme — rising nominal growth, wages and inflation — was the dominant driver of asset returns during the period, outweighing significant political upheavals and economic uncertainty. Reflationary expectations accelerated after the U.S. election in November 2016 and continued into the beginning of 2017, stoked by expectations that the new administration’s policies would provide an extra boost to U.S. growth.

The Fed has responded to these positive developments by increasing interest rates three times in the last six months, setting expectations for additional interest rate increases and moving toward normalizing monetary policy. Divergent global monetary policy continued in earnest, as the European Central Bank and the Bank of Japan reiterated their commitments to economic stimulus despite nascent signs of sustained economic growth in both countries.

In recent months, growing skepticism about the near-term likelihood of significant U.S. tax reform and infrastructure spending has tempered enthusiasm around the reflation trade. Similarly, renewed concern about oversupply has weighed on energy prices. Nonetheless, financial markets — and to an extent the Fed — have adopted a “wait-and-see” approach to the economic data and potential fiscal stimulus. Although uncertainty has persisted, benign credit conditions, modest inflation and the positive outlook for economic growth have kept markets relatively tranquil.

Although economic momentum is gaining traction, the capacity for rapid global growth is restrained by structural factors, including an aging population, low productivity growth and excess savings, as well as cyclical factors, such as the Fed moving toward the normalization of monetary policy and the length of the current expansion. Tempered economic growth and high valuations across most assets have set the stage for muted returns going forward. At current valuation levels, potential equity gains will likely be closely tied to the pace of earnings growth, which has remained solid thus far in 2017.

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

Sincerely,

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of July 31, 2017  
    6-month     12-month  

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

    9.51     16.04

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

    5.35       18.45  

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

    13.79       17.77  

Emerging market equities
(MSCI Emerging Markets Index)

    18.98       24.84  

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

    0.35       0.54  

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

    2.33       (5.73

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

    2.51       (0.51

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

    3.40       0.36  

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

    4.57       10.94  
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.  

 

                
2    THIS PAGE NOT PART OF YOUR FUND REPORT      


Table of Contents     

 

 

     Page  

The Markets in Review

    2  

Annual Report:

 

Municipal Market Overview

    4  

The Benefits and Risks of Leveraging

    5  

Derivative Financial Instruments

    5  

Fund Summaries

    6  
Financial Statements:  

Schedules of Investments

    14  

Statements of Assets and Liabilities

    43  

Statements of Operations

    44  

Statements of Changes in Net Assets

    45  

Statements of Cash Flows

    47  

Financial Highlights

    48  

Notes to Financial Statements

    52  

Report of Independent Registered Public Accounting Firm

    63  

Disclosure of Investment Advisory Agreements

    64  

Automatic Dividend Reinvestment Plans

    68  

Officers and Directors

    69  

Additional Information

    72  

 

                
   ANNUAL REPORT    JULY 31, 2017    3


Municipal Market Overview     

 

For the Reporting Period Ended July 31, 2017      

Municipal Market Conditions

Municipal bonds experienced modestly positive performance for the period as a result of vastly rising interest rates spurring from generally stronger economic data, signs of inflation pressures, Federal Reserve (“Fed”) monetary policy normalization, and market expectations for pro-growth fiscal policy. However, ongoing reassurance from the Fed that rates would be increased gradually and would likely remain low overall resulted in continued demand for fixed income investments. More specifically, investors favored the income, attractive relative yield, and stability of municipal bonds amid bouts of interest rate volatility (bond prices rise as rates fall) resulting from geopolitical tensions, the contentious U.S. election, and continued global central bank divergence — i.e., policy easing outside the United States while the Fed slowly engages in policy tightening. During the 12 months ended July 31, 2017, municipal bond funds garnered net inflows of approximately $593 million (based on data from the Investment Company Institute).

For the same 12-month period, total new issuance remained robust from a historical perspective at $412 billion (above the $397 billion issued in the prior 12-month period). A noteworthy portion of new supply during this period was attributable to refinancing activity (roughly 57%) as issuers continued to take advantage of low interest rates and a flat yield curve to reduce their borrowing costs.

S&P Municipal Bond Index

Total Returns as of July 31, 2017

  6 months: 3.40%

12 months: 0.36%

A Closer Look at Yields

 

LOGO

From July 31, 2016 to July 31, 2017, yields on AAA-rated 30-year municipal bonds increased by 62 basis points (“bps”) from 2.12% to 2.74%, while 10-year rates rose by 55 bps from 1.40% to 1.95% and 5-year rates increased 37 bps from 0.84% to 1.21% (as measured by Thomson Municipal Market Data). The municipal yield curve steepened over the 12-month period with the spread between 2- and 30-year maturities steepening by 20 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 the front and intermediate portions of the yield curve. The relative positive performance of municipal bonds was driven largely by a supply/demand imbalance within the municipal market as investors sought income and incremental yield in an environment where opportunities became increasingly scarce. Municipal bonds came under pressure post the November U.S. election as a result of uncertainty surrounding potential tax-reform, though growing expectation that tax reform is likely to be delayed or watered down quickly eased investor concerns. 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, 2017, and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. Investing involves risk including loss of principal. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.

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

 

                
4    ANNUAL REPORT    JULY 31, 2017   


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 such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit Common Shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed the Funds’ return on assets purchased with leverage proceeds, income to shareholders is lower than if the Funds had not used leverage. Furthermore, the value of the Funds’ portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of the Funds’ obligations under their respective leverage arrangements generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Funds’ NAVs positively or

negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that the 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”), Variable Rate Muni Term Preferred Shares (“VMTP Shares”) (collectively, “Preferred Shares”) and/or leveraged its assets through the use of tender option bond trusts (“TOB Trusts”) as described in the Notes to Financial Statements.

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

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

 

 

Derivative Financial Instruments     

 

The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security commodity, index, market, and/or other asset without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or

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

 

 

                
   ANNUAL REPORT    JULY 31, 2017    5


Fund Summary as of July 31, 2017    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 U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing primarily in long-term, investment grade municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). The municipal obligations in which the Fund primarily invests are either rated investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. Under normal market conditions, the Fund invests at least 80% of its assets in municipal obligations with remaining maturities of one year or more at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

 

Fund Information

 

Symbol on New York Stock Exchange (“NYSE”)

  MUE

Initial Offering Date

  February 26, 1999

Yield on Closing Market Price as of July 31, 2017 ($14.17)1

  5.42%

Tax Equivalent Yield2

  9.58%

Current Monthly Distribution per Common Share3

  $0.0640

Current Annualized Distribution per Common Share3

  $0.7680

Economic Leverage as of July 31, 20174

  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 U.S. 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, 2017 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MUE1,2

    0.29%        (0.50)%  

Lipper General & Insured Municipal Debt Funds (Leveraged)3

    (1.54)%        (0.78)%  

 

  1   

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

 

  2   

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

 

  3  

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

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

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

 

 

The municipal bond market generated mixed returns in the 12-month reporting period. Municipal bonds initially moved lower in the third calendar quarter of 2016 due to a pick-up in new tax-exempt issuance and rising yields in the U.S. Treasury market. (Prices and yields move in opposite directions.) The weakness accelerated in November once Donald Trump’s election victory caused investors to factor in the possibility of faster economic growth and tighter Fed policy. As optimism for meaningful fiscal reforms subsequently waned and the economy failed to experience a significant acceleration, municipal bonds stabilized and retraced the majority of their post-election losses.

 

 

Reinvestment was a drag on results, as the proceeds of higher-yielding bonds that matured or were called needed to be reinvested at materially lower prevailing rates.

 

 

Portfolio income made the most significant positive contribution during a period in which bond prices lost ground. The Fund’s use of leverage, while enhancing the level of income, also exacerbated the impact of declining bond prices.

 

 

The Fund sought to manage interest rate risk using U.S. Treasury futures. Given that Treasury yields rose, as prices fell, this aspect of the Fund’s positioning had a positive effect on returns.

 

 

The Fund’s exposure to pre-refunded issues benefited performance, as their low duration enabled them to hold up better than longer-duration bonds at a time of rising yields. (Duration is a measure of interest rate sensitivity.) Positions in the transportation and tax-backed (local) sectors also contributed to performance. However, investments in the tax-backed (state) sector detracted.

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

 

                
6    ANNUAL REPORT    JULY 31, 2017   


     BlackRock MuniHoldings Quality Fund II, Inc.

 

 

Market Price and Net Asset Value Per Share Summary      

 

     7/31/17      7/31/16      Change      High      Low  

Market Price

  $ 14.17      $ 14.94        (5.15 )%     $ 15.04      $ 12.58  

Net Asset Value

  $ 14.19      $ 15.08        (5.90 )%     $ 15.08      $ 13.81  

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*

 

Sector Allocation   7/31/17     7/31/16  

Transportation

    41     42

County/City/Special District/School District

    22       21  

Utilities

    13       14  

Health

    11       11  

State

    6       6  

Education

    3       3  

Housing

    2       1  

Tobacco

    1       1  

Corporate

    1       1  

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

 

   
Call/Maturity Schedule2       

Calendar Year Ended December 31,

 

2017

    3 

2018

    23

2019

    12  

2020

    3  

2021

    17  

 

  2   

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

 

  3   

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

 

  *   Excludes short-term securities.
Credit Quality Allocation1   7/31/17     7/31/16  

AAA/Aaa

    7     8

AA/Aa

    55       59  

A

    29       27  

BBB/Baa

    7       5  

N/R

    2       1  

 

  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.

 

 

                
   ANNUAL REPORT    JULY 31, 2017    7


Fund Summary as of July 31, 2017    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 U.S. federal and California income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax) and California income taxes. Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest 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, 2017 ($15.18)1

  5.14%

Tax Equivalent Yield2

  10.47%

Current Monthly Distribution per Common Share3

  $0.0650

Current Annualized Distribution per Common Share3

  $0.7800

Economic Leverage as of July 31, 20174

  40%

 

  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 U.S. 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, 2017 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MCA1,2

    (4.26)%        (0.92)%  

Lipper California Municipal Debt Funds3

    (4.75)%        (0.88)%  

 

  1   

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

 

  2   

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

 

  3   

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

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

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

 

 

The municipal bond market generated mixed returns in the 12-month reporting period. Municipal bonds initially moved lower in the third calendar quarter of 2016 due to a pick-up in new tax-exempt issuance and rising yields in the U.S. Treasury market. (Prices and yields move in opposite directions.) The weakness accelerated in November once Donald Trump’s election victory caused investors to factor in the possibility of faster economic growth and tighter Fed policy. As optimism for meaningful fiscal reforms subsequently waned and the economy failed to experience a significant acceleration, municipal bonds stabilized and retraced the majority of their post-election losses.

 

 

California municipal bonds performed slightly better than national municipals during the period. California’s 2017--2018 budget demonstrated both spending restraint and growing reserves, with a forecast that projects structural balance through 2019. The state’s economy has grown at a healthy rate in recent years, with median household income and job gains outpacing U.S. growth rates.

 

 

Positions in intermediate- and longer-dated maturities declined the most in value, as they typically have longer durations relative to shorter maturities. (Duration is a measure of interest rate sensitivity.) In addition, the Fund’s exposure to 3% and 4% coupon bonds detracted given that lower coupons typically underperform in a rising-rate environment.

 

 

Allocations in hospital and tax-backed (local) sectors also detracted from performance.

 

 

The Fund’s positions in high-quality, short-duration pre-refunded securities contributed positively to performance. At a time of rising yields, pre-refunded securities performed well relative to longer-duration issues in part due to their higher coupon income.

 

 

The Fund sought to manage interest rate risk using U.S. Treasury futures. Given that Treasury yields rose, as prices fell, this aspect of the Fund’s positioning had a positive effect on returns.

 

 

While the Fund’s use of leverage enhanced portfolio income, the benefits of this strategy were somewhat reduced given the modest rise in funding costs associated with less accommodative central bank monetary policy. In addition, leverage exacerbated the impact of declining bond prices.

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

 

                
8    ANNUAL REPORT    JULY 31, 2017   


     BlackRock MuniYield California Quality Fund, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                              
      7/31/17     

7/31/16

     Change      High      Low  

Market Price

   $ 15.18      $ 16.75        (9.37 )%     $ 16.87      $ 13.95  

Net Asset Value

   $ 15.73      $ 16.77        (6.20 )%     $ 16.80      $ 15.09  

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*

 

Sector Allocation   7/31/17    

7/31/16

 

County/City/Special District/School District

    36     41

Utilities

    17       18  

Health

    16       14  

Transportation

    15       13  

Education

    10       9  

State

    5       5  

Corporate

    1        

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

 

   
Call/Maturity Schedule2       

Calendar Year Ended December 31,

 

2017

    3 

2018

    8

2019

    15  

2020

    6  

2021

    11  

 

  2   

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

 

  3   

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

 

  *   Excludes short-term securities.
Credit Quality Allocation1   7/31/17    

7/31/16

 

AAA/Aaa

    7     15

AA/Aa

    80       75  

A

    11       8  

BBB/Baa

    1       1  

N/R

    1       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.

 

 

                
   ANNUAL REPORT    JULY 31, 2017    9


Fund Summary as of July 31, 2017    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 U.S. 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 U.S. federal income taxes (except that the interest may be subject to the U.S. 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, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

 

Fund Information     

Symbol on NYSE

  MYN

Initial Offering Date

  February 28, 1992

Yield on Closing Market Price as of July 31, 2017 ($13.26)1

  4.89%

Tax Equivalent Yield2

  9.90%

Current Monthly Distribution per Common Share3

  $0.0540

Current Annualized Distribution per Common Share3

  $0.6480

Economic Leverage as of July 31, 20174

  39%

 

  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 U.S. 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, 2017 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MYN1,2

    (3.29)%        (0.69)%  

Lipper New York Municipal Debt Funds3

    (5.60)%        (0.58)%  

 

  1   

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

 

  2   

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

 

  3   

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

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

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

 

 

The municipal bond market generated mixed returns in the 12-month reporting period. Municipal bonds initially moved lower in the third calendar quarter of 2016 due to a pick-up in new tax-exempt issuance and rising yields in the U.S. Treasury market. (Prices and yields move in opposite directions.) The weakness accelerated in November once Donald Trump’s election victory caused investors to factor in the possibility of faster economic growth and tighter Fed policy. As optimism for meaningful fiscal reforms subsequently waned and the economy failed to experience a significant acceleration, municipal bonds stabilized and retraced the majority of their post-election losses.

 

 

New York municipal bonds slightly outperformed the broader national market during the period. While new issuance in the state was relatively robust, much of it was concentrated in several large issuers. The state’s overall financial prospects exhibited positive trends, albeit slightly behind national averages.

 

 

The Fund’s exposure to the longer end of the yield curve detracted as longer-term bonds sold off more than the shorter-term issues. Positions in lower coupon securities also generally detracted from performance due to their longer duration characteristics. (Duration is a measure of interest rate sensitivity.)

 

 

Portfolio income made the most significant positive contribution to performance during a time in which bond prices lost ground. The Fund’s use of leverage, while enhancing income, also exacerbated the impact of declining bond prices.

 

 

The Fund sought to manage interest rate risk using U.S. Treasury futures. Given that Treasury yields rose, as prices fell, this aspect of the Fund’s positioning had a positive effect on returns.

 

 

From a sector perspective, the Fund’s exposure to the transportation and education sectors was a positive contributor. Additionally, exposure to the pre-refunded sector was beneficial as these high-quality, short-duration securities outperformed at a time of rising 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.

 

                
10    ANNUAL REPORT    JULY 31, 2017   


     BlackRock MuniYield New York Quality Fund, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                                        
           
      7/31/17     

7/31/16

     Change      High      Low  

Market Price

     $13.26        $14.40        (7.92)%        $14.56        $12.50  

Net Asset Value

     $14.25        $15.07        (5.44)%        $15.08        $13.52  

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*

 

Sector Allocation   7/31/17    

7/31/16

 

Transportation

    25     20

County/City/Special District/School District

    18       25  

Education

    18       18  

Utilities

    14       13  

State

    13       13  

Health

    6       6  

Housing

    3       3  

Tobacco

    2       1  

Corporate

    1       1  

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

 

   
Call/Maturity Schedule3       

Calendar Year Ended December 31,

 

2017

    6

2018

    6  

2019

    7  

2020

    4  

2021

    16  

 

  3   

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

 

  *   Excludes short-term securities.
Credit Quality Allocation1   7/31/17    

7/31/16

 

AAA/Aaa

    20     19

AA/Aa

    55       59  

A

    19       16  

BBB/Baa

    5       4  

N/R2

    1       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 adviser evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2017 and July 31, 2016, the market value of unrated securities deemed by the investment adviser to be investment grade represents 1% and less than 1%, respectively, of the Fund’s total investments.

 

 

 

                
   ANNUAL REPORT    JULY 31, 2017    11


Fund Summary as of July 31, 2017    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 U.S. federal income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). Under normal market conditions, the Fund invests primarily in long-term municipal obligations that are investment grade quality, or are considered by the Fund’s investment adviser to be of comparable quality, at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

 

Fund Information     

Symbol on NYSE

  MYI

Initial Offering Date

  March 27, 1992

Yield on Closing Market Price as of July 31, 2017 ($14.66)1

  5.57%

Tax Equivalent Yield2

  9.84%

Current Monthly Distribution per Common Share3

  $0.0680

Current Annualized Distribution per Common Share3

  $0.8160

Economic Leverage as of July 31, 20174

  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 U.S. 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, 2017 were as follows:

 

    Returns Based On  
     Market Price      NAV  

MYI1,2

    (0.69)%        (1.02)%  

Lipper General & Insured Municipal Debt Funds (Leveraged)3

    (1.54)%        (0.78)%  

 

  1   

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

 

  2   

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

 

  3  

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

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

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

 

 

The municipal bond market generated mixed returns in the 12-month reporting period. Municipal bonds initially moved lower in the third calendar quarter of 2016 due to a pick-up in new tax-exempt issuance and rising yields in the U.S. Treasury market. (Prices and yields move in opposite directions.) The weakness accelerated in November once Donald Trump’s election victory caused investors to factor in the possibility of faster economic growth and tighter Fed policy. As optimism for meaningful fiscal reforms subsequently waned and the economy failed to experience a significant acceleration, municipal bonds stabilized and retraced the majority of their post-election losses.

 

 

The Fund’s exposure to the longer end of the yield curve detracted from performance given that longer-term bonds sold off more than the shorter-term issues. Positions in lower coupon securities, including zero-coupon bonds also detracted due to their longer duration characteristics. (Duration is a measure of interest rate sensitivity.) Exposure to the utilities sector was a further detractor, as certain securities underperformed.

 

 

Portfolio income made the most significant positive contribution to performance during a period in which bond prices lost ground. The Fund’s use of leverage, while enhancing income, also exacerbated the impact of declining bond prices.

 

 

The Fund sought to manage interest rate risk using U.S. Treasury futures. Given that Treasury yields rose, as prices fell, this aspect of the Fund’s positioning had a positive effect on returns.

 

 

Exposure to the transportation sector, where yield spreads generally tightened, was a positive contributor. Many bonds in this sector are subject to the Alternative Minimum Tax, and these types of securities have outperformed in anticipation of possible tax law changes.

 

 

On a geographic basis, exposure to Illinois was beneficial. Yield spreads in the state tightened due to an increase in tax rates and a successful budget passage.

 

 

Exposure to the pre-refunded sector also aided performance, as these high-quality, short-duration securities outperformed at a time of rising 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.

 

                
12    ANNUAL REPORT    JULY 31, 2017   


     BlackRock MuniYield Quality Fund III, Inc.

 

 

Market Price and Net Asset Value Per Share Summary                                        
           
      7/31/17     

7/31/16

     Change      High      Low  

Market Price

   $ 14.66      $ 15.63        (6.21 )%     $ 15.80      $ 13.23  

Net Asset Value

   $ 14.48      $ 15.49        (6.52 )%     $ 15.49      $ 13.97  

 

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

 

LOGO

 

Overview of the Fund’s Total Investments*

 

Sector Allocation   7/31/17    

7/31/16

 

Transportation

    27     26

State

    18       16  

County/City/Special District/School District

    15       15  

Utilities

    14       17  

Health

    13       12  

Education

    9       9  

Corporate

    2       2  

Housing

    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.

 

   
Call/Maturity Schedule3       

Calendar Year Ended December 31,

 

2017

    5

2018

    19  

2019

    12  

2020

    2  

2021

    9  

 

  3  

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

 

  *   Excludes short-term securities.
Credit Quality Allocation1   7/31/17    

7/31/16

 

AAA/Aaa

    11     11

AA/Aa

    54       61  

A

    21       20  

BBB/Baa

    12       7  

N/R

    2 2      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.

 

  2   

The investment adviser evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors and individual investments. Using this approach, the investment adviser has deemed certain of these unrated securities as investment grade quality. As of July 31, 2017, the market value of unrated securities deemed by the investment adviser to be investment grade represents less than 1% of the Fund’s total investments.

 

 

                
   ANNUAL REPORT    JULY 31, 2017    13


Schedule of Investments July 31, 2017

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

(Percentages shown are based on Net Assets)

 

Municipal Bonds    Par
(000)
    Value  
Alabama — 2.5%  

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

   $ 5,225     $ 5,698,019  

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

     940       1,046,944  

Lower Alabama Gas District, RB, Series A, 5.00%, 9/01/46

     1,025       1,284,520  
    

 

 

 
               8,029,483  
California — 22.6%  

California Educational Facilities Authority, RB, University of Southern California, Series A, 5.25%, 10/01/18 (a)

     5,050       5,307,348  

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

     2,865       3,259,425  

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

     680       682,591  

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

    

2nd, 5.50%, 5/01/28

     1,800       2,139,102  

2nd, 5.25%, 5/01/33

     1,410       1,623,756  

5.00%, 5/01/44

     1,860       2,090,528  

City of San Jose California, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, Series A-1, AMT, 5.50%, 3/01/30

     4,045       4,555,358  

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

     2,800       3,072,832  

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

     4,500       5,292,450  

County of Sacramento California, ARB, Senior Series A (AGC), 5.50%, 7/01/18 (a)

     3,500       3,648,925  

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

     3,175       3,321,145  

Emery Unified School District, GO, Election of 2010, Series A (AGM), 5.50%, 8/01/21 (a)

     1,875       2,196,300  

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

     2,445       2,942,142  

Los Angeles Community College District California, GO, Election of 2008, Series C, 5.25%, 8/01/20 (a)

     2,000       2,252,280  

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

     1,675       1,740,509  

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

     2,670       3,127,531  

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

    

5.50%, 11/01/30

     5,000       6,029,700  
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     $ 3,766,423  

5.50%, 11/01/33

     3,000       3,590,520  

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

     1,260       1,487,896  

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

     940       1,146,358  

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

     7,580       8,915,520  
    

 

 

 
               72,188,639  
Colorado — 2.1%  

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

    

5.50%, 11/15/28

     1,500       1,736,445  

5.50%, 11/15/30

     565       648,388  

5.50%, 11/15/31

     675       773,523  

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

     3,300       3,593,007  
    

 

 

 
               6,751,363  
Florida — 20.5%  

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

     405       470,784  

County of Broward Florida Airport System Revenue, ARB, Series A, AMT:

    

5.13%, 10/01/38

     5,665       6,326,049  

5.00%, 10/01/45

     1,440       1,604,117  

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

     2,995       3,458,656  

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

     2,500       2,795,275  

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

     300       300,426  

County of Miami-Dade Florida, RB, Seaport Department:

    

Series A, 5.38%, 10/01/33

     1,765       2,016,936  

Series A, 5.50%, 10/01/42

     3,000       3,503,790  

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

     800       959,296  

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

     1,060       1,239,712  

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

     3,130       3,718,816  
 

 

Portfolio  Abbreviations

 

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

 

See Notes to Financial Statements.

 

                
14    ANNUAL REPORT    JULY 31, 2017   


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), 5.50%, 10/01/18 (a)

   $ 4,180     $ 4,397,569  

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

     4,610       4,792,003  

5.00%, 10/01/31

     5,155       5,759,939  

5.00%, 10/01/32

     5,000       5,566,250  

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

     7,600       8,280,504  

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

     1,805       2,118,817  

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

     6,965       8,104,822  
    

 

 

 
               65,413,761  
Hawaii — 1.7%  

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

    

5.25%, 8/01/25

     740       850,882  

5.25%, 8/01/26

     1,205       1,373,748  

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

     2,805       3,149,314  
    

 

 

 
               5,373,944  
Illinois — 16.9%  

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

    

5.00%, 1/01/41

     1,140       1,249,144  

AMT, 5.50%, 1/01/28

     1,000       1,149,980  

AMT, 5.50%, 1/01/29

     1,500       1,717,620  

AMT, 5.38%, 1/01/33

     2,000       2,242,700  

City of Chicago Illinois O’Hare International Airport, ARB, 3rd Lien, Series A:

    

5.75%, 1/01/21 (a)

     1,680       1,940,014  

5.75%, 1/01/39

     320       362,950  

City of Chicago Illinois O’Hare International Airport, GARB:

    

3rd Lien, Series C, 6.50%, 1/01/21 (a)

     9,085       10,718,846  

Senior Lien, Series D, AMT, 5.00%, 1/01/42

     735       825,912  

Series A (AGM), 5.00%, 1/01/18 (a)

     5,000       5,087,350  

City of Chicago Illinois Transit Authority, RB:

    

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

     3,400       3,627,596  

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

     2,940       3,175,759  

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

     1,500       1,615,875  

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

     2,985       3,144,190  

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

    

5.25%, 12/01/30

     1,270       1,364,958  

5.50%, 12/01/38

     1,205       1,292,628  

5.25%, 12/01/43

     2,960       3,104,241  

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

    

4.00%, 2/15/41

     1,155       1,074,843  

5.00%, 2/15/41

     975       1,042,099  

Railsplitter Tobacco Settlement Authority, RB:

    

5.50%, 6/01/23

     2,350       2,677,731  

6.00%, 6/01/28

     670       763,364  

State of Illinois, GO:

    

5.25%, 2/01/31

     1,495       1,594,866  

5.25%, 2/01/32

     2,320       2,465,441  

5.50%, 7/01/33

     1,000       1,069,060  

5.50%, 7/01/38

     700       743,442  
    

 

 

 
               54,050,609  
Municipal Bonds    Par
(000)
    Value  
Indiana — 0.9%  

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

    

5.50%, 1/01/19 (a)

   $ 465     $ 494,904  

5.50%, 1/01/38

     1,905       2,012,766  

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

     460       492,131  
    

 

 

 
               2,999,801  
Louisiana — 4.0%  

City of New Orleans Aviation Board, RB, General Airport, Series B, AMT, 5.00%, 1/01/48

     2,175       2,466,472  

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

     2,225       2,594,016  

Louisiana Public Facilities Authority, RB, Ranciscan Missionaries, Series A, 5.00%, 7/01/47

     5,070       5,724,435  

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

     2,020       2,096,942  
    

 

 

 
               12,881,865  
Maryland — 0.9%  

County of Howard Maryland Housing Commission, RB, M/F Housing, Woodfield Oxford Square Apartments, 5.00%, 12/01/42

     2,450       2,775,336  
Massachusetts — 0.8%  

Massachusetts Development Finance Agency, RB, Emerson College Issue, Series A:

    

5.00%, 1/01/47

     420       465,889  

5.25%, 1/01/42

     940       1,072,587  

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

     1,010       1,075,054  
    

 

 

 
               2,613,530  
Michigan — 2.2%  

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

     3,420       3,835,359  

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

     3,115       3,360,151  
    

 

 

 
               7,195,510  
Minnesota — 0.7%  

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

    

6.50%, 11/15/18 (a)

     305       326,627  

6.50%, 11/15/38

     1,670       1,776,112  
    

 

 

 
               2,102,739  
Mississippi — 1.3%  

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

     2,225       2,850,225  

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

     1,000       1,168,110  
    

 

 

 
               4,018,335  
Nevada — 2.7%  

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

     3,210       3,494,599  

County of Clark Nevada, GO, Limited Tax, 5.00%, 6/01/18 (a)

     5,000       5,171,250  
    

 

 

 
               8,665,849  
 

 

See Notes to Financial Statements.

 

                
   ANNUAL REPORT    JULY 31, 2017    15


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

Municipal Bonds    Par
(000)
    Value  
New Jersey — 4.3%  

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

    

5.38%, 1/01/43

   $ 1,940     $ 2,166,379  

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

     1,355       1,492,953  

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

     3,400       3,664,010  

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

    

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

     2,930       3,115,996  

Series AA, 5.50%, 6/15/39

     3,040       3,251,766  
    

 

 

 
               13,691,104  
New York — 8.1%  

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       7,444,830  

Water & Sewer System, 5.38%, 6/15/43

     2,220       2,504,537  

Hudson Yards Infrastructure Corp., RB, Senior, Fiscal 2012, Series A:

    

5.75%, 2/15/21 (a)

     565       655,191  

5.75%, 2/15/47

     375       431,250  

Metropolitan Transportation Authority, RB:

    

Series A, 5.25%, 11/15/38

     8,500       9,747,120  

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

     1,550       1,819,219  

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

     2,000       2,254,260  

TSASC, Inc., Refunding RB, Series A, 5.00%, 6/01/41

     895       979,703  
    

 

 

 
               25,836,110  
Ohio — 0.9%  

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

     2,500       2,948,400  
Oklahoma — 0.6%  

Oklahoma Development Finance Authority, RB, Provident Oklahoma Education Resources, Inc., Cross Village Student Housing Project, Series A, 5.25%, 8/01/57

     1,640       1,801,081  
Pennsylvania — 1.8%  

County of Delaware Pennsylvania Authority, Refunding RB, Cabrini University, 5.00%, 7/01/42

     1,060       1,169,784  

Pennsylvania Turnpike Commission, RB, Series B-1, 5.25%, 6/01/47

     500       573,590  

Township of Bristol Pennsylvania School District, GO:

    

5.25%, 6/01/37

     2,500       2,868,000  

5.25%, 6/01/43

     1,100       1,254,231  
    

 

 

 
               5,865,605  
South Carolina — 5.6%  

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

     3,760       4,424,693  

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

    

6.00%, 7/01/38

     2,940       3,401,021  

5.50%, 7/01/41

     2,500       2,816,250  

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

     1,870       2,102,778  

State of South Carolina Public Service Authority, Refunding RB:

    

Series C, 5.00%, 12/01/46

     1,000       1,088,140  

Series E, 5.25%, 12/01/55

     3,500       3,913,875  
    

 

 

 
               17,746,757  
Municipal Bonds    Par
(000)
    Value  
Tennessee — 1.0%  

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

   $ 3,000     $ 3,350,490  
Texas — 17.9%  

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

     2,345       2,714,806  

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

    

6.00%, 5/15/19 (a)

     6,345       6,910,784  

6.00%, 11/15/35

     355       386,975  

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

    

6.50%, 1/01/19 (a)

     620       667,839  

6.50%, 7/01/37

     2,380       2,531,915  

Dallas Texas Area Rapid Transit, Refunding RB, Senior Lien (a):

    

5.25%, 12/01/18

     2,605       2,753,928  

5.25%, 12/01/18

     1,950       2,061,481  

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

    

Series A, 5.00%, 11/01/38

     1,615       1,766,035  

Series H, 5.00%, 11/01/37

     1,810       2,031,291  

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

     2,155       2,529,237  

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

     5,480       6,366,226  

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

    

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

     4,340       4,428,059  

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

     1,400       1,425,480  

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

     4,895       4,991,774  

Series A, 5.63%, 1/01/33

     6,080       6,194,486  

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

     1,000       1,070,590  

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

     855       872,348  

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

     5,835       5,953,392  

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

     145       147,732  

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

     1,070       1,220,399  
    

 

 

 
               57,024,777  
Vermont — 0.9%  

University of Vermont & State Agricultural College, Refunding RB, 5.00%, 10/01/43

     2,535       2,952,160  
Virginia — 1.1%  

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

     945       1,058,306  

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

     2,195       2,357,759  
    

 

 

 
               3,416,065  
Washington — 2.6%  

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

     2,400       2,691,120  

Port of Seattle Washington, ARB, Intermediate Lien, Series C, AMT, 5.00%, 5/01/42 (b)

     660       757,106  

Port of Seattle Washington, RB, Intermediate Lien, Series C, AMT, 5.00%, 5/01/37 (b)

     2,485       2,873,033  

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

     1,865       2,103,440  
    

 

 

 
               8,424,699  
 

 

See Notes to Financial Statements.

 

                
16    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

Municipal Bonds    Par
(000)
    Value  
Wyoming — 0.2%  

State of Wyoming Municipal Power Agency, Inc., Refunding RB, Series A (BAM), 5.00%, 1/01/42

   $ 570     $ 650,347  
Total Municipal Bonds — 124.8%       398,768,359  
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
 
California — 2.7%  

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

     7,499       8,730,838  
Colorado — 3.0%  

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

     9,410       9,705,380  
Connecticut — 1.1%  

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

     3,061       3,484,776  
District of Columbia — 0.6%  

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

     1,699       1,799,065  
Florida — 4.1%  

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

     12,500       13,080,500  
Illinois — 4.2%  

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

     3,967       4,119,165  

State of Illinois Toll Highway Authority, RB, Senior:

    

Priority, Series A, 5.00%, 1/01/40

     1,980       2,251,543  

Series B, 5.00%, 1/01/40

     6,148       6,939,141  
    

 

 

 
               13,309,849  
Maryland — 0.9%  

City of Baltimore Maryland, RB, Wastewater Project, Sub-Series A, 5.00%, 7/01/46

     2,499       2,894,920  
Nevada — 6.1%  

County of Clark Nevada Water Reclamation District, GO (a):

    

Limited Tax, 6.00%, 7/01/18

     10,000       10,467,300  

Series B, 5.50%, 7/01/19

     8,247       8,956,731  
    

 

 

 
               19,424,031  
New Jersey — 1.7%  

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

     3,679       3,806,099  

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

     1,500       1,558,197  
    

 

 

 
               5,364,296  
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
   Par
(000)
    Value  
New York — 7.1%  

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     $ 6,698,352  

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

     2,300       2,436,757  

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

     7,515       8,518,743  

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

     4,400       5,078,962  
    

 

 

 
               22,732,814  
Pennsylvania — 0.7%  

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

     1,963       2,238,796  
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       4,781,181  
Utah — 0.8%  

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

     2,504       2,661,944  
Virginia — 1.4%  

County of Fairfax Virginia EDA, RB, Metrorail Parking System, 5.00%, 4/01/47 (d)

     3,720       4,346,113  
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 35.9%
      114,554,503  
Total Long-Term Investments
(Cost — $475,790,050) — 160.7%
      513,322,862  
    
   
Short-Term Securities    Shares         

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.64% (e)(f)

     327,393       327,524  
Total Short-Term Securities
(Cost — $327,524) — 0.1%
      327,524  

Total Investments (Cost — $476,117,574) — 160.8%

 

    513,650,386  

Liabilities in Excess of Other Assets — (0.1)%

 

    (291,683

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (19.7)%

 

    (62,946,153

VMTP Shares at Liquidation Value — (41.0)%

       (131,000,000
    

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 319,412,550  
 

 

 

 

 

 
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)   When-issued security.

 

(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 May 7, 2018 to October 1, 2024, is $6,783,458. See Note 4 of the Notes to Financial Statements for details.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    17


Schedule of Investments (continued)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

 

(e)   During the year ended July 31, 2017, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate  

Shares Held
at July 31,

2016

      

Net

Activity

      

Shares Held
at July 31,

2017

      

Value at
July 31,

2017

       Income        Net Realized
Gain
       Change in
Unrealized
Appreciation
(Depreciation)
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

    627,379          (299,986        327,393        $ 327,524        $ 15,212        $ 2,344           

 

(f)   Current yield as of period end.

 

Derivative Financial Instruments Outstanding as of Period End

 

Futures Contracts      
Description   Number of
Contracts
       Expiration Date      Notional
Amount
(000)
    Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

               

5-Year U.S. Treasury Note

    (26      September 2017      $ 3,072       $ (277

10-Year U.S. Treasury Note

    (54      September 2017      $ 6,798         1,414  

Long U.S. Treasury Bond

    (31      September 2017      $ 4,742         (12,637

Ultra U.S. Treasury Bond

    (7      September 2017      $ 1,152               (9,508

Total

                $ (21,008
               

 

 

 

 

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                           $ 1,414           $ 1,414  
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                           $ 22,422           $ 22,422  

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, 2017, 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

                          $ 647,800           $ 647,800  
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

                          $ 40,008           $ 40,008  

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:  

Average notional value of contracts — short

  $ 22,555,904  

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.

 

                
18    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (concluded)

  

BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

 

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

           $ 513,322,862              $ 513,322,862  

Short-Term Securities

  $ 327,524                         327,524  
 

 

 

 

Total

  $ 327,524        $ 513,322,862              $ 513,650,386  
 

 

 

 
             
Derivative Financial Instruments2  

Assets:

 

Interest rate contracts

  $ 1,414                       $ 1,414  

Liabilities:

 

Interest rate contracts

    (22,422                       (22,422
 

 

 

 

Total

  $ (21,008                     $ (21,008
 

 

 

 

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

    

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

    

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

     Level 1        Level 2        Level 3     Total  

Liabilities:

 

TOB Trust Certificates

           $ (62,841,318            $ (62,841,318

VMTP Shares at Liquidation Value

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

 

 

 

Total

           $ (193,841,318            $ (193,841,318
 

 

 

 

During the year ended July 31, 2017, there were no transfers between levels.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    19


Schedule of Investments July 31, 2017

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

(Percentages shown are based on Net Assets)

 

Municipal Bonds    Par
(000)
    Value  
California — 90.4%  
Corporate — 1.3%  

California Pollution Control Financing Authority, RB, San Jose Water Company Project, AMT, 4.75%, 11/01/46

   $ 4,000     $ 4,349,120  

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

     2,435       2,632,040  
    

 

 

 
               6,981,160  
County/City/Special District/School District — 35.1%  

Banning Unified School District, GO, Election of 2016, Series A (AGM), 5.25%, 8/01/42

     4,530       5,444,018  

Chaffey Joint Union High School District, GO, CAB, Election of 2012, Series C (a):

    

0.00%, 8/01/32

     250       143,880  

0.00%, 8/01/33

     500       271,795  

0.00%, 8/01/34

     505       262,348  

0.00%, 8/01/35

     545       269,421  

0.00%, 8/01/36

     500       235,575  

0.00%, 8/01/37

     650       291,921  

0.00%, 8/01/38

     630       270,428  

0.00%, 8/01/39

     750       307,762  

0.00%, 8/01/40

     1,850       726,051  

0.00%, 8/01/41

     305       114,253  

0.00%, 2/01/42

     350       127,803  

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

     1,050       1,192,548  

County of Kern California, COP, Capital Improvements Projects, Series A (AGC), 6.00%, 2/01/19 (b)

     2,000       2,152,460  

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

     2,500       2,653,400  

County of Orange California Water District, COP, Refunding, 5.25%, 8/15/19 (b)

     9,045       9,838,608  

County of San Joaquin California Transportation Authority, Refunding RB, Limited Tax, Measure K, Series A, 6.00%, 3/01/21 (b)

     2,755       3,229,135  

El Monte City School District, GO, Los Angeles Country, California Series B, 5.50%, 8/01/46

     4,265       5,217,332  

Fowler Unified School District, GO, Election of 2016, Series A (BAM), 5.25%, 8/01/46

     3,700       4,446,549  

Fremont Union High School District, GO, Refunding, Series A, 4.00%, 8/01/46

     1,465       1,563,331  

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

     2,725       3,214,955  

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

    

5.50%, 8/01/31

     2,165       2,508,910  

5.75%, 8/01/35

     8,400       9,674,196  

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

     2,500       2,986,675  

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

     1,880       2,162,019  

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

    

5.13%, 11/01/18

     4,085       4,303,711  

5.13%, 11/01/18

     915       963,989  

Inglewood Redevelopment Agency Successor Agency, Refunding, Tax Allocation Bonds, Subordinate Lien Merged Redevelopment Project, Series A (BAM), 5.00%, 5/01/38

     250       287,198  

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

     5,715       6,797,250  

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

     10,750       10,750,000  
Municipal Bonds    Par
(000)
    Value  
California (continued)  
County/City/Special District/School District (continued)  

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

   $ 2,075     $ 2,233,239  

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

     4,500       5,201,865  

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

     8,140       9,462,424  

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

     7,490       8,099,686  

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

     2,715       3,193,139  

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

    

5.50%, 8/01/18

     2,000       2,093,340  

5.63%, 8/01/18

     4,500       4,712,715  

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

     5,000       5,195,950  

Riverside County Public Financing Authority, Tax Allocation Bonds, Series A (BAM), 4.00%, 10/01/40

     2,455       2,561,301  

RNR School Financing Authority, Special Tax Bonds, Community Facilities District No. 92-1, Series A (BAM):

    

5.00%, 9/01/37

     1,500       1,735,650  

5.00%, 9/01/41

     3,000       3,450,720  

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

    

5.75%, 5/01/36

     2,570       2,577,453  

5.75%, 5/01/42

     4,500       5,157,540  

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

    

5.00%, 6/01/32

     3,375       3,891,577  

5.00%, 6/01/39

     5,800       6,609,332  

San Juan Unified School District, GO, Election of 2002 (AGM), 5.00%, 8/01/20 (b)

     6,475       7,241,964  

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

     3,000       3,489,090  

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

     5,600       6,159,272  

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

     7,680       9,077,606  

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

     1,625       1,986,481  

West Contra Costa California Unified School District, GO:

    

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

     6,140       7,024,897  

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

     3,000       3,574,050  

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

     2,500       2,978,375  
    

 

 

 
               190,115,187  
Education — 3.4%  

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

     2,750       3,148,805  

California Municipal Finance Authority, Refunding RB:

    

Biola University, 5.00%, 10/01/37

     500       574,750  

Biola University, 5.00%, 10/01/39

     500       572,885  

University of La Verne, Series A, 5.00%, 6/01/36

     1,150       1,331,815  

California School Finance Authority, RB, Alliance for College-Ready Public Schools Projects, Series A, 5.00%, 7/01/36 (c)

     755       818,563  
 

 

See Notes to Financial Statements.      
                
20    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

Municipal Bonds    Par
(000)
    Value  
California (continued)  
Education (continued)  

California School Finance Authority, Refunding RB, Aspire Public Schools — Obligated Group, 5.00%, 8/01/46 (c)

   $ 1,250     $ 1,358,038  

California Statewide Communities Development Authority, Refunding RB:

    

CHF-Irvine LLC, 5.00%, 5/15/33

     2,625       2,982,236  

CHF-Irvine LLC, 5.00%, 5/15/35

     500       565,180  

CHF-Irvine LLC, 5.00%, 5/15/40

     2,250       2,521,418  

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

     3,680       4,389,210  
    

 

 

 
               18,262,900  
Health — 8.6%  

California Health Facilities Financing Authority, RB:

    

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

     10,000       11,183,300  

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

     4,205       4,558,388  

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

     7,715       8,777,124  

California Health Facilities Financing Authority, Refunding RB, Series A (b):

    

Catholic Healthcare West, 6.00%, 7/01/19

     5,500       6,026,240  

Dignity Health, 6.00%, 7/01/19

     2,370       2,596,762  

California Municipal Finance Authority, Refunding RB, Community Medical Centers, Series A, 5.00%, 2/01/42

     4,000       4,508,960  

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

     5,130       5,823,063  

California Statewide Communities Development Authority, Refunding RB, Trinity Health Credit Group Composite Issue, 5.00%, 12/01/41

     2,860       3,203,000  
    

 

 

 
               46,676,837  
State — 6.6%  

State of California, GO, Various Purposes:

    

6.00%, 3/01/33

     5,500       6,186,290  

6.00%, 4/01/38

     13,880       14,998,728  

6.00%, 11/01/39

     3,510       3,883,920  

State of California Public Works Board, LRB:

    

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

     3,670       3,996,043  

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

     2,575       3,081,863  

Various Capital Projects, Sub-Series I-1, 6.13%, 11/01/19 (b)

     3,365       3,754,061  
    

 

 

 
               35,900,905  
Transportation — 21.7%  

Alameda Corridor Transportation Authority, Refunding RB, 2nd Subordinate Lien, Series B, 5.00%, 10/01/35

     1,500       1,711,695  

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

    

Series E, 6.00%, 5/01/39

     9,650       10,485,497  

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

     545       547,076  

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

     985       988,713  

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

    

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

     3,500       3,626,735  

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

     1,900       2,188,040  

Series A, 5.00%, 5/01/40

     3,785       4,268,950  

Series A, 5.00%, 5/01/44

     2,660       2,989,680  

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

    

2nd Series 32 (AGM), 5.75%, 5/01/18 (b)

     2,285       2,367,214  
Municipal Bonds    Par
(000)
    Value  
California (continued)  
Transportation (continued)  

City & County of San Francisco California Airports Commission, Refunding RB, AMT (continued):

    

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

   $ 1,875     $ 1,942,463  

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

     840       870,475  

San Francisco International Airport, Series B, 5.00%, 5/01/46

     1,400       1,588,650  

City of Long Beach California Harbor Revenue, RB, Series A, AMT:

    

5.00%, 5/15/36

     1,500       1,747,245  

5.00%, 5/15/37

     1,355       1,575,851  

City of Los Angeles California Department of Airports, ARB:

    

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

     2,500       2,750,275  

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

     2,000       2,295,360  

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

     1,500       1,718,145  

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

     4,760       5,123,521  

City of Los Angeles California Department of Airports, Sub-Series A, AMT, 5.00%, 5/15/47

     3,415       3,927,933  

City of San Jose California, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, AMT:

    

Series A, 5.00%, 3/01/41

     3,075       3,539,602  

Series A, 5.00%, 3/01/47

     6,770       7,750,702  

Series A-1, 6.25%, 3/01/34

     1,400       1,633,030  

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

     2,500       2,880,125  

County of Sacramento California, ARB:

    

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

     7,000       7,254,660  

Subordinated & Passenger Facility Charges/Grant, Series C (AGC), 5.75%, 7/01/18 (b)

     5,555       5,804,031  

County of Sacramento California Airport System Revenue, Refunding ARB, Airport System Subordinate Revenue, Sub-Series B, 5.00%, 7/01/41

     1,750       2,016,088  

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

     4,500       5,267,655  

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

     6,350       6,944,741  

County of San Diego Regional Airport Authority, RB, Subordinate, Series B, AMT (d):

    

5.00%, 7/01/42

     7,010       8,093,606  

5.00%, 7/01/47

     3,750       4,309,013  

Los Angeles Harbor Department, RB, Series B, 5.25%, 8/01/19 (b)

     2,760       2,997,719  

Port of Los Angeles California Harbor Department, RB, Series B, 5.25%, 8/01/19 (b)

     5,530       6,006,299  

Port of Los Angeles California Harbor Department, Refunding RB, Series A, AMT, 5.00%, 8/01/44

     200       223,348  
    

 

 

 
               117,434,137  
Utilities — 13.7%  

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

     5,000       5,667,100  

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

     8,000       9,095,760  

City of Los Angeles California Wastewater System Revenue, Refunding RB, Sub-Series A:

    

5.00%, 6/01/20 (b)

     1,325       1,472,155  

5.00%, 6/01/28

     675       747,475  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    21


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

Municipal Bonds    Par
(000)
    Value  
California (continued)  
Utilities (continued)  

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

   $ 10,000     $ 11,437,800  

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

    

5.25%, 11/01/19 (b)

     6,280       6,882,566  

5.00%, 11/01/36

     3,335       3,911,288  

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

     4,895       5,048,262  

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

     4,000       4,635,600  

East Bay California Municipal Utility District Water System Revenue, Refunding RB, Sub-Series A, 5.00%, 6/01/20 (b)

     5,000       5,559,750  

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

     5,000       5,846,300  

Los Angeles Department of Water & Power System Revenue, RB, Power System, Series C, 5.00%, 7/01/47

     10,000       11,836,200  

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

     2,000       2,154,200  
    

 

 

 
               74,294,456  
Total Municipal Bonds — 90.4%       489,665,582  
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
            
California — 76.9%  
County/City/Special District/School District — 25.5%  

City of Los Angeles Department of Airports, RB, Los Angeles International Airport, AMT, Series B, 5.00%, 5/15/46

     5,000       5,705,100  

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

     10,000       11,720,791  

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

     6,585       6,902,043  

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

     17,615       20,428,102  

Fremont Union High School District, GO, Refunding, Series A, 4.00%, 8/01/46

     5,000       5,335,600  

Los Angeles Community College District California, GO:

    

Election of 2001, Series A (AGM), 5.00%, 8/01/32

     12,000       12,000,000  

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

     12,000       12,492,840  

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

     9,596       10,564,665  

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

     5,000       5,375,750  

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

     15,140       17,453,846  

Sacramento Area Flood Control Agency, Refunding RB, Consolidated Capital Assessment District No. 2, Series A, 5.00%, 10/01/43

     10,005       11,685,240  
Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
   Par
(000)
    Value  
California (continued)  
County/City/Special District/School District (continued)  

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

   $ 17,000     $ 18,151,240  
    

 

 

 
               137,815,217  
Education — 13.8%  

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

     11,000       12,144,330  

University of California, RB:

    

Series AM, 5.25%, 5/15/44

     9,210       10,895,706  

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

     11,192       12,156,730  

University of California, Refunding RB:

    

Series A, 5.00%, 11/01/43

     13,002       15,178,599  

Series I, 5.00%, 5/15/40

     21,105       24,413,145  
    

 

 

 
               74,788,510  
Health — 17.1%  

California Health Facilities Financing Authority, Refunding RB, Kaiser Permanent, Sub-Series A-2, 4.00%, 11/01/44

     13,280       13,905,488  

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

     10,000       11,027,200  

California Health Facilities Financing Authority, Refunding RB:

    

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

     4,500       5,142,375  

Sutter Health, Series A, 5.00%, 8/15/43

     24,940       28,326,603  

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

     19,860       22,079,752  

Regents of the University of California Medical Center Pooled Revenue, Refunding RB, Series L, 5.00%, 5/15/41

     10,375       11,993,164  
    

 

 

 
               92,474,582  
State — 0.9%  

State of California, GO, Refunding, 4.00%, 9/01/37

     4,575       4,906,184  
Transportation — 4.7%  

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

    

Los Angeles International Airport, Series B, 5.00%, 5/15/41

     3,641       4,169,946  

Senior Revenue, Series A, 5.00%, 5/15/40

     5,500       6,254,655  

Series D, 5.00%, 5/15/41

     13,312       15,088,482  
    

 

 

 
               25,513,083  
Utilities — 14.9%  

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

    

5.00%, 5/01/39

     6,000       6,946,320  

5.00%, 5/01/46

     13,500       15,475,455  

City & County of San Francisco California Public Utilities Commission, RB, Water Revenue, Series B, 5.00%, 11/01/19 (b)

     4,380       4,775,952  

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

     6,290       7,309,861  

City of Sacramento California Water Revenue, RB, 5.25%, 9/01/47

     14,825       17,909,264  

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

    

5.00%, 5/01/18

     1,412       1,456,013  

5.00%, 5/01/18

     7,098       7,320,435  

Los Angeles Department of Water, Refunding RB, Series A, 5.00%, 7/01/46

     8,413       9,771,301  
 

 

See Notes to Financial Statements.      
                
22    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (e)
   Par
(000)
    Value  
California (continued)  
Utilities (continued)  

Rancho Water District Financing Authority, Refunding RB, Series A (AGM):

    

5.00%, 8/01/18 (b)

   $ 3,729     $ 3,880,456  

5.00%, 8/01/34

     5,548       5,773,621  
    

 

 

 
               80,618,678  
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 76.9%
      416,116,254  
Total Long-Term Investments
(Cost — $856,369,076) — 167.3%
      905,781,836  
Short-Term Securities   

Shares

    Value  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.64% (f)(g)

     545,574     $ 545,792  
Total Short-Term Securities
(Cost — $545,738) — 0.1%
      545,792  

Total Investments (Cost — $856,914,814) — 167.4%

 

    906,327,628  

Liabilities in Excess of Other Assets — (0.5)%

 

    (2,768,041

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (36.2)%

 

    (196,028,381

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (30.7)%

 

    (166,228,160
    

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 541,303,046  
    

 

 

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

 

(d)   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)   During the year ended July 31, 2017, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   Shares Held
at July 31,
2016
       Net
Activity
       Shares Held
at July 31,
2017
       Value at
July 31,
2017
       Income        Net Realized
Gain1
       Change in
Unrealized
Appreciation
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

    143,051          402,523          545,574        $ 545,792        $ 31,878        $ 937        $ 54  

1   Includes net capital gain distributions.

    

 

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

 

Derivative Financial Instruments Outstanding as of Period End

 

Futures Contracts  
Description   Number of
Contracts
       Expiration Date      Notional
Amount
(000)
    Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

               

5-Year U.S. Treasury Note

    (42      September 2017      $ 4,962       $ (447

10-Year U.S. Treasury Note

    (142      September 2017      $ 17,876         4,584  

Long U.S. Treasury Bond

    (94      September 2017      $ 14,379         (37,006

Ultra U.S. Treasury Bond

    (32      September 2017      $ 5,264               (43,464

Total

                $ (76,333
               

 

 

 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    23


Schedule of Investments (continued)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

 

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                           $ 4,584           $ 4,584  
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                           $ 80,917           $ 80,917  

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, 2017, 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

                          $ 2,008,909           $ 2,008,909  
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

                          $ 119,257           $ 119,257  

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments      

 

Futures contracts:  

Average notional value of contracts — short

  $ 49,124,037  

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

           $ 905,781,836              $ 905,781,836  

Short-Term Securities

  $ 545,792                         545,792  
 

 

 

 

Total

  $ 545,792        $ 905,781,836              $ 906,327,628  
 

 

 

 
             
Derivative Financial Instruments2  

Assets:

             

Interest rate contracts

  $ 4,584                       $ 4,584  

Liabilities:

             

Interest rate contracts

    (80,917                       (80,917
 

 

 

 

Total

  $ (76,333                     $ (76,333
 

 

 

 

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.      
                
24    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (concluded)

  

BlackRock MuniYield California Quality Fund, Inc. (MCA)

 

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:  
             
     Level 1        Level 2        Level 3     Total  

Liabilities:

             

TOB Trust Certificates

           $ (195,487,580            $ (195,487,580

VRDP Shares at Liquidation Value

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

 

 

 

Total

           $ (361,987,580            $ (361,987,580
 

 

 

 

During the year ended July 31, 2017, there were no transfers between levels.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    25


Schedule of Investments July 31, 2017

  

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

(Percentages shown are based on Net Assets)

 

Municipal Bonds    Par
(000)
    Value  
New York — 122.0%  
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     $ 995,519  

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

     2,500       3,056,625  

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

     5,600       7,038,920  
    

 

 

 
               11,091,064  
County/City/Special District/School District — 17.6%  

Brooklyn Arena Local Development Corp., Refunding RB, Barclays Center Project, Series A, 5.00%, 7/15/42

     1,430       1,606,290  

City of New York New York, GO:

    

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

     1,950       2,194,413  

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

     2,100       2,442,930  

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

     8,350       9,476,248  

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

     1,300       1,523,483  

City of New York New York, GO, Refunding:

    

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

     490       565,715  

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

     2,040       2,381,884  

Series E, 5.50%, 8/01/25

     6,230       7,687,010  

City of New York New York Convention Center Development Corp., RB, CAB, Sub Lien, Hotel Unit Fee, Series B (a):

    

0.00%, 11/15/46

     4,000       1,244,360  

(AGM), 0.00%, 11/15/56

     7,825       1,603,969  

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

    

5.00%, 11/15/40

     6,000       6,946,140  

5.00%, 11/15/45

     13,995       16,079,275  

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       2,225,400  

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

     4,330       1,626,478  

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

     1,000       1,076,300  

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

     6,400       6,413,696  

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

     1,750       1,753,780  

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

     2,250       2,282,603  

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

     9,650       9,706,259  

County of Nassau New York, GO:

    

Series A, 5.00%, 1/15/31

     1,770       2,073,856  

Series B, 5.00%, 10/01/30

     1,550       1,835,309  

Hudson Yards Infrastructure Corp., Refunding RB, 2nd Indenture, Series A, 5.00%, 2/15/45

     2,150       2,502,449  

New York Liberty Development Corp., Refunding RB:

    

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

     2,570       2,913,840  

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

     2,000       2,215,820  
Municipal Bonds    Par
(000)
    Value  
New York (continued)  
County/City/Special District/School District (continued)  

New York Liberty Development Corp., Refunding RB (continued):

    

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

   $ 3,000     $ 3,462,750  

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

     1,090       1,170,300  

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

     3,725       4,156,616  
    

 

 

 
               99,167,173  
Education — 24.7%  

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

    

5.00%, 12/01/31

     250       282,860  

5.00%, 12/01/32

     100       113,144  

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

     2,000       2,096,800  

Build NYC Resource Corp., Refunding RB:

    

City University Queens College, Series A, 5.00%, 6/01/43

     525       596,710  

Manhattan College Project, 5.00%, 8/01/35

     545       634,985  

Manhattan College Project, 4.00%, 8/01/42

     975       1,019,187  

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

     1,065       1,165,121  

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

     110       116,892  

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       2,627,241  

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

     825       930,097  

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

     3,550       3,797,577  

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

     2,150       2,317,313  

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

     1,000       1,048,240  

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

     750       854,317  

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

     5,740       6,276,633  

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

    

5.25%, 5/01/31

     2,305       2,622,629  

5.25%, 5/01/32

     1,000       1,131,930  

Counties of Buffalo & Erie New York Industrial Development Agency, Refunding RB, City School District of Buffalo Project:

    

5.00%, 5/01/28

     1,000       1,199,870  

Series A, 5.00%, 5/01/29

     4,060       4,827,908  

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       1,158,695  

County of Dutchess New York Local Development Corp., Refunding RB, Vassar College Project:

    

5.00%, 7/01/42

     1,180       1,386,642  

4.00%, 7/01/46

     2,235       2,348,963  
 

 

See Notes to Financial Statements.      
                
26    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

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

 

Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Education (continued)  

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

    

5.00%, 7/01/40

   $ 815     $ 946,525  

5.00%, 7/01/43

     2,940       3,398,611  

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

     3,885       4,274,549  

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

    

5.00%, 7/01/38

     1,440       1,637,669  

4.00%, 7/01/39

     500       536,815  

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

    

5.00%, 12/01/30

     1,190       1,362,336  

5.00%, 12/01/36

     1,150       1,302,582  

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

     500       566,470  

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

    

5.50%, 7/01/33

     500       558,210  

5.25%, 7/01/36

     860       952,149  

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

     675       743,897  

State of New York Dormitory Authority, RB:

    

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

     1,250       1,697,825  

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

     2,075       2,355,540  

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

     325       370,370  

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

     1,550       1,778,919  

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

     5,500       6,324,010  

New School (AGM), 5.50%, 7/01/20 (b)

     4,050       4,560,097  

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

     665       717,209  

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

     4,580       6,238,235  

New York University, Series B, 5.00%, 7/01/19 (b)

     1,000       1,076,140  

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

     600       683,580  

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

     3,240       3,650,864  

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

     2,000       2,075,240  

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

     800       881,656  

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

     2,035       2,232,293  

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

     1,500       1,675,605  

State of New York Dormitory Authority, Refunding RB:

    

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

     1,000       1,163,110  

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

     1,150       1,321,465  

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

     240       252,814  

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

     2,500       2,846,175  

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

     700       772,086  
Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Education (continued)  

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

    

Fordham University, 5.00%, 7/01/44

   $ 2,130     $ 2,415,590  

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

     1,380       1,565,886  

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

     3,955       4,549,911  

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

     4,775       5,440,157  

Pratt Institute, 5.00%, 7/01/46

     910       1,036,927  

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

     750       836,595  

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

     2,240       2,558,640  

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

     4,195       4,899,886  

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

     8,735       10,126,485  

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

     2,315       2,718,227  

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

     1,490       1,678,947  

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

     500       584,570  

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

     1,140       1,327,507  

Town of Hempstead New York Local Development Corp., Refunding RB, Hofstra University Project, 5.00%, 7/01/47

     1,645       1,898,873  
    

 

 

 
               139,145,001  
Health — 10.2%  

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

     2,200       2,362,228  

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

    

5.50%, 4/01/34

     490       538,711  

5.50%, 4/01/30

     250       276,045  

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

    

3.00%, 7/01/36

     1,155       1,054,538  

4.00%, 7/01/41

     1,055       1,084,487  

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

    

4.00%, 12/01/41

     800       817,496  

5.00%, 12/01/46

     1,280       1,437,107  

Series A, 5.00%, 12/01/32

     830       918,113  

Series A, 5.00%, 12/01/37

     350       384,069  

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

     5,650       6,380,150  

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

     625       690,619  

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

     1,790       1,949,668  

State of New York Dormitory Authority, RB:

    

General Purpose, Series A, 5.00%, 2/15/42

     3,000       3,487,380  

Healthcare, Series A, 5.00%, 3/15/19 (b)

     2,000       2,129,860  

Hudson Valley Hospital (BHAC) (FHA), 5.00%, 8/15/17 (b)

     6,500       6,518,785  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    27


Schedule of Investments (continued)

  

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

 

Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Health (continued)  

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

    

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

   $ 3,450     $ 3,909,195  

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

     1,100       1,254,286  

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

     2,075       2,237,182  

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

     1,000       1,058,550  

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

     300       317,565  

State of New York Dormitory Authority, Refunding RB, North Shore-Long Island Jewish Obligated Group, Series A:

    

5.00%, 5/01/32

     4,000       4,426,760  

5.00%, 5/01/32

     3,525       4,077,720  

5.25%, 5/01/34

     9,220       10,275,874  
    

 

 

 
               57,586,388  
Housing — 3.7%  

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       7,876,832  

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

     1,675       1,883,353  

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

     750       756,983  

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

     1,335       1,355,359  

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

     840       848,425  

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

     600       610,200  

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       1,287,810  

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

     2,445       2,451,015  

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

    

6.13%, 2/01/20

     305       305,994  

6.25%, 2/01/31

     1,125       1,127,812  

State of New York HFA, RB, M/F Housing:

    

Affordable Series B (Ginnie Mae, Fannie Mae & Freddie Mac), 4.00%, 11/01/42

     1,045       1,089,653  

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

     1,500       1,500,900  
    

 

 

 
               21,094,336  
State — 16.3%  

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

    

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

     1,700       1,722,882  

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

     6,000       6,254,460  

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

     5,500       5,850,515  

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

     1,500       1,594,905  

Fiscal 2015, Series S-1, 5.00%, 7/15/37

     2,000       2,301,460  

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

     5,000       5,011,750  

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

     4,025       4,032,688  
Municipal Bonds    Par
(000)
    Value  
New York (continued)  
State (continued)  

City of New York New York Transitional Finance Authority, Refunding RB, Fiscal 2018:

    

Series S-1, 5.00%, 7/15/35

   $ 1,455     $ 1,728,642  

Series S-2, 5.00%, 7/15/35

     1,455       1,728,642  

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

    

Fiscal 2014, Sub-Series A-1, 5.00%, 11/01/38

     1,000       1,156,310  

Fiscal 2014, Sub-Series B-1, 5.00%, 11/01/36

     1,690       1,963,391  

Fiscal 2016, Sub-Series B-1, 5.00%, 11/01/38

     4,000       4,692,320  

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

     2,510       2,916,043  

Sub-Series F-1, 5.00%, 5/01/38

     4,120       4,869,222  

Sub-Series F-1, 5.00%, 5/01/39

     5,130       6,048,578  

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

     1,470       1,752,313  

Metropolitan Transportation Authority, Refunding RB, Dedicated Tax Fund:

    

Series B, 5.00%, 11/15/19 (b)

     1,500       1,638,195  

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

     3,465       4,009,767  

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

     3,835       4,289,831  

State of New York Dormitory Authority, RB:

    

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

     1,000       1,143,680  

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

     7,500       8,414,475  

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

     1,750       1,890,927  

School Districts Financing Program, Series C (AGM), 5.00%, 10/01/17 (b)

     4,050       4,078,512  

Series B, 5.00%, 3/15/37

     2,000       2,355,760  

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

     1,000       1,116,490  

State of New York Dormitory Authority, Refunding RB, General Purpose, Series A, 5.00%, 2/15/38

     4,630       5,456,270  

State of New York Thruway Authority, RB, 2nd General Highway & Bridge Trust, Series B, 5.00%, 10/01/17 (b)

     1,500       1,510,560  

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

     2,000       2,336,060  
    

 

 

 
               91,864,648  
Tobacco — 2.3%  

Counties of New York Tobacco Trust VI, Refunding RB, Tobacco Settlement Pass-Through:

    

Series A, 5.00%, 6/01/41

     425       453,309  

Series A-2B, 5.00%, 6/01/51

     800       822,032  

Series B, 5.00%, 6/01/45

     1,820       1,917,497  

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

     2,190       2,201,804  

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

    

5.25%, 5/15/34

     1,650       1,848,446  

5.25%, 5/15/40

     2,250       2,501,775  

Westchester Tobacco Asset Securitization, Refunding RB, Tobacco Settlement Bonds, Sub-Series C, 4.00%, 6/01/42

     3,420       3,413,434  
    

 

 

 
               13,158,297  
 

 

See Notes to Financial Statements.      
                
28    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

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

 

Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Transportation — 29.6%  

Buffalo & Fort Erie Public Bridge Authority, RB, Toll Bridge System:

    

5.00%, 1/01/42

   $ 1,115     $ 1,299,722  

5.00%, 1/01/47

     430       498,938  

Metropolitan Transportation Authority, RB:

    

Green Bonds, Series A, 5.00%, 11/15/42

     3,500       4,099,550  

Series A, 5.00%, 11/15/27

     1,000       1,151,580  

Series A, 5.00%, 11/15/30

     1,000       1,161,190  

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

     2,565       3,030,317  

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

     2,840       3,347,877  

Series C, 6.50%, 11/15/28

     615       659,428  

Series D, 5.25%, 11/15/41

     3,450       3,940,797  

Series E, 5.00%, 11/15/38

     7,785       8,989,184  

Series E, 5.00%, 11/15/43

     4,000       4,596,040  

Series H, 5.00%, 11/15/31

     1,690       1,948,942  

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

     3,250       3,890,542  

Metropolitan Transportation Authority, Refunding RB:

    

Green Bond, Climate Bond Certified, Sub-Series B-2, 3.13%, 11/15/33

     955       965,811  

Green Bond, Climate Bond Certified, Sub-Series B-2, 4.00%, 11/15/34

     3,000       3,249,960  

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

     2,610       3,018,830  

Series D, 5.25%, 11/15/29

     1,000       1,127,790  

Metropolitan Transportation Authority Hudson Rail Yards Trust Obligations, Refunding RB, Series A:

    

5.00%, 11/15/56

     5,655       6,398,010  

5.00%, 11/15/51

     480       528,490  

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

     3,500       3,967,600  

New York Transportation Development Corp., ARB, LaGuardia Airport Terminal B Redevelopment Project, Series A, AMT:

    

5.00%, 7/01/46

     6,615       7,153,395  

5.25%, 1/01/50

     8,385       9,196,668  

(AGM), 4.00%, 7/01/41

     1,575       1,624,927  

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

     1,200       1,238,340  

Port Authority of New York & New Jersey, ARB:

    

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

     2,500       2,758,200  

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

     1,000       1,117,790  

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

     1,500       1,575,345  

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

     8,160       8,256,778  

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

    

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

     1,140       1,278,259  

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

     1,390       1,613,526  

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

     735       756,411  

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

     750       827,715  

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

     1,000       1,139,110  

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

     1,875       2,147,869  

Consolidated, 195th Series, AMT, 5.00%, 4/01/36

     1,500       1,734,915  

Consolidated, 200th Series, 5.00%, 4/15/57

     1,000       1,153,490  
Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Transportation (continued)  

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

    

Series G, JFK International Air Terminal (AGM), 5.75%, 12/01/25

   $ 3,500     $ 3,541,510  

State of New York Thruway Authority, RB, Junior Lien, Series A, 5.25%, 1/01/56

     3,880       4,512,091  

State of New York Thruway Authority, Refunding RB, General:

    

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

     10,000       10,161,100  

Series I, 5.00%, 1/01/37

     4,750       5,345,127  

Series I, 5.00%, 1/01/42

     3,250       3,642,600  

Series J, 5.00%, 1/01/41

     6,275       7,041,366  

Series K, 5.00%, 1/01/29

     2,225       2,654,180  

Series K, 5.00%, 1/01/31

     1,500       1,761,270  

Series K, 5.00%, 1/01/32

     3,500       4,094,090  

Triborough Bridge & Tunnel Authority, RB, Series B:

    

5.00%, 11/15/40

     1,010       1,175,751  

5.00%, 11/15/45

     1,500       1,734,135  

Triborough Bridge & Tunnel Authority, Refunding RB:

    

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

     9,590       5,986,462  

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

     1,000       1,126,790  

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

     1,460       1,710,930  

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

     4,500       5,137,560  

General, Series C, 5.00%, 11/15/18 (b)

     1,235       1,300,010  

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

     765       802,852  

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

     2,500       2,907,800  

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

     875       1,011,517  
    

 

 

 
               167,090,477  
Utilities — 15.6%  

City of New York New York Municipal Water Finance Authority, RB, Water & Sewer System, 2nd General Resolution, Fiscal 2017, Series DD, 5.25%, 6/15/47

     2,455       2,943,250  

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       1,658,595  

Fiscal 2011, Series BB, 5.00%, 6/15/31

     1,000       1,105,730  

Fiscal 2011, Series GG, 5.00%, 6/15/43

     1,000       1,115,940  

Fiscal 2015, Series HH, 5.00%, 6/15/39

     3,000       3,497,880  

Series DD, 5.00%, 6/15/32

     3,750       3,882,188  

City of New York New York Water & Sewer System, RB, 2nd General Resolution, Fiscal 2017, Series DD, 5.00%, 6/15/47

     3,785       4,409,449  

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

     3,775       4,198,027  

Long Island Power Authority, Refunding RB, Electric Systems:

    

Series A, 5.00%, 9/01/34

     1,000       1,148,750  

Series A (AGC), 5.75%, 4/01/39

     1,015       1,089,308  

Series B, 5.00%, 9/01/41

     590       677,633  

Series B, 5.00%, 9/01/46

     2,750       3,146,770  

General, Series A (AGC), 6.00%, 5/01/19 (b)

     1,500       1,631,040  

State of New York Environmental Facilities Corp., RB, Green Bonds, Series B:

    

5.00%, 3/15/45

     5,145       5,924,519  

Revolving Funds, 5.00%, 9/15/40

     1,195       1,395,712  

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

    

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

     1,040       1,076,754  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    29


Schedule of Investments (continued)

  

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

 

Municipal Bonds    Par
(000)
    Value  
New York (continued)  
Utilities (continued)  

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

    

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

   $ 2,100     $ 2,380,476  

Series A, 5.00%, 6/15/40

     4,275       5,014,319  

Series A, 5.00%, 6/15/45

     18,920       21,870,763  

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

     4,920       5,549,563  

Utility Debt Securitization Authority, Refunding RB, Restructuring:

    

3.00%, 12/15/32

     1,600       1,636,592  

Series E, 5.00%, 12/15/41

     9,960       11,538,859  

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

     1,185       1,341,858  
    

 

 

 
               88,233,975  
Total Municipal Bonds in New York              688,431,359  
    
Guam — 0.3%  
Utilities — 0.3%  

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

     1,380       1,509,830  
    
Puerto Rico — 0.7%  
Housing — 0.7%  

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

     4,050       4,239,702  
Total Municipal Bonds — 123.0%              694,180,891  
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
            
New York — 38.8%  
County/City/Special District/School District — 7.6%  

City of New York New York, GO, Refunding, Series E:

    

5.00%, 8/01/27

     1,064       1,147,886  

5.00%, 8/01/29

     2,000       2,432,980  

City of New York New York, GO:

    

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

     916       983,163  

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

     13,484       14,475,381  

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

     3,500       4,005,190  

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

     3,500       4,134,025  

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

     9,739       11,256,391  

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

     3,645       4,134,013  
    

 

 

 
               42,569,029  
Education — 4.8%  

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

     1,981       2,289,042  

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

    

5.25%, 7/01/19 (b)

     6,000       6,494,820  

5.00%, 7/01/35

     5,198       5,850,289  
Municipal Bonds Transferred to
Tender Option Bond Trusts (c)
   Par
(000)
    Value  
New York (continued)  
Education (continued)  

State of New York Dormitory Authority, RB, State University Dormitory Facilities, New York University, Series A, 5.00%, 7/01/18 (b)

   $ 6,498     $ 6,742,580  

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

     4,500       5,459,715  
    

 

 

 
               26,836,446  
State — 8.4%  

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

     4,125       4,645,492  

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

    

5.00%, 10/15/31

     7,995       9,584,966  

4.00%, 10/15/32

     8,000       8,948,800  

State of New York Dormitory Authority, ERB, Series B, 5.75%, 3/15/19 (b)

     7,850       8,454,214  

State of New York Dormitory Authority, RB:

    

General Purpose, Series C, 5.00%, 3/15/41

     1,650       1,838,117  

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

     6,297       6,559,274  

Series A, 5.00%, 3/15/44

     5,548       6,382,158  

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

     1,001       1,164,225  
    

 

 

 
               47,577,246  
Transportation — 11.1%  

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

     17,999       20,404,176  

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

    

5.00%, 10/15/25

     7,990       9,099,789  

5.00%, 10/15/26

     6,000       6,825,540  

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

     3,900       4,536,636  

State of New York Thruway Authority, Refunding RB, Transportation, Personal Income Tax, Series A, 5.00%, 3/15/31

     3,940       4,503,854  

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

     15,000       17,415,150  
    

 

 

 
               62,785,145  
Utilities — 6.9%  

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       982,883  

5.75%, 6/15/40

     3,151       3,287,200  

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       11,194,326  

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

     3,991       4,476,515  

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

     2,760       2,977,764  

New York State Environmental Facilities Corp., RB, Subordinated SRF Bonds, 4.00%, 6/15/46

     1,488       1,579,993  

Utility Debt Securitization Authority, Refunding RB:

    

5.00%, 12/15/41

     5,998       6,949,010  

Restructuring, 5.00%, 12/15/36

     3,498       4,143,792  

Restructuring, Series B, 4.00%, 12/15/35

     2,980       3,254,249  
    

 

 

 
               38,845,732  
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 38.8%
             218,613,598  

Total Long-Term Investments

(Cost — $855,442,517) — 161.8%

             912,794,489  
 

 

See Notes to Financial Statements.      
                
30    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

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

 

Short-Term Securities    Shares     Value  

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.64% (e)(f)

     3,960,481     $ 3,962,065  
Total Short-Term Securities
(Cost — $3,961,669) — 0.7%
      3,962,065  

Total Investments (Cost — $859,404,186) — 162.5%

 

    916,756,554  

Other Assets Less Liabilities — 1.4%

       8,417,687  

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (20.1)%

 

    (113,634,154

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (43.8)%

 

    (247,338,256
    

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 564,201,831  
    

 

 

 
 
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 September 6, 2018 to February 15, 2019, is $12,778,278. See Note 4 of the Notes to Financial Statements for details.

 

(e)   During the year ended July 31, 2017, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   Shares Held
at July 31,
2016
       Net
Activity
       Shares Held
at July 31,
2017
       Value at
July 31,
2017
       Income        Net Realized
Gain1
       Change in
Unrealized
Appreciation
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

    1,544,681          2,415,800          3,960,481        $ 3,962,065        $ 21,264        $ 1,654        $ 396  

1   Includes net capital gain distributions.

    

              

 

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

 

Derivative Financial Instruments Outstanding as of Period End  

 

Futures Contracts

 
Description   Number of
Contracts
       Expiration Date      Notional
Amount
(000)
    Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

               

5-Year U.S. Treasury Note

    (50      September 2017      $ 5,907       $ (533

10-Year U.S. Treasury Note

    (195      September 2017      $ 24,549         5,105  

Long U.S. Treasury Bond

    (107      September 2017      $ 16,368         (43,618

Ultra U.S. Treasury Bond

    (39      September 2017      $ 6,416               (52,971

Total

 

    $ (92,017
               

 

 

 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    31


Schedule of Investments (continued)

  

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

 

 

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                           $ 5,105           $ 5,105  
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                           $ 97,122           $ 97,122  

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, 2017, 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

                          $ 2,052,014           $ 2,052,014  
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

                          $ 417,188           $ 417,188  

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments      

 

Futures contracts:  

Average notional value of contracts — short

  $ 61,113,500  

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

           $ 912,794,489              $ 912,794,489  

Short-Term Securities

  $ 3,962,065                         3,962,065  
 

 

 

 

Total

  $ 3,962,065        $ 912,794,489              $ 916,756,554  
 

 

 

 
             
Derivative Financial Instruments2  

Assets:

 

Interest rate contracts

  $ 5,105                       $ 5,105  

Liabilities:

 

Interest rate contracts

    (97,122                       (97,122
 

 

 

 

Total

  $ (92,017                     $ (92,017
 

 

 

 

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.      
                
32    ANNUAL REPORT    JULY 31, 2017   


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  

Liabilities:

 

TOB Trust Certificates

           $ (113,374,080            $ (113,374,080

VRDP Shares at Liquidation Value

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

 

 

 

Total

           $ (361,074,080            $ (361,074,080
 

 

 

 

During the year ended July 31, 2017, there were no transfers between levels.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    33


Schedule of Investments July 31, 2017

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

(Percentages shown are based on Net Assets)

 

Municipal Bonds   

Par

(000)

    Value  
Alabama — 1.3%  

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

   $ 2,920     $ 3,051,313  

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

     3,605       3,931,361  

County of Tuscaloosa Board of Education, RB, Special Tax School Warrants, 5.00%, 2/01/43

     2,485       2,864,335  

Homewood Educational Building Authority, Refunding RB, Educational Facilities, Samford University, 5.00%, 12/01/47

     2,835       3,146,226  
    

 

 

 
               12,993,235  
Alaska — 1.4%  

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

     2,690       2,996,068  

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

    

6.00%, 9/01/19

     6,450       7,109,384  

6.00%, 9/01/19

     3,700       4,078,251  
    

 

 

 
               14,183,703  
Arizona — 0.4%  

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       120,845  

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

     3,075       3,320,661  
    

 

 

 
               3,441,506  
California — 12.6%  

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

     10,000       10,074,100  

California Health Facilities Financing Authority, RB:

    

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

     1,550       1,681,363  

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

     3,200       3,631,744  

California Health Facilities Financing Authority, Refunding RB:

    

Kaiser Permanente, Sub-Series A-2, 5.00%, 11/01/47

     3,625       4,674,727  

St. Joseph Health System, Series A, 5.00%, 7/01/37

     2,965       3,366,787  

Sutter Health, Series A, 5.00%, 11/15/36

     2,565       3,033,600  

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

     1,525       1,646,131  

California Statewide Communities Development Authority, RB:

    

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

     4,030       4,480,433  

St. Joseph Health System, Series E (AGM), 5.25%, 7/01/18 (b)

     4,000       4,161,480  

City of Redding California Electric System Revenue, COP, Refunding Series A, (AGM):

    

5.00%, 6/01/18 (b)

     1,100       1,138,170  

5.00%, 6/01/30

     800       824,240  

City of San Jose California, Refunding ARB, Norman Y Mineta San Jose International Airport SJC, AMT:

    

Series A, 5.00%, 3/01/36

     1,160       1,342,538  

Series A, 5.00%, 3/01/37

     1,275       1,473,339  

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

     2,300       2,616,894  
Municipal Bonds   

Par

(000)

    Value  
California (continued)  

County of Alameda Joint Powers Authority, Refunding RB, (AGM), 5.00%, 12/01/17 (b)

   $ 6,990     $ 7,088,978  

County of Sacramento California, ARB, Senior Series A, 5.00%, 7/01/18 (b)

     10,000       10,379,900  

County of San Joaquin California Transportation Authority, Refunding RB, Limited Tax, Measure K, Series A, 6.00%, 3/01/21 (b)

     1,830       2,144,943  

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

     5,000       1,880,050  

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

     5,110       3,231,564  

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

     5,000       2,705,800  

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

     3,975       3,237,081  

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

     7,620       3,316,986  

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

     2,500       2,597,775  

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

    

0.00%, 8/01/35

     7,820       4,013,615  

0.00%, 8/01/36

     10,000       4,909,100  

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

    

0.00%, 8/01/37

     8,000       3,827,760  

0.00%, 8/01/38

     12,940       5,942,824  

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

    

0.00%, 7/01/34

     1,860       862,166  

0.00%, 7/01/35

     1,970       858,349  

0.00%, 7/01/36

     2,960       1,213,126  

0.00%, 7/01/37

     1,975       762,607  

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

     3,485       2,222,071  

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

    

5.00%, 8/01/34

     1,800       2,027,088  

5.00%, 8/01/38

     1,600       1,799,888  

State of California, GO, Refunding, Various Purposes:

    

5.00%, 9/01/41

     2,700       3,054,564  

5.00%, 10/01/41

     2,555       2,897,114  

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

     10       10,034  

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

     5,040       5,733,403  

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

     6,545       3,166,602  
    

 

 

 
               124,028,934  
Colorado — 0.8%  

Denver Convention Center Hotel Authority, Refunding RB, 5.00%, 12/01/36

     1,500       1,699,470  

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

     5,655       6,329,755  
    

 

 

 
               8,029,225  
 

 

See Notes to Financial Statements.      
                
34    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par

(000)

    Value  
District of Columbia — 1.0%  

Metropolitan Washington Airports Authority, RB, AMT, Series B (AMBAC), 5.00%, 10/01/32

   $ 10,000     $ 10,067,700  
Florida — 14.0%  

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

     3,300       3,323,067  

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

     4,535       5,024,236  

County of Broward Florida Airport System Revenue, RB, Series A , AMT, 5.00%, 10/01/40

     3,000       3,360,090  

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

     13,100       13,621,380  

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

     2,250       2,363,445  

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

     1,750       1,922,235  

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

    

5.63%, 10/01/26

     2,600       2,969,382  

5.38%, 10/01/32

     3,440       3,846,298  

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

    

Series B, 6.38%, 7/01/18

     6,000       6,299,160  

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

     3,700       3,863,429  

County of Miami-Dade Florida, RB, Seaport:

    

Department, Series A, 6.00%, 10/01/38

     5,695       6,863,443  

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

     1,165       1,396,975  

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

     1,865       2,181,192  

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

     1,820       2,157,009  

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

     20,095       21,274,175  

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

    

5.00%, 10/01/34

     530       597,511  

Miami International Airport, Series A (AGM), 5.50%, 10/01/18 (b)

     19,020       20,009,991  

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

     14,360       16,166,775  

County of Miami-Dade Florida Health Facilities Authority, Refunding RB, Nicklaus Children’s Hospital Project, 5.00%, 8/01/42

     1,675       1,903,637  

County of Miami-Dade Florida Transit System, RB, Surtax (AGM), 5.00%, 7/01/18 (b)

     2,800       2,905,336  

County of Orange Florida Health Facilities Authority, Refunding RB, Presbyterian Retirement Communities Project:

    

5.00%, 8/01/41

     1,550       1,687,811  

5.00%, 8/01/47

     4,590       4,974,780  

County of Palm Beach Florida Solid Waste Authority, Refunding RB, Series B:

    

5.00%, 10/01/21 (b)

     50       57,677  

5.00%, 10/01/31

     3,050       3,471,937  

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

     5,135       5,463,229  
    

 

 

 
               137,704,200  
Municipal Bonds   

Par

(000)

    Value  
Georgia — 0.4%  

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

   $ 1,405     $ 1,656,931  

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

    

5.00%, 4/01/33

     395       436,613  

5.00%, 4/01/44

     1,775       1,938,637  
    

 

 

 
               4,032,181  
Hawaii — 1.5%  

State of Hawaii Department of Budget & Finance, Refunding RB, Hawaiian Electric Co., Inc. AMT, 4.00%, 3/01/37

     10,275       10,454,196  

State of Hawaii Department of Transportation, COP, AMT:

    

5.00%, 8/01/27

     2,000       2,245,880  

5.00%, 8/01/28

     1,775       1,982,551  
    

 

 

 
               14,682,627  
Illinois — 12.9%  

City of Chicago Illinois, RB:

    

O’Hare International Airport, Senior Lien, Series D, 5.25%, 1/01/42

     8,285       9,759,481  

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

     1,620       1,749,908  

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

     2,425       2,645,142  

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

     3,035       3,355,101  

City of Chicago Illinois O’Hare International Airport, GARB:

    

3rd Lien, Series A, 5.75%, 1/01/21 (b)

     7,555       8,724,287  

3rd Lien, Series A, 5.75%, 1/01/39

     1,445       1,638,948  

Senior Lien, Series D, AMT, 5.00%, 1/01/42

     2,865       3,219,372  

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

     3,250       3,409,023  

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

     615       656,254  

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

     8,700       9,808,293  

Illinois Finance Authority, Refunding RB:

    

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

     5,250       5,742,660  

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

     1,965       1,987,774  

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

     985       1,054,226  

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

    

0.00%, 12/15/26

     8,500       6,081,665  

0.00%, 6/15/32

     14,000       7,490,280  

0.00%, 12/15/33

     20,000       9,950,200  

0.00%, 12/15/34

     41,880       19,796,676  

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

     9,430       2,859,553  

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

     1,700       1,936,895  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    35


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par

(000)

    Value  
Illinois (continued)  

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

   $ 560     $ 624,641  

State of Illinois, GO:

    

5.25%, 7/01/29

     3,160       3,359,333  

5.25%, 2/01/33

     5,860       6,217,108  

5.50%, 7/01/33

     2,235       2,389,349  

5.25%, 2/01/34

     5,360       5,674,150  

5.50%, 7/01/38

     1,200       1,274,472  

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

     4,000       4,077,320  

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

     2,000       2,038,660  
    

 

 

 
               127,520,771  
Indiana — 2.7%  

City of Indianapolis Indiana, Refunding RB, Series B (AGC), 5.25%, 8/15/18 (b)

     5,000       5,225,600  

Indiana Finance Authority, RB, Series A:

    

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

     2,900       3,308,900  

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

     1,400       1,497,790  

Indiana Municipal Power Agency, RB, Series B, 6.00%, 1/01/19 (b)

     5,000       5,354,450  

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

    

5.75%, 1/01/19 (b)

     565       603,318  

5.75%, 1/01/38

     2,335       2,477,622  

(AGC), 5.25%, 1/01/19 (b)

     265       281,112  

(AGC), 5.50%, 1/01/19 (b)

     830       883,377  

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

     1,085       1,150,643  

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

     3,420       3,613,469  

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

     2,425       2,594,386  
    

 

 

 
               26,990,667  
Iowa — 2.4%  

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

     12,650       13,827,209  

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

    

5.60%, 12/01/26

     2,295       2,467,423  

5.70%, 12/01/27

     2,290       2,447,323  

5.75%, 12/01/28

     1,210       1,292,486  

5.80%, 12/01/29

     1,545       1,647,727  

5.85%, 12/01/30

     1,610       1,718,321  
    

 

 

 
               23,400,489  
Kentucky — 1.9%  

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

     1,000       1,086,100  

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

     8,225       7,106,400  

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

    

5.25%, 2/01/19 (b)

     3,545       3,770,036  

5.25%, 2/01/19 (b)

     5,315       5,652,396  

5.25%, 2/01/27

     685       726,470  

5.25%, 2/01/28

     455       482,264  
    

 

 

 
               18,823,666  
Municipal Bonds   

Par

(000)

    Value  
Louisiana — 3.2%  

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

    

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

   $ 6,405     $ 6,498,897  

Series B, 5.00%, 1/01/40

     4,825       5,384,121  

City of Shreveport Louisiana Water & Sewer Revenue, RB, Series A:

    

5.00%, 12/01/37

     760       884,617  

5.00%, 12/01/41

     1,645       1,902,146  

Jefferson Sales Tax District, RB, Series B (AGM):

    

5.00%, 12/01/34

     670       787,625  

5.00%, 12/01/35

     895       1,049,522  

5.00%, 12/01/36

     805       941,649  

5.00%, 12/01/37

     1,005       1,174,624  

Louisiana Local Government Environmental Facilities & Community Development Authority, RB, East Baton Rouge Sewerage Commission Projects, Series A, 5.00%, 2/01/44

     8,155       8,980,123  

West Baton Rouge Parish School District No. 3, GO:

    

5.00%, 3/01/36

     1,575       1,817,188  

5.00%, 3/01/37

     1,575       1,814,369  
    

 

 

 
               31,234,881  
Massachusetts — 2.0%  

Massachusetts Development Finance Agency, RB, Emerson College Issue, Series A, 5.00%, 1/01/47

     5,950       6,600,097  

Massachusetts Development Finance Agency, Refunding RB, Emmanuel College Issue, Series A, 5.00%, 10/01/43

     1,045       1,160,044  

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

     3,150       3,281,292  

Massachusetts HFA, Refunding RB, AMT:

    

Series A, 4.45%, 12/01/42

     2,235       2,301,245  

Series C, 5.35%, 12/01/42

     2,080       2,213,973  

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

     3,495       3,993,422  
    

 

 

 
               19,550,073  
Michigan — 7.3%  

City of Detroit Michigan Water Supply System Revenue, RB, 2nd Lien, Series B (AGM), 6.25%, 7/01/19 (b)

     1,075       1,182,511  

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

     3,185       3,633,257  

Michigan Finance Authority, Refunding RB:

    

Henry Ford Health System, 3.25%, 11/15/42

     2,505       2,233,458  

Trinity Health Credit Group, 5.00%, 12/01/21 (b)

     60       69,598  

Trinity Health Credit Group, 5.00%, 12/01/39

     16,040       18,098,574  

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

     1,330       1,479,412  

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

    

5.25%, 9/15/17

     10,000       10,054,600  

5.25%, 9/15/17

     6,650       6,686,309  

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

    

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

     1,890       2,009,448  

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

     1,130       1,201,416  

Series I, 6.25%, 10/15/38

     105       111,332  
 

 

See Notes to Financial Statements.      
                
36    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par

(000)

    Value  
Michigan (continued)  

State of Michigan Building Authority, Refunding RB, Facilities Program (continued):

    

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

   $ 1,750     $ 1,906,065  

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

     3,250       3,536,845  

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

     2,075       2,354,170  

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

     1,900       2,155,626  

Series II-A (AGM), 5.25%, 10/15/36

     8,040       9,053,764  

Wayne County Airport Authority, Refunding RB, AMT (AGC), 5.38%, 12/01/32

     5,000       5,227,950  

Western Michigan University, Refunding RB, General, University and College Improvements (AGM), 5.00%, 11/15/39

     1,080       1,204,880  
    

 

 

 
               72,199,215  
Minnesota — 0.6%  

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

    

6.50%, 11/15/18 (b)

     845       904,919  

6.50%, 11/15/38

     4,655       4,950,779  
    

 

 

 
               5,855,698  
Nebraska — 0.8%  

Central Plains Energy Project Nebraska, RB, Gas Project No. 3, 5.25%, 9/01/37

     6,825       7,506,681  
Nevada — 1.0%  

City of Las Vegas Nevada, GO, Limited Tax, Performing Arts Center, 6.00%, 4/01/19 (b)

     2,250       2,437,020  

County of Clark Nevada, ARB, Las Vegas-McCarran International Airport, Series A:

    

5.25%, 7/01/42

     2,000       2,172,340  

(AGM), 5.25%, 7/01/39

     5,170       5,628,372  
    

 

 

 
               10,237,732  
New Jersey — 8.4%  

New Jersey EDA, RB:

    

Goethals Bridge Replacement Project, AMT, Private Activity Bond, 5.38%, 1/01/43

     4,920       5,494,115  

Goethals Bridge Replacement Project, AMT, Private Activity Bond, 5.13%, 1/01/34

     1,930       2,099,551  

Series WW, 5.25%, 6/15/33

     445       471,433  

Series WW, 5.00%, 6/15/34

     570       586,781  

Series WW, 5.00%, 6/15/36

     2,635       2,707,304  

Series WW, 5.25%, 6/15/40

     1,025       1,085,188  

New Jersey EDA, Refunding RB, School Facilities Construction:

    

Series N-1 (AMBAC), 5.50%, 9/01/24

     6,325       7,187,287  

Series N-1 (NPFGC), 5.50%, 9/01/28

     1,685       2,000,264  

New Jersey Higher Education Student Assistance Authority, Refunding RB, Series 1, AMT:

    

5.50%, 12/01/25

     780       859,700  

5.50%, 12/01/26

     1,125       1,234,553  

5.75%, 12/01/28

     125       137,353  

5.88%, 12/01/33

     6,895       7,568,090  

New Jersey Housing & Mortgage Finance Agency, Refunding RB, M/F Housing, Series 2, AMT, 4.35%, 11/01/33

     2,645       2,790,819  

New Jersey Transportation Trust Fund Authority, RB:

    

CAB, Transportation System, Series A, 0.00%, 12/15/35 (c)

     18,525       7,317,745  

CAB, Transportation System, Series C (AGC) (AMBAC), 0.00%, 12/15/25 (c)

     8,550       6,424,128  

Federal Highway Reimbursement Revenue Notes, Series A, 5.00%, 6/15/28

     4,205       4,574,914  
Municipal Bonds   

Par

(000)

    Value  
New Jersey (continued)  

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

    

Federal Highway Reimbursement Revenue Notes, Series A, 5.00%, 6/15/29

   $ 2,145     $ 2,317,565  

Transportation Program, Series AA, 5.25%, 6/15/33

     4,150       4,392,194  

Transportation Program, Series AA, 5.00%, 6/15/38

     3,990       4,166,518  

Transportation System, Series A, 5.50%, 6/15/41

     2,980       3,093,240  

Transportation System, Series A (NPFGC), 5.75%, 6/15/25

     4,000       4,796,000  

Transportation System, Series AA, 5.50%, 6/15/39

     5,625       6,016,837  

Transportation System, Series B, 5.50%, 6/15/31

     1,000       1,049,240  

Transportation System, Series B, 5.00%, 6/15/42

     2,575       2,641,306  

Transportation System, Series D, 5.00%, 6/15/32

     1,825       1,921,378  
    

 

 

 
               82,933,503  
New Mexico — 0.1%  

New Mexico Hospital Equipment Loan Council, Refunding RB, Presbyterian Healthcare Services, 5.00%, 8/01/44

     1,040       1,179,058  
New York — 3.9%  

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

    

Fiscal 2009, Series S-4, 5.50%, 1/15/34

     7,250       7,712,042  

Future Tax Secured Fiscal, Sub-Series E-1, 5.00%, 2/01/37

     3,595       4,240,878  

City of New York New York Transitional Finance Authority, Refunding RB, Future Tax Secured, Series B, 5.00%, 11/01/32

     4,150       4,841,763  

Hudson Yards Infrastructure Corp., RB, Senior, Fiscal 2012:

    

5.75%, 2/15/21 (b)

     1,155       1,339,373  

5.75%, 2/15/47

     765       879,750  

Hudson Yards Infrastructure Corp., Refunding RB, Series A, 5.00%, 2/15/39

     1,755       2,058,580  

Metropolitan Transportation Authority, Refunding RB, Series B, 5.00%, 11/15/37

     3,855       4,516,749  

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

     8,300       9,103,440  

State of New York Dormitory Authority, ERB, Series B, 5.25%, 3/15/19 (b)

     3,250       3,474,088  
    

 

 

 
               38,166,663  
Ohio — 2.8%  

County of Franklin Ohio, RB, Trinity Health Credit Group, Series 2017, 5.00%, 12/01/46

     5,930       6,711,870  

County of Lucas Ohio, Refunding RB, Promedica Healthcare, Series A, 6.50%, 11/15/37

     3,000       3,543,960  

County of Montgomery Ohio, RB, Catholic Health Initiatives, Series D-2, 5.45%, 10/01/38

     11,135       12,321,323  

State of Ohio Turnpike Commission, RB, Junior Lien, Infrastructure Projects, Series A-1:

    

5.25%, 2/15/32

     1,950       2,293,005  

5.25%, 2/15/33

     2,730       3,200,789  
    

 

 

 
               28,070,947  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    37


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par

(000)

    Value  
Oregon — 0.5%  

Clackamas Community College District, GO, Convertible Deferred Interest Bonds, Series A (a):

    

0.00%, 6/15/38

   $ 425     $ 438,358  

0.00%, 6/15/39

     395       406,826  

0.00%, 6/15/40

     420       432,453  

Counties of Washington & Multnomah Oregon School District No. 48J Beaverton, GO, Convertible CAB, Series D, 0.00%, 6/15/36 (a)

     2,340       2,645,370  

County of Clackamas Oregon School District No. 12 North Clackamas, GO, CAB, Series A, 0.00%, 6/15/38 (c)

     2,800       1,200,584  
    

 

 

 
               5,123,591  
Pennsylvania — 6.3%  

Commonwealth Financing Authority, RB, Series B, 5.00%, 6/01/42

     3,305       3,620,462  

Pennsylvania Economic Development Financing Authority, RB, Pennsylvania Bridge Finco LP, AMT:

    

5.00%, 12/31/34

     7,115       8,025,009  

5.00%, 12/31/38

     5,850       6,535,971  

5.00%, 6/30/42

     6,805       7,558,858  

Pennsylvania Higher Educational Facilities Authority, Refunding RB, Thomas Jefferson University, Series A, 5.25%, 9/01/50

     8,075       9,048,764  

Pennsylvania Turnpike Commission, RB:

    

Series A, 5.00%, 12/01/38

     1,775       2,000,833  

Series A-1, 5.00%, 12/01/41

     2,320       2,612,390  

Series B, 5.00%, 12/01/40

     920       1,040,971  

Series C, 5.50%, 12/01/33

     1,565       1,835,369  

Sub-Series B-1, 5.00%, 6/01/42

     7,330       8,237,747  

Sub-Series C (AGC), 6.25%, 6/01/18 (b)

     5,695       5,948,029  

Subordinate, Special Motor License Fund, 6.00%, 12/01/20 (b)

     2,575       2,991,558  

Pennsylvania Turnpike Commission, Refunding RB, Series A-1, 5.00%, 12/01/40

     2,165       2,434,629  
    

 

 

 
               61,890,590  
Rhode Island — 1.2%  

Rhode Island Commerce Corp., RB, Airport Corp., Series D:

    

5.00%, 7/01/41

     295       332,486  

5.00%, 7/01/46

     325       364,435  

Tobacco Settlement Financing Corp., Refunding RB, Series B:

    

4.50%, 6/01/45

     3,000       3,019,530  

5.00%, 6/01/50

     7,465       7,664,017  
    

 

 

 
               11,380,468  
South Carolina — 3.9%  

South Carolina Jobs EDA, Refunding RB, Palmetto Health, Series A (AGM), 6.50%, 8/01/39

     3,600       4,198,644  

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

     6,530       7,342,854  

State of South Carolina Public Service Authority, RB:

    

Santee Cooper, Series A, 5.50%, 12/01/54

     9,350       10,578,777  

Series E, 5.50%, 12/01/53

     2,025       2,284,808  

State of South Carolina Public Service Authority, Refunding RB, Series B:

    

Santee Cooper, 5.00%, 12/01/38

     5,870       6,407,809  

(AGM), 5.00%, 12/01/56

     7,155       8,002,152  
    

 

 

 
               38,815,044  
Municipal Bonds   

Par

(000)

    Value  
Texas — 18.1%  

Aldine Independent School District, GO, Refunding(PSF-GTD), 5.00%, 2/15/42

   $ 9,700     $ 11,395,560  

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

    

(AGC), 5.38%, 5/15/19 (b)

     3,460       3,730,261  

(AGC), 6.00%, 5/15/19 (b)

     5,400       5,881,518  

(AGC), 6.00%, 11/15/35

     300       327,021  

(AGC), 5.38%, 11/15/38

     190       203,148  

(AGM), 5.00%, 11/15/17 (b)

     10,000       10,119,700  

City of Houston Texas Combined Utility System Revenue, Refunding RB, Series B, 5.00%, 11/15/36

     7,110       8,381,339  

City of San Antonio Texas Electric & Gas Revenue, Refunding RB, 5.00%, 2/01/42

     7,450       8,741,010  

City of San Antonio Texas Electric & Gas Revenue, RB, Junior Lien, 5.00%, 2/01/38

     1,450       1,655,204  

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       2,654,938  

County of Tarrant Texas Cultural Education Facilities Finance Corp., Refunding RB, Cook Children’s Medical Center, 5.25%, 12/01/39

     2,095       2,380,486  

Dallas ISD, GO, School Building (PSF-GTD), 6.38%, 2/15/18 (b)

     10,000       10,293,800  

Dallas-Fort Worth International Airport, ARB, Joint Improvement, Series D, AMT, 5.00%, 11/01/38

     10,980       12,298,588  

Dallas-Fort Worth International Airport, Refunding ARB, Series F:

    

5.25%, 11/01/33

     2,745       3,227,791  

5.00%, 11/01/35

     5,000       5,480,850  

Grand Parkway Transportation Corp., RB, Convertible CAB, Series B, 0.00%, 10/01/46 (a)

     5,815       5,268,971  

Grand Prairie ISD, GO, Refunding, CAB, 0.00%, 8/15/18 (b)(c)

     10,000       5,074,500  

Leander ISD, GO, Refunding, CAB, Series D, 0.00%, 8/15/38 (c)

     9,685       3,984,409  

North Texas Tollway Authority, RB, CAB, Special Project System, Series B, 0.00%, 9/01/43 (c)

     24,100       6,046,931  

North Texas Tollway Authority, Refunding RB:

    

1st Tier System, Series A, 6.00%, 1/01/19 (b)

     5,100       5,460,009  

1st Tier System, Series A, 5.13%, 1/01/28

     2,460       2,502,066  

1st Tier System, Series A, 6.00%, 1/01/28

     1,175       1,256,909  

1st Tier System, Series A (NPFGC), 5.13%, 1/01/18 (b)

     17,540       17,850,282  

1st Tier System, Series S (NPFGC), 5.75%, 1/01/18 (b)

     8,540       8,713,277  

1st Tier System, Series SE (NPFGC), 5.75%, 1/01/40

     1,460       1,487,506  

Series B, 5.00%, 1/01/40

     1,710       1,910,583  

San Antonio Public Facilities Corp., Refunding RB, Convention Center Refinancing and Expansion Project, CAB (c):

    

0.00%, 9/15/35

     680       300,948  

0.00%, 9/15/36

     12,195       5,082,388  

0.00%, 9/15/37

     8,730       3,423,295  

Texas Municipal Gas Acquisition & Supply Corp. III, RB:

    

5.00%, 12/15/32

     3,930       4,317,184  

Natural Gas Utility Improvements, 5.00%, 12/15/31

     1,665       1,837,727  
 

 

See Notes to Financial Statements.      
                
38    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds   

Par

(000)

    Value  
Texas (continued)  

Texas Private Activity Bond Surface Transportation Corp., RB, Senior Lien, AMT, Blueridge Transportation Group, 5.00%, 12/31/45

   $ 3,630     $ 3,977,863  

Texas Transportation Commission, Refunding RB, Central Texas Turnpike System, 1st Tier, Series A, 5.00%, 8/15/41

     11,345       12,668,508  
    

 

 

 
               177,934,570  
Utah — 0.4%             

Salt Lake City Corp. Airport Revenue, RB, Series A, AMT, 5.00%, 7/01/42

     3,490       4,013,709  
Washington — 1.3%             

Port of Seattle Washington, RB, Series C, AMT, 5.00%, 4/01/40

     2,830       3,161,478  

Washington Health Care Facilities Authority, RB:

    

MultiCare Health System, Remarketing, Series B, 5.00%, 8/15/44

     1,000       1,108,660  

Providence Health & Services, Series A, 5.25%, 10/01/39

     2,725       2,930,220  

Washington Health Care Facilities Authority, Refunding RB, Catholic Health Initiatives, Series D, 6.38%, 10/01/36

     5,400       5,687,658  
    

 

 

 
               12,888,016  
Wisconsin — 0.5%             

Public Finance Authority, RB, KU Campus Development Corp., Central District Development Project, 5.00%, 3/01/46

     560       630,644  

State of Wisconsin Health & Educational Facilities Authority, RB, Ascension Health Senior Credit Group, Series E, 5.00%, 11/15/33

     3,745       4,039,731  
    

 

 

 
               4,670,375  
Total Municipal Bonds — 115.6%              1,139,549,718  
    
                  
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
 
Arizona — 1.1%             

Arizona School Facilities Board, COP, (AGC), 5.13%, 9/01/18 (b)(e)

     10,000       10,450,700  
California — 4.9%             

California State University, RB, Systemwide, Series A (AGM):

    

5.00%, 5/01/18 (b)(e)

     7,793       8,034,133  

5.00%, 11/01/33 (e)

     204       210,231  

City of Riverside California, RB, Issue D (AGM), 5.00%, 10/01/38

     20,000       20,846,000  

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

    

5.00%, 5/01/18

     1,554       1,603,154  

5.00%, 5/01/18

     7,816       8,060,221  

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

     5,248       5,777,551  

San Diego Community College District California, GO, Election of 2002, 5.25%, 8/01/19 (b)

     1,047       1,136,679  

University of California, RB, Series O, 5.75%, 5/15/19 (b)

     2,206       2,395,495  
    

 

 

 
               48,063,464  
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par

(000)

    Value  
Colorado — 0.3%             

Colorado Health Facilities Authority, Refunding RB, Catholic Health Initiatives, Series A, 5.50%, 7/01/34 (e)

   $ 2,469     $ 2,566,021  
Connecticut — 0.5%             

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

     3,932       4,475,546  
District of Columbia — 1.5%             

District of Columbia, RB, Series A, 5.50%, 12/01/30 (e)

     2,594       2,850,250  

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

     4,277       4,529,410  

Metropolitan Washington Airports Authority, Refunding ARB, Series A, AMT, 5.00%, 10/01/30

     6,880       7,866,386  
    

 

 

 
               15,246,046  
Florida — 4.2%             

City of Miami Beach Florida, RB, 5.00%, 9/01/45

     8,760       9,995,598  

County of Miami-Dade Florida, Refunding RB, Transit System Sales Surtax, 5.00%, 7/01/42

     4,840       5,477,912  

County of Miami-Dade Florida Water & Sewer System, (AGC), 5.00%, 10/01/39

     11,701       12,897,334  

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

     12,013       13,088,204  
    

 

 

 
               41,459,048  
Illinois — 4.5%             

State of Illinois, RB, Build Illinois, Series B, 5.25%, 6/15/19 (b)(e)

     3,499       3,774,974  

State of Illinois Finance Authority, RB, University of Chicago, Series B, 6.25%, 7/01/18 (b)

     10,000       10,488,200  

State of Illinois Toll Highway Authority, RB:

    

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

     7,621       8,665,030  

Senior, Series B, 5.00%, 1/01/40

     2,939       3,317,248  

Senior, Series C, 5.00%, 1/01/36

     10,000       11,320,791  

Series A, 5.00%, 1/01/38

     5,836       6,535,812  
    

 

 

 
               44,102,055  
Kansas — 1.7%             

County of Wyandotte Kansas Unified School District, GO, Series A, 5.50%, 9/01/47

     13,470       16,475,263  
Massachusetts — 0.5%             

Commonwealth of Massachusetts, GO, Series A, 5.00%, 3/01/46

     4,204       4,815,804  
Michigan — 0.9%             

Michigan Finance Authority, RB, Beaumont Health Credit Group, 5.00%, 11/01/44

     5,591       6,268,156  

Michigan State Building Authority, Refunding RB, Facilities Program, Series I, 5.00%, 10/15/45

     2,410       2,707,828  
    

 

 

 
               8,975,984  
Nevada — 1.7%             

County of Clark Nevada Water Reclamation District, GO, Series B (b):

    

Limited Tax, 5.75%, 7/01/19

     4,813       5,250,061  

5.50%, 7/01/19

     510       553,689  

Las Vegas Valley Water District Nevada, GO, Refunding, Water Improvement, Series A, 5.00%, 6/01/46

     9,840       11,356,836  
    

 

 

 
               17,160,586  
 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    39


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par

(000)

    Value  
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     $ 2,693,799  

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

     10,000       12,199,800  

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

     4,961       5,152,439  
    

 

 

 
               20,046,038  
New York — 8.8%             

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 (b)

     2,586       2,676,244  

5.00%, 6/15/37

     14,981       15,504,762  

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       17,727,995  

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       5,558,977  

Metropolitan Transportation Authority, RB, Sub-Series D-1, 5.25%, 11/15/44

     9,850       11,637,184  

Metropolitan Transportation Authority, Refunding RB, Series C-1, 5.25%, 11/15/56

     4,280       4,982,895  

New York State Urban Development Corp., RB, Personal Income Tax, General Purpose, Series A-1, 5.00%, 3/15/43

     14,280       15,966,325  

Port Authority of New York & New Jersey, Refunding RB, Consolidated, 198th Series, 5.25%, 11/15/56

     6,402       7,527,024  

Triborough Bridge & Tunnel Authority, RB, General, Series A-2, 5.25%, 11/15/34 (e)

     4,500       4,748,355  
    

 

 

 
               86,329,761  
Ohio — 0.7%             

County of Montgomery Ohio, RB, Catholic Health, Series C-1 (AGM), 5.00%, 4/28/18 (b)

     4,990       5,141,247  

State of Ohio, RB, Cleveland Clinic Health Obligated Group, Series B, 5.50%, 1/01/34

     1,520       1,610,638  
    

 

 

 
               6,751,885  
Pennsylvania — 0.3%             

County of Westmoreland Pennsylvania Municipal Authority, Refunding RB, (BAM), 5.00%, 8/15/42

     2,560       2,907,622  
Texas — 4.7%             

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

     1,798       2,001,424  
Municipal Bonds Transferred to
Tender Option Bond Trusts (d)
  

Par

(000)

    Value  
Texas (continued)             

County of Tarrant Texas Cultural Education Facilities Finance Corp., Refunding RB, Texas Health Resources System, Series A, 5.00%, 2/15/41

   $ 9,840     $ 11,371,006  

Dallas Fort Worth International Airport, ARB, Series H, AMT, 5.00%, 11/01/37 (e)

     8,868       9,952,044  

Friendswood ISD Texas, GO, Schoolhouse (PSF-GTD), 5.00%, 2/15/18 (b)

     12,955       13,245,042  

Texas State University Systems, Refunding RB, 5.25%, 3/15/18 (b)

     10,000       10,272,200  
    

 

 

 
               46,841,716  
Virginia — 0.4%             

University of Virginia, Refunding RB, GO, 5.00%, 6/01/18 (b)

     3,944       4,079,464  
Washington — 2.7%             

Central Puget Sound Regional Transit Authority, RB, Series A (AGM), 5.00%, 11/01/17 (b)

     16,770       17,177,595  

Washington Health Care Facilities Authority, Refunding RB, Seattle Children’s Hospital, Series B, 5.00%, 10/01/38

     8,205       9,923,373  
    

 

 

 
               27,100,968  
Wisconsin — 2.7%             

State of Wisconsin, Refunding RB, Series A, 6.00%, 5/01/19 (b)

     14,780       16,072,954  

Wisconsin Health & Educational Facilities Authority, Refunding RB, Froedtert & Community Health, Inc., Obligated Group:

    

Series A, 5.00%, 4/01/42

     2,490       2,710,440  

Series C, 5.25%, 4/01/19 (b)(e)

     7,459       7,985,173  
    

 

 

 
               26,768,567  
Total Municipal Bonds Transferred to
Tender Option Bond Trusts — 44.1%
      434,616,538  
Total Long-Term Investments
(Cost — $1,467,113,804) — 159.7%
      1,574,166,256  
    
                  
Short-Term Securities    Shares         

BlackRock Liquidity Funds, MuniCash, Institutional Class, 0.64% (f)(g)

     10,345,820       10,349,958  
Total Short-Term Securities
(Cost — $10,347,416) — 1.1%
             10,349,958  

Total Investments (Cost — $1,477,461,220) — 160.8%

 

    1,584,516,214  

Other Assets Less Liabilities — 1.0%

       10,540,695  

Liability for TOB Trust Certificates, Including Interest
Expense and Fees Payable — (25.7)%

 

    (253,540,312

VRDP Shares at Liquidation Value, Net of Deferred Offering Costs — (36.1)%

 

    (355,922,910
    

 

 

 

Net Assets Applicable to Common Shares — 100.0%

 

  $ 985,593,687  
    

 

 

 
 
Notes to Schedule of Investments

 

(a)   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.

 

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

 

(c)   Zero-coupon bond.

 

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

 

(e)   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 on November 1, 2017 to November 1, 2019, is $32,233,114. See Note 4 of the Notes to Financial Statements for details.

 

See Notes to Financial Statements.      
                
40    ANNUAL REPORT    JULY 31, 2017   


Schedule of Investments (continued)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

 

(f)   During the year ended July 31, 2017, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   Shares Held
at July 31,
2016
       Net
Activity
       Shares Held
at July 31,
2017
       Value at
July 31,
2017
       Income        Net Realized
Gain1
       Change in
Unrealized
Appreciation
 

BlackRock Liquidity Funds, MuniCash, Institutional Class

    5,108,362          5,237,458          10,345,820        $ 10,349,958        $ 64,678        $ 5,235        $ 2,542  

1   Includes net capital gain distributions.

    

 

(g)   Current yield as of period end.

 

Derivative Financial Instruments Outstanding as of Period End

 

Futures Contracts                                  
Description   Number of
Contracts
       Expiration Date      Notional
Amount
(000)
    Value/
Unrealized
Appreciation
(Depreciation)
 

Short Contracts

               

5-Year U.S. Treasury Note

    (33      September 2017      $ 3,899       $ (351

10-Year U.S. Treasury Note

    (248      September 2017      $ 31,221         6,492  

Long U.S. Treasury Bond

    (223      September 2017      $ 34,112         (90,905

Ultra U.S. Treasury Bond

    (48      September 2017      $ 7,896               (65,195

Total

                $ (149,959
               

 

 

 

 

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                           $ 6,492           $ 6,492  
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                           $ 156,451           $ 156,451  

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, 2017, 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

                          $ 3,447,898           $ 3,447,898  
Net Change in Unrealized Appreciation (Depreciation) on:                                                 

Futures contracts

                          $ 406,004           $ 406,004  

 

Average Quarterly Balances of Outstanding Derivative Financial Instruments      

 

Futures contracts:  

Average notional value of contracts — long

  $ 1,932,070 1 

Average notional value of contracts — short

  $ 91,729,010  

1    Actual amounts for the period are shown due to limited outstanding derivative financial instruments as of each quarter end.

     

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.      
                
   ANNUAL REPORT    JULY 31, 2017    41


Schedule of Investments (concluded)

  

BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

 

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

           $ 1,574,166,256              $ 1,574,166,256  

Short-Term Securities

  $ 10,349,958                         10,349,958  
 

 

 

 

Total Investments

  $ 10,349,958        $ 1,574,166,256              $ 1,584,516,214  
 

 

 

 
             
Derivative Financial Instruments2  

Assets:

             

Interest rate contracts

  $ 6,492                       $ 6,492  

Liabilities:

             

Interest rate contracts

    (156,451                       (156,451
 

 

 

 

Total

  $ (149,959                     $ (149,959
 

 

 

 

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  

Liabilities:

             

TOB Trust Certificates

           $ (252,930,497            $ (252,930,497

VRDP Shares at Liquidation Value

             (356,400,000              (356,400,000
 

 

 

 

Total

           $ (609,330,497            $ (609,330,497
 

 

 

 

During the year ended July 31, 2017, there were no transfers between levels.

 

See Notes to Financial Statements.      
                
42    ANNUAL REPORT    JULY 31, 2017   


Statements of Assets and Liabilities     

 

July 31, 2017   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

  $ 513,322,862     $ 905,781,836     $ 912,794,489     $ 1,574,166,256  

Investments at value — affiliated2

    327,524       545,792       3,962,065       10,349,958  

Cash pledged for futures contracts

    201,800       599,750       732,350       1,166,600  
Receivables:  

Interest — unaffiliated

    5,407,602       12,750,497       8,695,869       16,674,588  

Variation margin on futures contracts

    11,016       32,766       39,641       69,039  

Dividends — affiliated

    115       5,575       4,598       9,309  

Investments sold

                2,771,511        

Prepaid expenses

    17,544       21,644       22,633       31,849  
 

 

 

 

Total assets

    519,288,463       919,737,860       929,023,156       1,602,467,599  
 

 

 

 
       
Accrued Liabilities  

Bank overdraft

    205,365       230,363       342,708       493,101  
Payables:  

Investments purchased

    3,620,549       12,396,630              

Income dividends

    1,440,974       2,236,371       2,137,676       4,629,768  

Investment advisory fees

    451,159       752,349       772,629       1,327,120  

Interest expense and fees

    104,835       540,801       260,074       609,815  

Officer’s and Directors’ fees

    4,511       287,267       302,420       519,913  

Other accrued expenses

    207,202       275,293       293,482       440,788  
 

 

 

 

Total accrued liabilities

    6,034,595       16,719,074       4,108,989       8,020,505  
 

 

 

 
       
Other Liabilities  

TOB Trust Certificates

    62,841,318       195,487,580       113,374,080       252,930,497  

VMTP Shares, at liquidation value of $100,000 per share3,4

    131,000,000                    

VRDP Shares, at liquidation value of $100,000 per share, net of deferred offering costs3,4

          166,228,160       247,338,256       355,922,910  
 

 

 

 

Total other liabilities

    193,841,318       361,715,740       360,712,336       608,853,407  
 

 

 

 

Total liabilities

    199,875,913       378,434,814       364,821,325       616,873,912  
 

 

 

 

Net Assets Applicable to Common Shareholders

  $ 319,412,550     $ 541,303,046     $ 564,201,831     $ 985,593,687  
 

 

 

 
       
Net Assets Applicable to Common Shareholders Consist of  

Paid-in capital5,6

  $ 296,651,935     $ 493,038,423     $ 527,849,631     $ 903,699,243  

Undistributed net investment income

    1,647,251       1,354,786       3,038,136       9,041,071  

Accumulated net realized loss

    (16,398,440     (2,426,644     (23,946,287     (34,051,662

Net unrealized appreciation (depreciation)

    37,511,804       49,336,481       57,260,351       106,905,035  
 

 

 

 

Net Assets Applicable to Common Shareholders

  $ 319,412,550     $ 541,303,046     $ 564,201,831     $ 985,593,687  
 

 

 

 

Net asset value, per Common Share

  $ 14.19     $ 15.73     $ 14.25     $ 14.48  
 

 

 

 

1    Investments at cost — unaffiliated

  $ 475,790,050     $ 856,369,076     $ 855,442,517     $ 1,467,113,804  

2    Investments at cost — affiliated

  $ 327,524     $ 545,738     $ 3,961,669     $ 10,347,416  

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       34,405,717       39,586,584       68,084,838  

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, 2017    43


Statements of Operations     

 

Year Ended July 31, 2017   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

  $ 22,950,504     $ 35,538,742     $ 36,252,396     $ 70,674,070  

Dividends — affiliated

    15,212       31,878       21,264       64,678  
 

 

 

 

Total investment income

    22,965,716       35,570,620       36,273,660       70,738,748  
 

 

 

 
       
Expenses        

Investment advisory

    2,832,624       4,497,016       4,648,713       8,039,806  

Professional

    86,598       116,380       123,896       180,934  

Accounting services

    83,239       127,380       125,318       184,073  

Officer and Directors

    34,691       90,463       94,273       163,950  

Transfer agent

    33,596       37,918       46,443       81,870  

Custodian

    22,214       36,348       37,919       61,480  

Registration

    9,828       13,852       15,922       27,694  

Printing

    8,402       9,849       10,668       13,789  

Rating agency

    38,871       38,927       39,054       39,225  

Miscellaneous

    22,972       36,272       36,146       55,157  
 

 

 

 

Total expenses excluding interest expense, fees and amortization of offering costs

    3,173,035       5,004,405       5,178,352       8,847,978  
 

 

 

 

Interest expense, fees and amortization of offering costs1

    3,123,902       5,369,145       5,672,583       9,415,458  
 

 

 

 

Total expenses

    6,296,937       10,373,550       10,850,935       18,263,436  

Less fees waived by the Manager

    (111,819     (5,546     (3,472     (10,601
 

 

 

 

Total expenses after fees waived

    6,185,118       10,368,004       10,847,463       18,252,835  
 

 

 

 

Net investment income

    16,780,598       25,202,616       25,426,197       52,485,913  
 

 

 

 
       
Realized and Unrealized Gain (Loss)                                
Net realized gain (loss) from:  

Investments — unaffiliated

    573,857       (2,013,107     1,089,181       (290,673

Investments — affiliated

    2,344       934       1,653       1,141  

Futures contracts

    647,800       2,008,909       2,052,014       3,447,898  

Capital gain distributions from investment companies — affiliated

          3       1       4,094  
 

 

 

 
    1,224,001       (3,261     3,142,849       3,162,460  
 

 

 

 
Net change in unrealized appreciation (depreciation) on:  

Investments — unaffiliated

    (20,833,372     (32,435,276     (35,583,854     (69,575,265

Investments — affiliated

          54       396       2,542  

Futures contracts

    40,008       119,257       417,188       406,004  
 

 

 

 
    (20,793,364     (32,315,965     (35,166,270     (69,166,719
 

 

 

 

Net realized and unrealized loss

    (19,569,363     (32,319,226     (32,023,421     (66,004,259
 

 

 

 

Net Decrease in Net Assets Applicable to Common Shareholders Resulting from Operations

  $ (2,788,765   $ (7,116,610   $ (6,597,224   $ (13,518,346
 

 

 

 

1    Related to TOB Trusts, VMTP Shares and/or VRDP Shares.

       

 

 

See Notes to Financial Statements.      
                
44    ANNUAL REPORT    JULY 31, 2017   


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:   2017     2016           2017     2016  
         
Operations                                        

Net investment income

  $ 16,780,598     $ 17,649,198       $ 25,202,616     $ 27,797,843  

Net realized gain (loss)

    1,224,001       (180,558       (3,261     1,382,536  

Net change in unrealized appreciation (depreciation)

    (20,793,364     14,305,532         (32,315,965     22,794,435  
 

 

 

     

 

 

 

Net increase (decrease) in net assets applicable to Common Shareholders resulting from operations

    (2,788,765     31,774,172         (7,116,610     51,974,814  
 

 

 

     

 

 

 
         
Distributions to Common Shareholders1                                        

From net investment income

    (17,291,692     (18,192,301       (26,836,468     (29,271,550

From net realized gain

                  (1,659,457      
 

 

 

   

 

 

     

 

 

   

 

 

 

Decrease in net assets resulting from distributions to Common Shareholders

    (17,291,692     (18,192,301       (28,495,925     (29,271,550
 

 

 

     

 

 

 
         
Capital Share Transactions                                        

Reinvestment of common distributions

                  151,954        
 

 

 

     

 

 

 
         
Net Assets Applicable to Common Shareholders                                        

Total increase (decrease) in net assets applicable to Common Shareholders

    (20,080,457     13,581,871         (35,460,581     22,703,264  

Beginning of year

    339,493,007       325,911,136         576,763,627       554,060,363  
 

 

 

     

 

 

 

End of year

  $ 319,412,550     $ 339,493,007       $ 541,303,046     $ 576,763,627  
 

 

 

     

 

 

 

Undistributed net investment income, end of year

  $ 1,647,251     $ 2,160,168       $ 1,354,786     $ 2,743,421  
 

 

 

     

 

 

 

1   Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

    

     

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    45


Statements of Changes in Net Assets     

 

    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:   2017     2016           2017     2016  
         
Operations                                        

Net investment income

  $ 25,426,197     $ 27,609,415       $ 52,485,913     $ 57,199,642  

Net realized gain (loss)

    3,142,849       872,615         3,162,460       (710,916

Net change in unrealized appreciation (depreciation)

    (35,166,270     36,534,748         (69,166,719     50,664,478  
 

 

 

     

 

 

 

Net increase (decrease) in net assets applicable to Common Shareholders resulting from operations

    (6,597,224     65,016,778         (13,518,346     107,153,204  
 

 

 

     

 

 

 
         
Distributions to Common Shareholders1                                        

From net investment income

    (25,728,944     (28,860,756       (55,560,635     (59,486,296
 

 

 

     

 

 

 
         
Capital Share Transactions                                        

Reinvestment of common distributions

                  1,440,983       1,943,879  
 

 

 

     

 

 

 
         
Net Assets Applicable to Common Shareholders                                        

Total increase (decrease) in net assets applicable to Common Shareholders

    (32,326,168     36,156,022         (67,637,998     49,610,787  

Beginning of year

    596,527,999       560,371,977         1,053,231,685       1,003,620,898  
 

 

 

     

 

 

 

End of year

  $ 564,201,831     $ 596,527,999       $ 985,593,687     $ 1,053,231,685  
 

 

 

     

 

 

 

Undistributed net investment income, end of year

  $ 3,038,136     $ 3,525,453       $ 9,041,071     $ 12,352,410  
 

 

 

     

 

 

 

1    Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

     

     

 

 

See Notes to Financial Statements.      
                
46    ANNUAL REPORT    JULY 31, 2017   


Statements of Cash Flows     

 

Year Ended July 31, 2017   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 decrease in net assets resulting from operations

  $ (2,788,765   $ (7,116,610   $ (6,597,224   $ (13,518,346

Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities:

       

Proceeds from sales of long-term investments

    95,364,695       331,937,688       120,662,886       273,339,652  

Purchases of long-term investments

    (103,289,116     (356,107,615     (126,880,511     (261,709,948

Net proceeds from sales (purchases) of short-term securities

    302,199       (401,753     (2,415,335     (5,237,913

Amortization of premium and accretion of discount on investments and other fees

    1,772,013       5,474,018       4,732,887       (1,610,597

Net realized (gain) loss on investments

    (576,201     2,026,453       (1,090,834     291,332  

Net unrealized loss on investments

    20,833,372       32,435,222       35,583,458       69,572,723  

(Increase) Decrease in Assets:

 

Cash pledged for futures contracts

    (21,000     (204,000     (128,000     (479,000
Receivables:  

Interest — unaffiliated

    (84,885     519,344       367,785       900,045  

Dividends — affiliated

    630       (5,445     (4,126     (7,465

Variation margin on futures contracts

    (11,016     (32,766     (39,641     (69,039

Prepaid expenses

    13,443       14,202       14,247       15,679  

Increase (Decrease) in Liabilities:

 

Payables:  

Investment advisory fees

    207,428       360,562       366,449       620,569  

Interest expense and fees

    50,679       303,653       148,544       296,317  

Officer’s and Directors’ fees

    (558     39,963       41,717       72,177  

Variation margin on futures contracts

    (59,047     (127,016     (195,376     (217,251

Other accrued expenses

    74,500       103,521       140,783       193,600  
 

 

 

 

Net cash provided by operating activities

    11,788,371       9,219,421       24,707,709       62,452,535  
 

 

 

 
       
Cash Provided by (Used for) Financing Activities  

Proceeds from TOB Trust Certificates

    10,888,376       74,666,900       18,967,284       49,720,346  

Repayments of TOB Trust Certificates

    (5,596,424     (45,871,737     (17,698,191     (58,592,489

Proceeds from Loan for TOB Trust Certificates

          2,994,900       7,858,738       18,851,064  

Repayments of Loan for TOB Trust Certificates

          (12,735,075     (8,466,238     (18,851,064

Cash dividends paid to Common Shareholders

    (17,291,692     (28,343,382     (25,728,944     (54,113,157

Increase in bank overdraft

    205,365       57,537       342,708       493,101  

Amortization of deferred offering costs

          11,436       15,214       19,999  
 

 

 

 

Net cash used for financing activities

    (11,794,375     (9,219,421     (24,709,429     (62,472,200
 

 

 

 
       
Cash  

Net increase (decrease) in cash

    (6,004           (1,720     (19,665

Cash at beginning of year

    6,004             1,720       19,665  
 

 

 

 

Cash at end of year

                       
 

 

 

 
       
Supplemental Disclosure of Cash Flow Information  

Cash paid during the year for interest expense

  $ 3,073,223     $ 5,054,056     $ 5,508,825     $ 9,099,142  
 

 

 

 
       
Non-Cash Financing Activities  

Capital shares issued in reinvestment of distributions paid to Common Shareholders

        $ 151,954           $ 1,440,983  
 

 

 

 

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    47


Financial Highlights    BlackRock MuniHoldings Quality Fund II, Inc. (MUE)

 

    Year Ended July 31,  
    2017     2016     2015     2014     2013  
         
Per Share Operating Performance  

Net asset value, beginning of year

  $ 15.08     $ 14.48     $ 14.42     $ 13.27     $ 15.18  
 

 

 

 

Net investment income1

    0.75       0.78       0.80       0.82       0.81  

Net realized and unrealized gain (loss)

    (0.87     0.63       0.09       1.18       (1.87
 

 

 

 

Net increase (decrease) from investment operations

    (0.12     1.41       0.89       2.00       (1.06
 

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.77     (0.81     (0.83     (0.85     (0.85
 

 

 

 

Net asset value, end of year

  $ 14.19     $ 15.08     $ 14.48     $ 14.42     $ 13.27  
 

 

 

 

Market price, end of year

  $ 14.17     $ 14.94     $ 13.13     $ 12.94     $ 12.32  
 

 

 

 
         
Total Return Applicable to Common Shareholders3  

Based on net asset value

    (0.50)%       10.33%       6.84%       16.19%       (7.41)%  
 

 

 

 

Based on market price

    0.29%       20.55%       7.96%       12.30%       (16.08)%  
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders  

Total expenses

    1.96%       1.56%       1.50%       1.61%       1.66%  
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.92%       1.55%       1.49%       1.56%       1.60%  
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.95%       0.95%       0.96%       0.95%       0.97%  
 

 

 

 

Net investment income to Common Shareholders

    5.21%       5.32%       5.41%       6.01%       5.36%  
 

 

 

 
         
Supplemental Data  

Net assets applicable to Common Shareholders, end of year (000)

  $ 319,413     $ 339,493     $ 325,911     $ 324,563     $ 298,707  
 

 

 

 

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

  $ 343,826     $ 359,155     $ 348,787     $ 347,758     $ 328,021  
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 62,841     $ 57,549     $ 51,795     $ 52,497     $ 81,123  
 

 

 

 

Portfolio turnover rate

    19%       15%       13%       28%       40%  
 

 

 

 

 

  1  

Based on average Common Shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with U.S. 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 at actual reinvestment prices.

 

  4  

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

 

 

See Notes to Financial Statements.      
                
48    ANNUAL REPORT    JULY 31, 2017   


Financial Highlights    BlackRock MuniYield California Quality Fund, Inc.  (MCA)

 

    Year Ended July 31,  
    2017     2016     2015     2014     2013  
         
Per Share Operating Performance  

Net asset value, beginning of year

  $ 16.77     $ 16.11     $ 16.14     $ 14.83     $ 16.60  
 

 

 

 

Net investment income1

    0.73       0.81       0.83       0.87       0.88  

Net realized and unrealized gain (loss)

    (0.94     0.70       0.02       1.35       (1.74
 

 

 

 

Net increase (decrease) from investment operations

    (0.21     1.51       0.85       2.22       (0.86
 

 

 

 
Distributions to Common Shareholders:2  

From net investment income

    (0.78     (0.85     (0.88     (0.91     (0.91

From net realized gain

    (0.05                        
 

 

 

 

Total distributions

    (0.83     (0.85     (0.88     (0.91     (0.91
 

 

 

 

Net asset value, end of year

  $ 15.73     $ 16.77     $ 16.11     $ 16.14     $ 14.83  
 

 

 

 

Market price, end of year

  $ 15.18     $ 16.75     $ 14.71     $ 14.37     $ 13.66  
 

 

 

 
         
Total Return Applicable to Common Shareholders3  

Based on net asset value

    (0.92)%       9.84%       5.76%       16.04%       (5.41)%  
 

 

 

 

Based on market price

    (4.26)%       20.15%       8.47%       12.16%       (12.83)%  
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders  

Total expenses

    1.91%       1.46%       1.32%       1.40%       1.48%  
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.91%       1.46%       1.32%       1.40%       1.48%  
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.92%       0.89%       0.86%       0.90%       0.92%  
 

 

 

 

Net investment income to Common Shareholders

    4.64%       4.94%       5.09%       5.63%       5.37%  
 

 

 

 
         
Supplemental Data  

Net assets applicable to Common Shareholders, end of year (000)

  $ 541,303     $ 576,764     $ 554,060     $ 555,127     $ 510,018  
 

 

 

 

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

  $ 425,107     $ 446,404     $ 432,769     $ 433,410     $ 406,317  
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 195,488     $ 176,433     $ 172,574     $ 127,397     $ 188,185  
 

 

 

 

Portfolio turnover rate

    37%       23%       36%       15%       25%  
 

 

 

 

 

  1  

Based on average Common Shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with U.S. 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 at actual reinvestment prices.

 

  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.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    49


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

 

    Year Ended July 31,  
    2017     2016     2015     2014     2013  
         
Per Share Operating Performance  

Net asset value, beginning of year

  $ 15.07     $ 14.16     $ 14.09     $ 13.17     $ 15.07  
 

 

 

 

Net investment income1

    0.64       0.70       0.75       0.78       0.83  

Net realized and unrealized gain (loss)

    (0.81     0.94       0.09       0.97       (1.88
 

 

 

 

Net increase (decrease) from investment operations

    (0.17     1.64       0.84       1.75       (1.05
 

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.65     (0.73     (0.77     (0.83     (0.85
 

 

 

 

Net asset value, end of year

  $ 14.25     $ 15.07     $ 14.16     $ 14.09     $ 13.17  
 

 

 

 

Market price, end of year

  $ 13.26     $ 14.40     $ 13.13     $ 12.71     $ 12.34  
 

 

 

 
         
Total Return Applicable to Common Shareholders3  

Based on net asset value

    (0.69)%       12.19%       6.54%       14.21%       (7.33)%  
 

 

 

 

Based on market price

    (3.29)%       15.60%       9.52%       9.95%       (13.40)%  
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders  

Total expenses

    1.93%       1.51%       1.44%       1.50%       1.53%  
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.93%       1.50%       1.44%       1.50%       1.53%  
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.92%       0.89%       0.89%       0.91%       0.91%  
 

 

 

 

Net investment income to Common Shareholders

    4.52%       4.79%       5.22%       5.82%       5.59%  
 

 

 

 
         
Supplemental Data  

Net assets applicable to Common Shareholders, end of year (000)

  $ 564,202     $ 596,528     $ 560,372     $ 557,606     $ 521,263  
 

 

 

 

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

  $ 327,776     $ 340,827     $ 326,230     $ 325,114     $ 310,441  
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 113,374     $ 112,712     $ 93,113     $ 89,734     $ 108,615  
 

 

 

 

Portfolio turnover rate

    13%       15%       20%       18%       10%  
 

 

 

 

 

  1  

Based on average Common Shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with U.S. 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 at actual reinvestment prices.

 

  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.

 

 

See Notes to Financial Statements.      
                
50    ANNUAL REPORT    JULY 31, 2017   


Financial Highlights    BlackRock MuniYield Quality Fund III, Inc. (MYI)

 

    Year Ended July 31,  
    2017     2016     2015     2014     2013  
         
Per Share Operating Performance  

Net asset value, beginning of year

  $ 15.49     $ 14.79     $ 14.84     $ 13.64     $ 15.32  
 

 

 

 

Net investment income1

    0.77       0.84       0.87       0.89       0.89  

Net realized and unrealized gain (loss)

    (0.96     0.74       (0.03     1.18       (1.70
 

 

 

 

Net increase (decrease) from investment operations

    (0.19     1.58       0.84       2.07       (0.81
 

 

 

 

Distributions to Common Shareholders from net investment income2

    (0.82     (0.88     (0.89     (0.87     (0.87
 

 

 

 

Net asset value, end of year

  $ 14.48     $ 15.49     $ 14.79     $ 14.84     $ 13.64  
 

 

 

 

Market price, end of year

  $ 14.66     $ 15.63     $ 14.04     $ 13.46     $ 12.80  
 

 

 

 
         
Total Return Applicable to Common Shareholders3  

Based on net asset value

    (1.02)%       11.08%       6.12%       16.23%       (5.66)%  
 

 

 

 

Based on market price

    (0.69)%       18.07%       11.06%       12.35%       (14.21)%  
 

 

 

 
         
Ratios to Average Net Assets Applicable to Common Shareholders  

Total expenses

    1.85%       1.45%       1.39%       1.47%       1.43%  
 

 

 

 

Total expenses after fees waived and paid indirectly

    1.84%       1.45%       1.39%       1.47%       1.43%  
 

 

 

 

Total expenses after fees waived and paid indirectly and excluding interest expense, fees and amortization of offering costs4

    0.89%       0.88%       0.88%       0.91%       0.89%  
 

 

 

 

Net investment income to Common Shareholders

    5.30%       5.60%       5.78%       6.35%       5.83%  
 

 

 

 
         
Supplemental Data  

Net assets applicable to Common Shareholders, end of year (000)

  $ 985,594     $ 1,053,232     $ 1,003,621     $ 1,007,291     $ 925,812  
 

 

 

 

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

  $ 376,541     $ 395,520     $ 381,600     $ 382,629     $ 359,768  
 

 

 

 

Borrowings outstanding, end of year (000)

  $ 252,930     $ 261,803     $ 244,245     $ 262,507     $ 287,426  
 

 

 

 

Portfolio turnover rate

    16%       10%       11%       15%       9%  
 

 

 

 

 

  1  

Based on average Common Shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with U.S. 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 at actual reinvestment prices.

 

  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.

 

See Notes to Financial Statements.      
                
   ANNUAL REPORT    JULY 31, 2017    51


Notes to Financial Statements     

 

1. Organization:

The following are registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as closed-end management investment companies and are referred to herein collectively as the “Funds”, or individually as a “Fund”:

 

Fund Name   Herein Referred To As    Organized    Diversification Classification

BlackRock MuniHoldings Quality Fund II, Inc.

  MUE    Maryland    Diversified*

BlackRock MuniYield California Quality Fund, Inc.

  MCA    Maryland    Diversified*

BlackRock MuniYield New York Quality Fund, Inc.

  MYN    Maryland    Non-diversified

BlackRock MuniYield Quality Fund III, Inc.

  MYI    Maryland    Diversified*

 

  *   The Fund’s classification changed from non-diversified to diversified during the reporting period.

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 net asset values (“NAVs”) of their Common Shares on a daily basis.

The Funds, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, are included in a complex of 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:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the “trade dates”). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on an accrual basis.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts) or certain borrowings (e.g., TOB Trust transactions) that would be treated as “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments or borrowings. Doing so allows the investment or borrowings to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Distributions: Distributions from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend date and made at least annually. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

Distributions to Preferred Shareholders are accrued and determined as described in Note 10.

Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by each Fund’s Board, the independent Directors (“Independent Directors”) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain 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 the 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 Standards: In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update “Restricted Cash” which will require entities to include the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the beginning and ending cash balances in the Statements of Cash Flows. The guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Management is evaluating the impact, if any, of this guidance on the Funds’ presentation in the Statements of Cash Flows.

In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update “Premium Amortization of Purchased Callable Debt Securities” which amends the amortization period for certain purchased callable debt securities. Under the new guidance, the premium amortization of

 

                
52    ANNUAL REPORT    JULY 31, 2017   


Notes to Financial Statements (continued)     

 

purchased callable debt securities that have explicit, non-contingent call features and are callable at fixed prices will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis and is effective for fiscal years, and their interim periods, beginning after December 15, 2018. Management is currently evaluating the impact of this guidance to the Funds.

SEC Reporting Modernization: The U.S. Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended other rules to enhance the reporting and disclosure of information by registered investment companies. As part of these changes, the SEC amended Regulation S-X to standardize and enhance disclosures in investment company financial statements. The compliance date for implementing the new or amended rules is August 1, 2017.

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 have been 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). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments using various independent dealers or pricing services under policies approved by the Board 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 and inputs are used to establish the fair value of each Fund’s assets and liabilities:

 

 

Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments.

 

 

Investments in open-end U.S. mutual funds are valued at NAV each business day.

 

 

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

If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such investments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include Market approach, Income approach and Cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Fair Value Hierarchy: Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:

 

 

Level 1 — Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each Fund has the ability to access

 

 

Level 2 — Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

                
   ANNUAL REPORT    JULY 31, 2017    53


Notes to Financial Statements (continued)     

 

 

 

Level 3 — Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including each Fund’ own assumptions used in determining the fair value of investments and derivative financial instruments)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately-held companies or funds. There may not be a secondary market, and/or there are a limited number of investors. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Global Valuation Committee in the absence of market information.

Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with each Fund’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

4. Securities and Other Investments:

Zero-Coupon Bonds: Zero-coupon bonds are normally issued at a significant discount from face value and do not provide for periodic interest payments. These bonds may experience greater volatility in market value than other debt obligations of similar maturity which provide for regular interest payments.

Forward Commitments and When-Issued Delayed Delivery Securities: Certain Funds may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. A Fund may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, a Fund may be required to pay more at settlement than the security is worth. In addition, a Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, a Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, a Fund’s maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions.

Municipal Bonds Transferred to TOB Trusts: Certain Funds leverage their assets through the use of “TOB Trust” transactions. The Funds transfer municipal bonds into a special purpose trust (a “TOB Trust”). A TOB Trust issues two classes of beneficial interests: short-term floating rate interests (“TOB Trust Certificates”), which are sold to third party investors, and residual inverse floating rate interests (“TOB Residuals”), which are issued to the participating funds that contributed the municipal bonds to the TOB Trust. The TOB Trust Certificates have interest rates that reset weekly and their holders have the option to tender such certificates to the TOB Trust for redemption at par and any accrued interest at each reset date. The TOB Residuals held by a Fund provide the Fund with the right to cause the holders of a proportional share of the TOB Trust Certificates to tender their certificates to the TOB Trust at par plus accrued interest. The Funds may withdraw a corresponding share of the municipal bonds from the TOB Trust. Other funds managed by the investment adviser may also contribute municipal bonds to a TOB Trust into which a Fund has contributed bonds. If multiple BlackRock advised funds participate in the same TOB Trust, the economic rights and obligations under the TOB Residuals will be shared among the funds ratably in proportion to their participation in the TOB Trust.

TOB Trusts are supported by a liquidity facility provided by a third party bank or other financial institution (the “Liquidity Provider”) that allows the holders of the TOB Trust Certificates to tender their certificates in exchange for payment of par plus accrued interest on any business day. The tendered TOB Trust Certificates are remarketed by a Remarketing Agent. In the event of a failed remarketing, the TOB Trust may draw upon a loan from the Liquidity Provider to purchase the tendered TOB Trust Certificates. Any loans made by the Liquidity Provider will be secured by the purchased TOB Trust Certificates held by the TOB Trust and will be subject to an increased interest rate based on number of days the loan is outstanding.

The TOB Trust may be collapsed without the consent of a Fund, upon the occurrence of a termination event as defined in the TOB Trust agreement. Upon the occurrence of a termination event, a TOB Trust would be liquidated with the proceeds applied first to any accrued fees owed to the trustee of the TOB Trust, the Remarketing Agent and the Liquidity Provider. Upon certain termination events, TOB Trust Certificates holders will be paid before the TOB Residuals holders (i.e., the Funds) whereas in other termination events, TOB Trust Certificates holders and TOB Residuals holders will be paid pro rata.

While a Fund’s investment policies and restrictions expressly permit investments in inverse floating rate securities, such as TOB Residuals, they restrict the ability of a Fund to borrow money for purposes of making investments. The management of MCA, MYN and MYI believes that each 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.

 

                
54    ANNUAL REPORT    JULY 31, 2017   


Notes to Financial Statements (continued)     

 

Accounting for TOB Trusts: The municipal bonds deposited into a TOB Trust are presented in a Fund’s Schedule of Investments and the TOB Trust Certificates are shown in Other Liabilities in the Statements of Assets and Liabilities. Any loans drawn by the TOB Trust pursuant to the liquidity facility to purchase tendered TOB Trust Certificates are shown as Loan for TOB Trust Certificates. The carrying amount of a Fund’s payable to the holder of the TOB Trust Certificates, as reported in the Statements of Assets and Liabilities as TOB Trust Certificates, approximates its fair value.

Interest income, including amortization and accretion of premiums and discounts, from the underlying municipal bonds is recorded by a Fund on an accrual basis. Interest expense incurred on the TOB Trust transaction and other expenses related to remarketing, administration, trustee, liquidity and other services to a TOB Trust are shown as interest expense, fees and amortization of offering costs in the Statements of Operations. Fees paid upon creation of the TOB Trust are recorded as debt issuance costs and are amortized to interest expense, fees and amortization of offering costs in the Statements of Operations to the expected maturity of the TOB Trust. In connection with the restructurings of the TOB Trusts to non-bank sponsored TOB Trusts, a Fund incurred non-recurring, legal and restructuring fees, which are recorded as interest expense, fees and amortization of deferred offering costs in the Statements of Operations.

For the year ended July 31, 2017, 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

  $ 114,554,503      $ 62,841,318        0.84% - 1.00%      $ 62,270,444        1.40%  

MCA

  $ 416,116,254      $ 195,487,580        0.83% - 1.02%      $ 190,062,267        1.37%  

MYN

  $ 218,613,598      $ 113,374,080        0.84% - 0.97%      $ 118,827,211        1.38%  

MYI

  $ 434,616,538      $ 252,930,497        0.84% - 1.48%      $ 261,136,211        1.39%  

 

  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 maximum potential amounts owed by the Funds, for such reimbursements, as applicable, are included in the maximum potential amounts disclosed for recourse TOB Trusts.

 

  2  

TOB Trusts may be structured on a non-recourse or recourse basis. When a Fund invests in TOB Trusts on a non-recourse basis, the Liquidity Provider may be required to make a payment under the liquidity facility to allow the TOB Trust to repurchase TOB Trust Certificates. The Liquidity Provider will be reimbursed from the liquidation of bonds held in the TOB Trust. If a Fund invests in a TOB Trust on a recourse basis, a Fund enters into a reimbursement agreement with the Liquidity Provider where a Fund is required to reimburse the Liquidity Provider for any shortfall between the amount paid by the Liquidity Provider and proceeds received from liquidation of municipal bonds held in the TOB Trust (the “Liquidation Shortfall”). As a result, if a Fund invests in a recourse TOB Trust, a Fund will bear the risk of loss with respect to any Liquidation Shortfall. If multiple funds participate in any such TOB Trust, these losses will be shared ratably, including the maximum potential amounts owed by a Fund at July 31, 2017, in proportion to their participation in the TOB Trust. The recourse TOB Trusts are identified in the Schedules of Investments including the maximum potential amounts owed by a Fund at July 31, 2017.

For the year ended July 31, 2017, the following table is a summary of each Fund’s Loan for TOB Trust Certificates:

 

    

Loans

Outstanding at
Period End

    

Range of

Interest Rates

on Loans at

Period End

    

Average Loans

Outstanding

     Daily Weighted
Average Rate of
Interest and  Other
Expenses
on Loans
 

MCA

                $ 379,509        0.78%  

MYN

                $ 451,400        0.83%  

MYI

                $ 999,553        0.78%  

5. Derivative Financial Instruments:

The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to manage their exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Schedules of Investments. These contracts may be transacted on an exchange or over-the-counter (“OTC”).

Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk), 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

 

                
   ANNUAL REPORT    JULY 31, 2017    55


Notes to Financial Statements (continued)     

 

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 services. The Manager is responsible for the management of each Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of each Fund.

For such services, each Fund pays the Manager a monthly fee at an annual rate equal to the following percentages of the average daily value of each Fund’s net assets:

 

     MUE      MCA      MYN      MYI  

Investment advisory fees

    0.55%        0.50%        0.50%        0.50%  

For purposes of calculating these fees, “net assets” mean 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 any outstanding preferred shares). It is understood that the liquidation preference of any outstanding preferred shares (other than accumulated dividends) and TOB Trusts is not considered a liability in determining a Fund’s NAV.

Waivers: With respect to each Fund, the Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”). These amounts are included in fees waived by the Manager in the Statements of Operations. For the year ended July 31, 2017, the amounts waived were as follows:

 

     MUE      MCA      MYN      MYI  

Amounts waived

  $ 2,360      $ 5,546      $ 3,472      $ 10,601  

Effective September 1, 2016, the Manager voluntarily agreed to waive its investment advisory fee with respect to any portion of each Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee. Prior to September 1, 2016, the Manager did not waive such fees. Effective December 2, 2016, the waiver became contractual through June 30, 2018. The agreement can be renewed for annual periods thereafter, and may be terminated on 90 days’ notice, each subject to approval by a majority of the Funds’ Independent Directors. For the year ended July 31, 2017, there were no such fees waived by the Manager.

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, 2017, the waiver was $109,459.

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.

7. Purchases and Sales:

For the year ended July 31, 2017, purchases and sales of investments, excluding short-term securities, were as follows:

 

     MUE      MCA      MYN      MYI  

Purchases

  $ 97,943,224      $ 360,070,590      $ 126,880,511      $ 257,030,268  

Sales

  $ 95,364,695      $ 331,937,688      $ 122,937,900      $ 271,043,012  

8. Income Tax Information:

It is each Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable income to their shareholders. Therefore, no U.S. federal income tax provision is required.

Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on each Fund’s U.S. federal tax returns generally remains open for each of the four years ended July 31, 2017. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

 

                
56    ANNUAL REPORT    JULY 31, 2017   


Notes to Financial Statements (continued)     

 

Management has analyzed tax laws and regulations and their application to the Funds as of July 31, 2017, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or 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, the characterization of expenses and the sale of bonds received from TOB Trusts were reclassified to the following accounts:

 

     MUE      MCA      MYN      MYI  

Paid-in capital

  $ (3,385,582    $ (11,436    $ (2,310,951    $ (21,271,303

Undistributed net investment income

  $ (1,823    $ 245,217      $ (184,570    $ (236,617

Accumulated net realized loss

  $ 3,387,405      $ (233,781    $ 2,495,521      $ 21,507,920  

The tax character of distributions paid was as follows:

 

             MUE      MCA      MYN      MYI  

Tax-exempt income1

    7/31/17      $ 19,532,177      $ 29,457,340      $ 29,637,043      $ 61,268,578  
    7/31/16      $ 19,704,376      $ 31,026,504      $ 31,428,254      $ 63,226,052  

Ordinary income2

    7/31/17               1,247,453        85,038        32,524  
    7/31/16        29               44,987        17,196  

Long-term capital gains3

    7/31/17               528,936                
    7/31/16                              
 

 

 

 

Total

    7/31/17      $ 19,532,177      $ 31,233,729      $ 29,722,081      $ 61,301,102  
 

 

 

 
    7/31/16      $ 19,704,405      $ 31,026,504      $ 31,473,241      $ 63,243,248  
 

 

 

 

 

  1  

The Funds designate these amounts paid during the fiscal year ended July 31, 2017, as exempt-interest dividends.

 

  2  

Ordinary income consists primarily of taxable income recognized from market discount and net shot-term capital gains. Additionally, all ordinary income distributions are comprised of interest related dividends non-US residents and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

 

  3   

The Funds designate these amounts paid during the fiscal year ended July 31, 2017 as capital gain dividends.

As of period end, the tax components of accumulated net earnings were as follows:

 

     MUE      MCA      MYN      MYI  

Undistributed tax-exempt income

  $ 1,054,974      $ 1,006,528      $ 1,617,240      $ 5,159,970  

Undistributed ordinary income

                  8,123        383,451  

Capital loss carryforwards

    (15,533,608             (21,837,715      (26,689,609

Net unrealized gains1

    37,239,249        48,747,286        56,564,552        103,040,632  

Qualified late-year losses2

           (1,489,191              
 

 

 

 

Total

  $ 22,760,615      $ 48,264,623      $ 36,352,200      $ 81,894,444  
 

 

 

 

 

  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 TOB 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.

As of July 31, 2017, 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 date1

  $ 9,520,478      $ 17,179,778      $ 229,581  

2018

    6,013,130        3,370,191        26,460,028  

2019

           1,287,746         
 

 

 

 

Total

  $ 15,533,608      $ 21,837,715      $ 26,689,609  
 

 

 

 

 

  1   

Must be utilized prior to losses subject to expiration.

During the year ended July 31, 2017, the Funds listed below utilized the following amounts of their respective capital loss carryforward:

 

     MUE      MYN      MYI  

Amount utilized

  $ 1,106,529      $ 3,543,690      $ 3,930,685  

As of July 31, 2017, gross unrealized appreciation and depreciation based on cost for U.S. federal income-tax purposes were as follows:

 

     MUE      MCA      MYN      MYI  

Tax cost

  $ 413,567,233      $ 661,808,940      $ 746,521,421      $ 1,228,035,627  
 

 

 

 

Gross unrealized appreciation

  $ 37,553,038      $ 50,200,431      $ 58,433,189      $ 108,481,784  

Gross unrealized depreciation

    (311,203      (1,169,323      (1,572,136      (4,931,694
 

 

 

 

Net unrealized appreciation

  $ 37,241,835      $ 49,031,108      $ 56,861,053      $ 103,550,090  
 

 

 

 

 

                
   ANNUAL REPORT    JULY 31, 2017    57


Notes to Financial Statements (continued)     

 

9. Principal Risks:

Many municipalities insure repayment of their bonds, which may reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the value of such insurance, and there is no guarantee that the insurer will meet its obligation.

Inventories of municipal bonds held by brokers and dealers may decrease, which would lessen their ability to make a market in these securities. Such a reduction in market making capacity could potentially decrease a Fund’s ability to buy or sell bonds. As a result, a Fund may sell a security at a lower price, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative impact on performance. If a Fund needed to sell large blocks of bonds, those sales could further reduce the bonds’ prices and impact performance.

In the normal course of business, certain Funds invest in securities 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 may also be affected by one or all of the following: (i) general economy; (ii) overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; and (iv) currency, interest rate and price fluctuations.

Each Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force each Fund to reinvest in lower yielding securities. Each Fund may also be exposed to reinvestment risk, which is the risk that income from each Fund’s portfolio will decline if each Fund invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are below each Fund portfolio’s current earnings rate.

The Funds may hold a significant amount of bonds subject to calls by the issuers at defined dates and prices. When bonds are called by issuers and the Funds reinvest the proceeds received, such investments may be in securities with lower yields than the bonds originally held, and correspondingly, could adversely impact the yield and total return performance of a Fund.

A Fund structures and “sponsors” the TOB Trusts in which it holds TOB Residuals and has certain duties and responsibilities, which may give rise to certain additional risks including, but not limited to, compliance, securities law and operational risks.

Should short-term interest rates rise, the Funds’ investments in TOB Trusts may adversely affect the Funds’ net investment income and dividends to Common Shareholders. Also, fluctuations in the market value of municipal bonds deposited into the TOB Trust may adversely affect the Funds’ NAVs per share.

The SEC and various federal banking and housing agencies have adopted credit risk retention rules for securitizations (the “Risk Retention Rules”). The Risk Retention Rules would require the sponsor of a TOB Trust to retain at least 5% of the credit risk of the underlying assets supporting the TOB Trust’s municipal bonds. The Risk Retention Rules may adversely affect the Funds’ ability to engage in TOB Trust transactions or increase the costs of such transactions in certain circumstances.

TOB Trusts constitute an important component of the municipal bond market. Any modifications or changes to rules governing TOB Trusts may adversely impact the municipal market and the Funds, including through reduced demand for and liquidity of municipal bonds and increased financing costs for municipal issuers. The ultimate impact of any potential modifications on the TOB Trust market and the overall municipal market is not yet certain.

Counterparty Credit Risk: 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.

 

                
58    ANNUAL REPORT    JULY 31, 2017   


Notes to Financial Statements (continued)     

 

Concentration Risk: MCA and MYN invests 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, MYN and MYI invested a significant portion of their assets in securities in the transportation sector. MCA invested a significant portion of its assets in securities in the county, city, special district and school district sector. Changes in economic conditions affecting such sectors would have a greater impact on the Funds and could affect the value, income and/or liquidity of positions in such securities.

Certain Funds invest a significant portion of their assets in fixed-income securities and/or use derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Funds may be subject to a greater risk of rising interest rates due to the current period of historically low rates.

10. Capital Share Transactions:

Each Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The par value for each Fund’s Common Shares is $0.10. The par value for each Fund’s Preferred Shares outstanding is $0.10. The Board is authorized, however, to reclassify any unissued Common Shares to Preferred Shares without the approval of Common Shareholders.

Common Shares

For the years shown, shares issued and outstanding increased by the following amounts as a result of dividend reinvestment:

 

Year Ended July 31,   MCA      MYI  

2017

    9,066        95,522  

2016

           126,962  

For the years ended July 31, 2017 and July 31, 2016, shares issued and outstanding remained constant for MUE and MYN.

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 VRDP Shares of certain Funds 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  

 

                
   ANNUAL REPORT    JULY 31, 2017    59


Notes to Financial Statements (continued)     

 

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, each VRDP Fund is required to redeem certain of its outstanding VRDP Shares if it fails to comply with certain asset coverage, basic maintenance amount or leverage requirements.

Subject to certain conditions, the VRDP Shares may also be redeemed, in whole or in part, at any time at the option of each VRDP Fund. The redemption price per VRDP Share is equal to the liquidation preference per share plus any outstanding unpaid dividends.

Liquidity Feature: Each VRDP Fund entered into a fee agreement with the liquidity provider that requires an upfront/an 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 each VRDP Fund and its respective liquidity provider is for a 364 day term and was scheduled to expire on July 6, 2017. Each VRDP Fund renewed the fee agreement for an additional 364 days term which is scheduled to expire on July 5, 2018 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, the VRDP Funds are required to redeem the VRDP Shares six months after the purchase date. Immediately after such mandatory purchase, the 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 Funds’ 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), 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 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, MCA’s and MYN’s VRDP Shares were assigned a long-term rating of Aa2 and MYI’s 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, 2017, the annualized dividend rates for the VRDP Shares were as follows:

 

      MCA      MYN      MYI  

Rate

     1.64%        1.61%        1.61%  

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 each commenced a three-year term ending June 24, 2015 (the “special rate period”) with respect to their VRDP Shares, during which the VRDP Shares will not be subject to any remarketing and the dividend rate will be based on a predetermined methodology. The special rate period has been extended each year for an additional one year term and is currently set to expire on June 20, 2018. Prior to June 20, 2018, the holder of the VRDP Shares and the VRDP Funds may mutually agree to extend the special rate period. If the special rate period is not extended, the VRDP Shares will revert to remarketable securities upon the termination of the special rate period and will be remarketed and available for purchase by qualified institutional investors.

During the special rate period, 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.

 

                
60    ANNUAL REPORT    JULY 31, 2017   


Notes to Financial Statements (continued)     

 

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

For the year ended July 31, 2017, VRDP Shares issued and outstanding of the VRDP Funds 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 the 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 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 Securities Industry and Financial Markets Association (“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 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, 2017, the annualized dividend rate for MUE VMTP Shares was 1.71%.

For the year ended July 31, 2017, VMTP Shares issued and outstanding of MUE remained constant.

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

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

 

                
   ANNUAL REPORT    JULY 31, 2017    61


Notes to Financial Statements (concluded)     

 

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          198,366  

MCA

     0.0650          0.0650         VRDP          W-7          237,160  

MYN

     0.0540          0.0540         VRDP          W-7          353,872  

MYI

     0.0680          0.0680               VRDP          W-7          507,650  

 

  1   

Net investment income dividend paid on September 1, 2017 to Common Shareholders of record on August 15, 2017.

 

  2   

Net investment income dividend declared on September 1, 2017, payable to Common Shareholders of record on September 15, 2017.

 

  3   

Dividends declared for period August 1, 2017 to August 31, 2017.

 

                
62    ANNUAL REPORT    JULY 31, 2017   


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, 2017, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, 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, 2017, 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, 2017, the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts

September 25, 2017

 

                
   ANNUAL REPORT    JULY 31, 2017    63


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 27, 2017 (the “April Meeting”) and June 7-8, 2017 (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 adherence to 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, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to 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,

 

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.

 

                
64    ANNUAL REPORT    JULY 31, 2017   


Disclosure of Investment Advisory Agreements (continued)     

 

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.

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. Topics covered included: (a) fund repositionings and portfolio management changes, including additional information about the portfolio managers, research teams, organization and methods and historical track records of the teams, and the potential impact of such changes on fund performance and the costs of such changes; (b) scientific active equity management; (c) BlackRock’s option overwrite policy; (d) differences in services between closed-end funds and mutual funds; (d) market discount; and (e) adviser profitability.

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, 2018. 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 its 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

 

                
   ANNUAL REPORT    JULY 31, 2017    65


Disclosure of Investment Advisory Agreements (continued)     

 

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.

Each Board noted that for each of the one-, three- and five-year periods reported, its Fund ranked first out of two funds against its Customized Peer Group Composite. BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for each Fund. 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, 2016 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 levels 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, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable.

The Boards of MUE and MYI noted that each Fund’s contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio ranked in the first and second quartiles, respectively, relative to the Expense Peers.

The Boards of MCA and MYN noted that each 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. Each Board considered its Fund’s asset levels and whether the current fee was appropriate.

 

                
66    ANNUAL REPORT    JULY 31, 2017   


Disclosure of Investment Advisory Agreements (concluded)     

 

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.

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.

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, 2018. 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 the 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.

 

                
   ANNUAL REPORT    JULY 31, 2017    67


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 U.S. federal, state or local income tax that may be payable on such dividends or distributions.

Each Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Fund reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants in 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 505000, Louisville, KY 40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.

 

                
68    ANNUAL REPORT    JULY 31, 2017   


Officers and Directors     

 

Name, Address1
and Year of Birth
  Position(s)
Held with
the Fund
  Length of
Time Served³
  Principal Occupation(s) During Past Five Years  

Number of BlackRock-

Advised Registered

Investment Companies

(“RICs”) Consisting of

Investment Portfolios

(“Portfolios”) Overseen4

 

Public Company and

Other Investment

Company Directorships
Held During Past
Five Years

Independent Directors2

Richard E. Cavanagh

1946

  Chair of the Board and Director   Since
2007
  Director, The Guardian Life Insurance Company of America since 1998; Board Chair, Volunteers of America (a not-for-profit organization) since 2015 (board member since 2009); 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.   75 RICs consisting of
75 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.   75 RICs consisting of
75 Portfolios
  Greenhill & Co., Inc.; AtriCure, Inc. (medical devices) from 2000 until 2017

Michael J. Castellano

1946

  Director   Since
2011
  Chief Financial Officer of Lazard Group LLC from 2001 to 2011; Chief Financial Officer of Lazard Ltd from 2004 to 2011; Director, Support Our Aging Religious (non-profit) from 2009 to June 2015 and since 2017; Director, National Advisory Board of Church Management at Villanova University since 2010; Trustee, Domestic Church Media Foundation since 2012; Director, CircleBlack Inc. (financial technology company) since 2015.   75 RICs consisting of
75 Portfolios
  None

Cynthia L. Egan

1955

  Director   Since
2016
  Advisor, U.S. Department of the Treasury from 2014 to 2015; President, Retirement Plan Services for T. Rowe Price Group, Inc. from 2007 to 2012; executive positions within Fidelity Investments from 1989 to 2007.   75 RICs consisting of
75 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 and since 2016; Professor in the Practice of Finance and Becton Fellow, Yale University School of Management from 2006 to 2011.   75 RICs consisting of
75 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) from 2000 to 2016; Director of Delta Waterfowl Foundation from 2010 to 2012; President and Chief Executive Officer, VWR Scientific Products Corporation from 1990 to 1999.   75 RICs consisting of
75 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.   75 RICs consisting of
75 Portfolios
  ADP (data and information services); Metropolitan Life Insurance Company (insurance)

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.   75 RICs consisting of
75 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.   75 RICs consisting of
75 Portfolios
  None

 

                
   ANNUAL REPORT    JULY 31, 2017    69


Officers and Directors (continued)     

 

Name, Address1
and Year of Birth
  Position(s)
Held with
the Fund
  Length of
Time Served³
  Principal Occupation(s) During Past Five Years  

Number of BlackRock-

Advised Registered

Investment Companies

(“RICs”) Consisting of

Investment Portfolios

(“Portfolios”) Overseen4

 

Public Company and

Other Investment

Company Directorships
Held During Past
Five Years

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.   101 RICs consisting of
219 Portfolios
  None

John M. Perlowski

1964

  Director, President and Chief Executive Officer   Since 2015 (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; Advisory Director of Family Resource Network (charitable foundation) since 2009.   128 RICs consisting of
317 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 will serve 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 Independent Directors as joining the Board in 2007, each Director first became a member 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 [# RICS from RICs/Ports] RICs. Ms. Novick and Mr. Perlowski are also board members of certain complexes of BlackRock registered open-end funds. Ms. Novick is also a board member of the BlackRock Equity-Liquidity Complex and Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and the BlackRock Equity-Liquidity Complex.

 

5    Ms. Novick and Mr. Perlowski are both “interested persons,” as defined in the 1940 Act, of the Fund based on their positions with BlackRock and its affiliates. Ms. Novick and Mr. Perlowski are also board members of certain complexes of BlackRock registered open-end funds. Ms. Novick is also a board member of the BlackRock Equity-Liquidity Complex and Mr. Perlowski is also a board member of the BlackRock Equity-Bond Complex and 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.

 

                
70    ANNUAL REPORT    JULY 31, 2017   


Officers and Directors (concluded)     

 

Name, Address1
and Year of Birth
  Position(s)
Held with
the Fund
  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 Fund serve at the pleasure of the Board.

 

As of the date of this report, the portfolio managers of:

 

 

MUE are Ted Jaeckel, Phillip Soccio, Peter Hayes and Christian Romaglino.

 

 

MYN are Michael Kalinoski and Walter O’Connor.

 

 

MYI are Michael Kalinoski, Walter O’Connor, Peter Hayes and Christian Romaglino.

 

         

Investment Adviser

BlackRock Advisors, LLC Wilmington, DE 19809

 

Accounting Agent and Custodian

State Street Bank and
Trust Company

Boston, MA 02111

 

VRDP Tender and Paying Agent

and VMTP Redemption and Paying Agent

The Bank of New York Mellon New York, NY 10286

  

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

  

VRDP Liquidity Provider Citibank, N.A.
New York, NY 10179

  Address of the Funds 100 Bellevue Parkway Wilmington, DE 19809

 

                
   ANNUAL REPORT    JULY 31, 2017    71


Additional Information     

 

Proxy Results

The Annual Meeting of Shareholders was held on July 25, 2017 for shareholders of record on May 30, 2017, 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
          Votes For         Votes
Withheld
        Votes For         Votes
Withheld

MUE

   21,054,958      591,376      20,929,913      716,421      21,136,136      510,198

MCA

   31,970,320      634,037      31,784,491      819,866      32,011,056      593,301

MYI

   64,042,987      1,624,841      63,888,903      1,778,925      64,298,956      1,368,872

MYN

   34,968,185        1,547,665            34,316,695        2,199,155        34,931,845        1,584,005
    

Frank J. Fabozzi1

        

Jerrold B. Harris

      

R. Glenn Hubbard

      Votes For         Votes
Withheld
          Votes For         Votes
Withheld
        Votes For         Votes
Withheld

MUE

   1,310      0      20,922,577      723,757      20,935,437      710,897

MCA

   1,665      0      31,674,462      929,895      31,513,232      1,091,125

MYI

   3,564      0      63,811,239      1,856,589      63,905,618      1,762,210

MYN

   2,477        0            34,359,272        2,156,578        34,981,051        1,534,799
    

W. Carl Kester1

        

Catherine A. Lynch

      

Barbara G. Novick

      Votes For         Votes
Withheld
          Votes For         Votes
Withheld
        Votes For         Votes
Withheld

MUE

   1,310      0      21,127,880      518,454      21,124,713      521,621

MCA

   1,665      0      31,994,777      609,580      31,920,495      683,862

MYI

   3,564      0      64,298,442      1,369,386      64,337,608      1,330,220

MYN

   2,477        0            34,982,353        1,533,497        34,998,121        1,517,729
    

John M. Perlowski

        

Karen P. Robards

        
      Votes For         Votes
Withheld
          Votes For         Votes
Withheld
                 

MUE

   21,059,856      586,478      21,130,826      515,508          

MCA

   31,905,309      699,048      31,756,541      847,816          

MYI

   64,144,552      1,523,276      64,271,989      1,395,839          

MYN

   35,024,550        1,491,300            34,836,063        1,679,787                  

 

  1   

Voted on by holders of preferred shares only.

 

Fund Certification

Certain Funds are listed for trading on the NYSE and have filed with the NYSE their annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Funds filed with the SEC the certification of its chief executive officer and chief financial officer required by section 302 of the Sarbanes-Oxley Act.

 

Dividend Policy

Each Fund’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of distributions, the Funds may at times pay out less than the entire amount of net investment income earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment income earned in that month. As a result, the distributions paid by the Funds for any particular month may be more or less than the amount of net investment income earned by the Funds during such month. The Funds’ current accumulated but undistributed net investment income, if any, is disclosed in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.

 

                
72    ANNUAL REPORT    JULY 31, 2017   


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 disclosed on page 71, 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, BlackRock implemented a new methodology for calculating “effective duration” for BlackRock’s municipal bond portfolios. The new methodology replaces the model previously used by BlackRock to evaluate municipal bond duration and is a common indicator of an investment’s sensitivity to interest rate movements. The new methodology is applied to each Fund’s duration reported for periods after September 26, 2016.

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Funds, may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRock’s website in this report.

Electronic Delivery

Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.

To enroll in electronic delivery:

Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisers, banks or brokerages may offer this service.

Householding

The Funds will mail only one copy of shareholder documents, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 882-0052.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov 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.

 

                
   ANNUAL REPORT    JULY 31, 2017    73


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.

 

                
74    ANNUAL REPORT    JULY 31, 2017   


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

 

MHMYINS4-7/17-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 clarify an inconsistency in to whom persons covered by the code should report suspected violations of the code. The amendment clarifies that such reporting should be made to BlackRock’s General Counsel, and retains the alternative option of anonymous reporting following “whistleblower” policies. Other non-material changes were also made in connection with this amendment. 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

W. Carl Kester

Catherine A. Lynch

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 Principal 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

 

2


audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.

 

Item 4 – Principal Accountant Fees and Services

The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:

 

      (a) Audit Fees    (b) Audit-Related Fees1    (c) Tax Fees2    (d) All Other Fees
Entity Name    Current
Fiscal Year
End
        Previous
Fiscal Year
End
        Current
Fiscal Year
End
        Previous
Fiscal Year
End
        Current
Fiscal Year
End
        Previous
Fiscal Year
End
        Current
Fiscal Year
End
        Previous
Fiscal Year
End
BlackRock MuniHoldings Quality Fund II, Inc.    $37,600        $37,600        $0        $0        $14,382        $14,382        $0        $0

The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Affiliated Service Providers”):

 

     Current Fiscal Year End   Previous Fiscal Year End

(b) Audit-Related Fees1

  $0   $0

(c) Tax Fees2

  $0   $0

(d) All Other Fees3

  $2,129,000   $2,154,000

1 The nature of the services includes assurance and related services reasonably related to the performance of the audit or review of financial statements not included in Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators.

2 The nature of the services includes tax compliance and/or tax preparation, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, taxable income and tax distribution calculations.

3 Non-audit fees of $2,129,000 and $2,154,000 for the current fiscal year and previous fiscal year, respectively, were paid to the Fund’s principal accountant in their entirety by BlackRock, in connection with services provided to the Affiliated Service Providers of the Fund and of certain other funds sponsored and advised by BlackRock or its affiliates for a service organization review and an accounting research tool subscription. These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Affiliated Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved

 

3


provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees, defined as the sum of the fees shown under “Audit-Related Fees,” “Tax Fees” and “All Other Fees,” paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Affiliated Service Providers were:

 

Entity Name    Current Fiscal
Year End
        Previous Fiscal
Year End
         
BlackRock MuniHoldings Quality Fund II, Inc.    $14,382        $14,382       

Additionally, the amounts billed by D&T in connection with services provided to the Affiliated Service Providers of the Fund and of other funds sponsored or advised by BlackRock or its affiliates during the current and previous fiscal years for a service organization review and an accounting research tool subscription were:

 

     Current Fiscal
Year End
        Previous Fiscal
Year End
         
   $2,129,000        $2,154,000       

These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.

(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Affiliated Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

 

Item 5 – Audit Committee of Listed Registrants

 

4


  (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

W. Carl Kester

Catherine A. Lynch

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.

(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

(a)(1) As of the date of filing this Report:

The registrant is managed by a team of investment professionals comprised of Theodore R. Jaeckel, Jr., CFA, Managing Director at BlackRock, Phillip Soccio, CFA, Director at

 

5


BlackRock and Christian Romaglino, 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. Jaeckel, Soccio and Romaglino have been members of the registrant’s portfolio management team since 2006, 2016 and 2017 respectively.

 

Portfolio Manager    Biography
Theodore R. Jaeckel, Jr., CFA    Managing Director at BlackRock since 2006; Managing Director of Merrill Lynch Investment Managers, L.P. (“MLIM’) from 2005 to 2006; Director of Merrill Lynch Investment Managers, L.P. (“MLIM”) from 1997 to 2005.
Phillip Soccio    Director of BlackRock since 2009; Vice President of BlackRock from 2005 to 2008.
Christian Romaglino    Director of BlackRock since 2017.

 

  (a)(2) As of July 31, 2017:

 

     

(ii) Number of Other Accounts Managed

and Assets by Account Type

  

(iii) Number of Other Accounts and

Assets for Which Advisory Fee is

Performance-Based

(i) Name of

Portfolio Manager

  

Other

Registered

Investment

Companies

        

Other Pooled

Investment

Vehicles

        

Other

Accounts

        

Other

Registered

Investment

Companies

        

Other Pooled

Investment

Vehicles

        

Other

Accounts

                       

Theodore R. Jaeckel, Jr., CFA

   38       0         0         0         0         0
                       
     $27.77 Billion       $0         $0         $0         $0         $0
                       

Phillip Soccio

   18       0         0         0         0         0
                       
     $5.80 Billion       $0         $0         $0         $0         $0
                       

Christian Romaglino1

   6       $0         $0         $0         $0         $0
                       
     $3.66 Billion         $0         $0         $0         $0         $0

1 Mr. Romaglino became a portfolio manager of the Fund on July 10, 2017.

 

  (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

 

6


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.

 

  (a)(3) As of July 31, 2017:

Portfolio Manager Compensation Overview

The discussion below describes the portfolio managers’ compensation as of July 31, 2017.

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

 

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performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation based on the performance of the Funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are: a combination of market-based indices (e.g., Standard & Poor’s Municipal Bond Index), certain customized indices and certain fund industry peer groups.

Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation is distributed to portfolio managers in a combination of cash, deferred BlackRock, Inc. stock awards, and/or deferred cash awards that notionally track the return of certain BlackRock investment products.

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.

Portfolio managers generally receive deferred BlackRock, Inc. stock awards as part of their discretionary incentive compensation. Paying a portion of discretionary incentive compensation in the form of deferred BlackRock, Inc. stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods. Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest ratably over a number of years and, once vested, settle in BlackRock, Inc. common stock. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key employees as part of a long-term incentive award to aid in retention, align their interests with long-term shareholder interests and motivate performance. Such equity awards are generally granted in the form of BlackRock, Inc. restricted stock units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have deferred BlackRock, Inc. stock awards.

For some portfolio managers, discretionary incentive compensation is also distributed in the form of deferred cash awards that notionally track the returns of select BlackRock investment products they manage. 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. Deferred cash awards vest ratably over a number of years and, once vested, settle in the form of cash. 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

 

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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 ($270,000 for 2017). 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, 2017.

 

Portfolio Manager   

Dollar Range of Equity

Securities of the Fund

Beneficially Owned

Theodore R. Jaeckel, Jr., CFA

   None

Phillip Soccio

   None

Christian Romaglino1

   None

1 Mr. Romaglino became a portfolio manager of the Fund on July 10, 2017.

(b) Not Applicable

 

Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report.

 

Item 10 – Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

 

Item 11 – Controls and Procedures

(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the 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

 

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(a)(2) – Certifications – Attached hereto

(a)(3) – Not Applicable

(b) – Certifications – Attached hereto

 

 

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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BlackRock MuniHoldings Quality Fund II, Inc.

 

By:   /s/ John M. Perlowski              
  John M. Perlowski  
  Chief Executive Officer (principal executive officer) of 
  BlackRock MuniHoldings Quality Fund II, Inc.
Date: October 10, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:   /s/ John M. Perlowski              
  John M. Perlowski  
  Chief Executive Officer (principal executive officer) of 
  BlackRock MuniHoldings Quality Fund II, Inc.
Date: October 10, 2017
By:   /s/ Neal J. Andrews                  
  Neal J. Andrews  
  Chief Financial Officer (principal financial officer) of
  BlackRock MuniHoldings Quality Fund II, Inc.
Date: October 10, 2017

 

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