For the year ended August 31, 2020, the following table is a summary of each Trusts TOB Trusts:
For the year ended August 31, 2020, the following table is a summary of each Trusts Loan for TOB Trust Certificates:
The Trusts engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Trusts 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 are agreements between the Trusts 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 Trusts are required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contracts size and risk profile. The initial margin deposit must then be maintained at an established
level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statements of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the
Statements of Assets and Liabilities. Pursuant to the contract, the Trusts agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (variation margin). Variation margin
is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded
in the Statements of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect
correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.
For such services, each Trust, except for MHE and MHN, pays the Manager a monthly fee at an annual
rate equal to a percentage of each Trusts average weekly managed assets. For such services, MHE and MHN each pays the Manager a monthly fee at an annual rate equal to a percentage of each Trusts average daily net assets. The Trusts pay
their respective fees based on the following annual rates:
For purposes of calculating these fees, net assets mean the total assets of the Trust minus the sum of its accrued liabilities
(which does not include liabilities represented by TOB Trusts and the liquidation preference of any outstanding preferred shares). It is understood that the liquidation preference of any outstanding preferred stock (other than accumulated dividends)
and TOB Trusts is not considered a liability in determining a Trusts net asset value. For purposes of calculating these fees, managed assets are determined as total assets of the Trust (including any assets attributable to money
borrowed for investment purposes) less the sum of its accrued liabilities (other than money borrowed for investment purposes).
This voluntary waiver may be reduced or discontinued at any time. Prior to June 1, 2020, BZMs voluntary investment advisory fee
waiver as a percentage of average weekly managed assets was 0.05%. For the year ended August 31, 2020, the investment advisory fees waived, which are included in fees waived and/or reimbursed by the Manager in the Statements of Operations, were
as follows:
With respect to each Trust, the Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory
fees each Trust pays to the Manager indirectly through its investment in affiliated money market funds (the affiliated money market fund waiver) through June 30, 2022. The contractual agreement may be terminated upon 90 days
notice by a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of a Trust. Prior to December 1, 2019, this waiver was voluntary. These amounts are included in fees waived and/or reimbursed by
the Manager in the Statements of Operations. For the year ended August 31, 2020, the amounts waived were as follows:
Managements evaluation of the impact of all subsequent events on the Trusts financial statements was completed through the date the financial statements were
issued and the following items were noted:
The Trusts declared and paid distributions to Common Shareholders and Preferred Shareholders as follows:
On September 28, 2020, each Trust announced a continuation of its open market share repurchase program. Commencing on
December 1, 2020, each Trust may repurchase through November 30, 2021, up to 5% of its common shares outstanding as of the close of business on November 30, 2020, subject to certain conditions. There is no assurance that the Trusts
will purchase shares in any particular amounts.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors/Trustees of BlackRock Maryland Municipal Bond Trust,
BlackRock Massachusetts Tax-Exempt Trust, BlackRock MuniHoldings New York Quality Fund, Inc., BlackRock New York Municipal Bond Trust, BlackRock New York Municipal Income Quality Trust, BlackRock New York
Municipal Income Trust II, and BlackRock Virginia Municipal Bond Trust:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of BlackRock Maryland Municipal Bond Trust, BlackRock Massachusetts
Tax-Exempt Trust, BlackRock MuniHoldings New York Quality Fund, Inc., BlackRock New York Municipal Bond Trust, BlackRock New York Municipal Income Quality Trust, BlackRock New York Municipal Income Trust II,
and BlackRock Virginia Municipal Bond Trust (the Funds), including the schedules of investments, as of August 31, 2020, the related statements of operations and cash flows for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all
material respects, the financial position of the Funds as of August 31, 2020, and the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of August 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that
our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
October 21, 2020
We have served as the auditor of one or more BlackRock investment companies since 1992.
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2020 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
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Disclosure of Investment Advisory Agreements
The Boards of Directors/Trustees, as
applicable (collectively, the Board, the members of which are referred to as Board Members) of BlackRock Maryland Municipal Bond Trust (BZM), BlackRock Massachusetts
Tax-Exempt Trust (MHE), BlackRock MuniHoldings New York Quality Fund, Inc. (MHN), BlackRock New York Municipal Bond Trust (BQH), BlackRock New York Municipal Income Quality
Trust (BSE), BlackRock New York Municipal Income Trust II (BFY) and BlackRock Virginia Municipal Bond Trust (BHV and together with BZM, MHE, MHN, BQH, BSE and BFY, the Funds and each, a
Fund) met on April 16, 2020 (the April Meeting) and May 20-21, 2020 (the May Meeting) to consider the approval of the investment advisory agreements (the Advisory
Agreements or the Agreements) between each Fund and BlackRock Advisors, LLC (the Manager or BlackRock), each Funds investment advisor.
Activities and Composition of the Board
On the date of the May Meeting, the
Board consisted of ten individuals, eight of whom were not interested persons of each Fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Board Members). The Board
Members are responsible for the oversight of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist
them in connection with their duties. The Co-Chairs of the Board are Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a
Compliance Committee, a Performance Oversight Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested
Board Member).
The Agreements
Consistent with the requirements of the
1940 Act, the Board considers the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each typically extending for two days, and additional in-person and
telephonic meetings throughout the year, as needed. While the Board also has a fifth one-day meeting to consider specific information surrounding the renewal of the Agreements, the Boards consideration
entails a year-long deliberative process whereby the Board and its committees assess BlackRocks services to each Fund. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to each Fund
by BlackRock, BlackRocks personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of each Funds service providers; risk management and
oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various
executive sessions outside of the presence of BlackRocks management.
During the year, the Board, acting directly and through its committees, considers
information that is relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to each Fund and its shareholders. BlackRock also furnished additional information to the Board in
response to specific questions from the Board. This additional information is discussed further in the section titled Board Considerations in Approving the Agreements. Among the matters the Board considered were: (a) investment
performance for one-year, three-year, five-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and other performance metrics, as applicable, as well as BlackRock
senior managements and portfolio managers analyses of the reasons for any outperformance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) leverage management, as applicable;
(c) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by each Fund for services; (d) Fund operating expenses and how BlackRock allocates expenses to each Fund; (e) the
resources devoted to risk oversight of, and compliance reports relating to, implementation of each Funds investment objective, policies and restrictions, and meeting regulatory requirements; (f) BlackRocks and each Funds
adherence to applicable compliance policies and procedures; (g) the nature, character and scope of non-investment management services provided by BlackRock and its affiliates and the estimated cost of
such services; (h) BlackRocks and other service providers internal controls and risk and compliance oversight mechanisms; (i) BlackRocks implementation of the proxy voting policies approved by the Board;
(j) execution quality of portfolio transactions; (k) BlackRocks implementation of each Funds valuation and liquidity procedures; (l) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust and institutional separate account product
channels, as applicable, and the similarities and differences between these products and the services provided as compared to each Fund; (m) BlackRocks compensation methodology for its investment professionals and the incentives and
accountability it creates, along with investment professionals investments in the fund(s) they manage; (n) periodic updates on BlackRocks business; and (o) each Funds market discount/premium compared to peer funds.
Board Considerations in Approving the Agreements
The Approval
Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreements. The Independent Board Members are continuously engaged in a process with their independent legal counsel and BlackRock to
review the nature and scope of the information provided to the Board to better assist its deliberations. The materials provided in connection with the April Meeting included, among other things: (a) information independently compiled and
prepared by Broadridge Financial Solutions, Inc. (Broadridge), based on Lipper classifications, regarding each Funds fees and expenses as compared with a peer group of funds as determined by Broadridge (Expense Peers)
and the investment performance of each Fund as compared with a peer group of funds (Performance Peers); (b) information on the composition of the Expense Peers and Performance Peers and a description of Broadridges methodology;
(c) information on the estimated profits realized by BlackRock and its affiliates pursuant to the Agreements and a discussion of fall-out benefits to BlackRock and its affiliates; (d) a general
analysis provided by BlackRock concerning investment management fees received in connection with other types of investment products, such as institutional accounts, sub-advised mutual funds, closed-end funds, and open-end funds, under similar investment mandates, as applicable; (e) a review of non-management fees;
(f) the existence, impact and sharing of potential economies of scale, if any, with each Fund; (g) a summary of aggregate amounts paid by each Fund to BlackRock; and (h) various additional information requested by the Board as
appropriate regarding BlackRocks and each Funds operations.
At the April Meeting, the Board reviewed materials relating to its consideration of the
Agreements. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Boards year-long deliberative process, the Board presented BlackRock with questions and requests for additional information.
BlackRock responded to these questions and requests with additional written information in advance of the May Meeting. Topics covered included: (a) the methodology for measuring estimated fund profitability; (b) fund expenses and potential
fee waivers; (c) differences in services provided and management fees between closed-end funds and other product channels; and (d) BlackRocks option overwrite strategy.
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DISCLOSURE OF INVESTMENT ADVISORY AGREEMENTS
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Disclosure of Investment Advisory Agreements (continued)
At the May Meeting, the Board concluded its
assessment of, among other things: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund as compared to its Performance Peers and to other metrics, as applicable; (c) the
advisory fee and the estimated cost of the services and estimated profits realized by BlackRock and its affiliates from their relationship with each Fund; (d) each Funds fees and expenses compared to its Expense Peers; (e) the
existence and sharing of potential economies of scale; (f) any fall-out benefits to BlackRock and its affiliates as a result of BlackRocks relationship with each Fund; and (g) other factors
deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock
or its affiliates relating to securities lending and cash management, and BlackRocks services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRocks personnel to engage in open,
candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock
The
Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services, and the resulting performance of each Fund. Throughout the year, the Board
compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmarks, and performance metrics, as applicable. The Board met with BlackRocks senior management
personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by each Funds portfolio management team discussing each Funds performance, investment strategies
and outlook.
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each
Funds portfolio management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and
oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRocks overall risk management program, including the continued efforts
of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRocks Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRocks compensation structure with respect to each Funds
portfolio management team and BlackRocks ability to attract and retain high-quality talent and create performance incentives.
In addition to investment
advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services provided to each Fund. BlackRock and its affiliates provide each Fund with
certain administrative, shareholder and other services (in addition to any such services provided to each Fund by third-parties) and officers and other personnel as are necessary for the operations of each Fund. In particular, BlackRock and its
affiliates provide each Fund with administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering
and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of each Fund; (iii) oversight of daily accounting and pricing; (iv) responsibility for periodic filings with regulators
and stock exchanges; (v) overseeing and coordinating the activities of third-party service providers including, among others, each Funds custodian, fund accountant, transfer agent, and auditor; (vi) organizing Board meetings and
preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or
repurposing of certain closed-end funds; and (ix) performing or managing administrative functions necessary for the operation of each Fund, such as tax reporting, expense management, fulfilling regulatory
filing requirements, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRocks fund administration, shareholder services, and legal & compliance departments and considered
BlackRocks policies and procedures for assuring compliance with applicable laws and regulations.
B. The Investment Performance of each Fund and
BlackRock
The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April
Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of each Funds performance as of December 31, 2019, as compared to its Performance Peers. The performance information is based on
net asset value (NAV), and utilizes Lipper data. Lippers methodology calculates a funds total return assuming distributions are reinvested on the ex-date at a funds ex-date NAV. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. In connection with its review, the Board
received and reviewed information regarding the investment performance of each Fund as compared to its Performance Peers and a custom peer group of funds as defined by BlackRock (Customized Peer Group) and a composite measuring a blend
of total return and yield (Composite). The Board and its Performance Oversight Committee regularly review and meet with Fund management to discuss the performance of each Fund throughout the year.
In evaluating performance, the Board focused particular attention on funds with less favorable performance records. The Board also noted that while it found the data
provided by Broadridge generally useful, it recognized the limitations of such data, including in particular, that notable differences may exist between a fund and its Performance Peers (for example, the investment objectives and strategies).
Further, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. The Board also acknowledged that
long-term performance could be impacted by even one period of significant outperformance or underperformance, and that a single investment theme could have the ability to disproportionately affect long-term performance.
The Board noted that for each of the one-, three- and five-year periods reported, BZM ranked in the third quartile against its
Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for BZM, and that BlackRock has explained its rationale for this belief to the Board. The Board
and BlackRock reviewed BZMs underperformance relative to its Customized Peer Group Composite during the applicable periods.
The Board noted that for each of
the one-, three- and five-year periods reported, MHE ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite
is an appropriate performance metric for MHE, and that BlackRock has explained its rationale for this belief to the Board.
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2020 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
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Disclosure of Investment Advisory Agreements (continued)
The Board noted that for the one-, three- and five-year periods reported, MHN ranked in the second, second, and first quartiles, respectively, against its Customized Peer Group Composite. The Board noted that BlackRock believes that the
Customized Peer Group Composite is an appropriate performance metric for MHN, and that BlackRock has explained its rationale for this belief to the Board.
The Board
noted that for each of the one-, three- and five-year periods reported, BQH ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the
Customized Peer Group Composite is an appropriate performance metric for BQH, and that BlackRock has explained its rationale for this belief to the Board.
The Board
noted that for each of the one-, three- and five-year periods reported, BSE ranked in the second quartile against its Customized Peer Group Composite. The Board noted that BlackRock believes that the
Customized Peer Group Composite is an appropriate performance metric for BSE, and that BlackRock has explained its rationale for this belief to the Board.
The Board
noted that for the one-, three- and five-year periods reported, BFY ranked in the second, first, and first quartiles, respectively, against its Customized Peer Group Composite. The Board noted that BlackRock
believes that the Customized Peer Group Composite is an appropriate performance metric for BFY, and that BlackRock has explained its rationale for this belief to the Board.
The Board noted that for each of the one-, three- and five-year periods reported, BHV ranked in the second quartile against its
Customized Peer Group Composite. The Board noted that BlackRock believes that the Customized Peer Group Composite is an appropriate performance metric for BHV, and that BlackRock has explained its rationale for this belief to the Board.
C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services and Estimated Profits Realized by BlackRock and its Affiliates from their
Relationship with each Fund
The Board, including the Independent Board Members, reviewed each Funds contractual management fee rate compared with those of
its Expense Peers. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared each Funds total expense
ratio, as well as its actual management fee rate as a percentage of managed assets, which is the total assets of each Fund (including any assets attributable to money borrowed for investment purposes) minus the sum of each Funds accrued
liabilities (other than money borrowed for investment purposes) to those of its Expense Peers. The total expense ratio represents a funds total net operating expenses, excluding any investment related expenses. The total expense ratio gives
effect to any expense reimbursements or fee waivers, and the actual management fee rate gives effect to any management fee reimbursements or waivers. The Board considered the services provided and the fees charged by BlackRock and its affiliates to
other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).
The Board received and reviewed statements relating to BlackRocks financial condition. The Board reviewed BlackRocks profitability methodology and was also
provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to each Fund. The Board reviewed BlackRocks estimated profitability with respect to each Fund and
other funds the Board currently oversees for the year ended December 31, 2019 compared to available aggregate estimated profitability data provided for the prior two years. The Board reviewed BlackRocks estimated profitability with
respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRocks assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent
limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds
managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at the individual fund level is difficult.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRocks overall
operating margin, in general, compared to that of certain other publicly traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock,
BlackRocks expense management, and the relative product mix.
The Board considered whether BlackRock has the financial resources necessary to attract and retain
high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to
BlackRocks commitment of time, assumption of risk, and liability profile in servicing each Fund, including in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product
channels, as applicable.
The Board noted that BZMs contractual management fee rate ranked in the fourth quartile, and that the actual management fee rate and
total expense ratio ranked in the third and fourth quartiles, respectively, relative to the Expense Peers. In addition, the Board noted that BlackRock had agreed to voluntarily waive a portion of the advisory fee payable by BZM. An advisory fee
waiver has been in effect since 2013, the amount of which may have varied from time to time. After discussion between the Board, including the Independent Board Members, and BlackRock, the Board and BlackRock agreed to increase the voluntary
advisory fee waiver from 5 basis points to 8 basis points. The waiver increase was implemented on June 1, 2020. Given BZMs relatively small size, the Board and BlackRock discussed potential strategic actions for BZM.
The Board noted that MHEs 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 third quartiles, respectively, relative to the Expense Peers. Given MHEs relatively small size, the Board and BlackRock discussed potential strategic actions for MHE.
The Board noted that MHNs contractual management fee rate ranked in the first quartile, and that the actual management fee rate and total expense ratio each ranked
in the first quartile relative to the Expense Peers.
The Board noted that BQHs contractual management fee rate ranked in the fourth quartile, and that the
actual management fee rate and total expense ratio ranked in the first and fourth quartiles, respectively, relative to the Expense Peers. In addition, the Board noted that BlackRock had agreed to voluntarily waive a portion of the advisory fee
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DISCLOSURE OF INVESTMENT ADVISORY AGREEMENTS
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Disclosure of Investment Advisory Agreements (continued)
payable by BQH. An advisory fee waiver has
been in effect since 2016, the amount of which may have varied from time to time. After discussions between the Board, including Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the current 10 basis point
voluntary advisory fee waiver. Given BQHs relatively small size, the Board and BlackRock discussed potential strategic actions for BQH.
The Board noted that
BSEs 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 third quartiles, respectively, relative to the Expense Peers. Given BSEs
relatively small size, the Board and BlackRock discussed potential strategic actions for BSE.
The Board noted that BFYs 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 fourth quartiles, respectively, relative to the Expense Peers. Given BFYs relatively small size, the Board and BlackRock discussed
potential strategic actions for BFY.
The Board noted that BHVs contractual management fee rate ranked in the fourth quartile, and that the actual management
fee rate and total expense ratio ranked in the first and fourth quartiles, respectively, relative to the Expense Peers. The Board also noted that BlackRock had agreed to voluntarily waive a portion of the advisory fee payable by BHV. An advisory fee
waiver has been in effect since 2014, the amount of which may have varied from time to time. After discussions between the Board, including the Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the current
13 basis point voluntary advisory fee waiver.
D. Economies of Scale
The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase. The Board
also considered the extent to which each Fund benefits from such economies of scale in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable each Fund to more fully participate in
these economies of scale. The Board considered each Funds asset levels and whether the current fee was appropriate.
Based on the Boards review and
consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience
substantial growth after the initial public offering. Closed-end funds are typically priced at scale at a funds inception.
E. Other Factors Deemed Relevant by the Board Members
The Board, including
the Independent Board Members, also took into account other ancillary or fall-out benefits that BlackRock or its affiliates may derive from BlackRocks respective relationships with each Fund,
both tangible and intangible, such as BlackRocks ability to leverage its investment professionals who manage other portfolios and its risk management personnel, an increase in BlackRocks profile in the investment advisory community, and
the engagement of BlackRocks affiliates as service providers to each Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRocks overall operations and its efforts to expand
the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by certain registered fund transactions to
assist in managing all or a number of its other client accounts.
In connection with its consideration of the Agreements, the Board also received information
regarding BlackRocks brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund
shares in the secondary market if they believe that each Funds fees and expenses are too high or if they are dissatisfied with the performance of each Fund.
The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund
product line. These initiatives included developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and
other support initiatives for certain BlackRock funds; and continued communication efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRocks 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. BlackRocks support services included, among other things: sponsoring and participating in conferences; communicating with
closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and
enhancing its closed-end fund website.
Conclusion
The Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreements between the Manager and each Fund for a one-year term ending June 30, 2021. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was
satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors
as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were
also assisted by the advice of independent legal counsel in making this determination.
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Fund Investment Objectives, Policies and Risks
Recent Changes
The following information is a summary of certain changes since August 31, 2019. This information may not reflect all of the changes that have occurred since you
purchased the relevant Fund.
Effective March 24, 2020, MHN may enter into reverse repurchase agreements. The Funds use of reverse repurchase
agreements may generate taxable income for the Fund and may increase the amount of ordinary income distributions paid to shareholders. See Risk Factors Reverse Repurchase Agreements below for a discussion of the risks associated
with the use of reverse repurchase agreements to which MHN is now subject.
Except as noted above, during each Funds most recent fiscal year, there were no
material changes in the Funds investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with investment in the Fund.
Investment Objectives and Policies
BlackRock Maryland Municipal Bond
Trust (BZM)
The Funds investment objective is to provide current income exempt from regular federal income taxes and Maryland personal income tax. As a
fundamental policy, under normal market conditions, the Fund will invest at least 80% of its managed assets in municipal bonds, the interest of which is exempt from regular federal income tax and Maryland personal income tax. The Fund cannot change
its investment objective or the foregoing fundamental policy without the approval of the holders of a majority of the outstanding common shares and the outstanding preferred shares, including the variable rate demand preferred shares (VRDP
Shares), voting together as a single class, and of the holders of a majority of the outstanding preferred shares, including the VRDP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present
at a meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding shares, whichever is less.
Under normal market conditions, the Fund invests at least 80% of its managed assets in investment grade quality municipal bonds. Investment grade quality means that such
bonds are rated, at the time of investment, within the four highest quality ratings as determined by either Moodys (currently Aaa, Aa, A and Baa), S&P (currently AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB) or are unrated
but judged to be of comparable quality by BlackRock Advisors, LLC (the Manager). Municipal bonds rated Baa by Moodys are investment grade, but Moodys considers municipal bonds rated Baa to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for issuers of municipal bonds that are rated BBB or Baa (or that have equivalent ratings) to make principal and interest payments than is the case
for issues of higher grade municipal bonds. In the case of short term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG 1
through MIG 3 for Moodys and F1+ through F3 for Fitch. In the case of tax exempt commercial paper, the investment grade rating categories are A-1+ through
A-3 for S&P, Prime-1 through Prime-3 for Moodys and F1+ through F3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and Prime-3 for Moodys and BBB and F3 for
Fitch), while considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set
forth above. In assessing the quality of municipal bonds with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular municipal bonds are entitled
and the creditworthiness of the financial institution that provided such credit enhancement.
The Fund may invest up to 20% of its managed assets in municipal bonds
that are rated, at the time of investment, Ba/BB or B by Moodys, S&P or Fitch or that are unrated but judged to be of comparable quality by the Manager. Securities rated Ba/BB or below are commonly referred to as high yield or
junk bonds and are regarded as predominantly speculative with respect to the issuers capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than
securities in higher rating categories. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuers ability to pay interest and any required
redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments.
All percentage and
ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated if an investment rating is subsequently downgraded to a rating that would have precluded the Funds
initial investment in such security. In determining whether to retain or sell a security that a rating agency has downgraded, the Manager may consider such factors as the Managers assessment of the credit quality of the issuer of the security,
the price at which the security could be sold and the rating, if any, assigned to the security by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a
greater risk of loss than if such security had been sold prior to such downgrade.
Subject to the Funds policy, under normal market conditions, of investing at
least 80% of its managed assets in municipal bonds, the interest from which is exempt from Maryland personal income tax, the Fund may invest in securities that pay interest that is not exempt from Maryland personal income tax when, in the judgment
of the Manager, the return to the shareholders after payment of applicable Maryland personal income tax would be higher than the return available from comparable securities that pay interest that is, or make other distributions that are, exempt from
Maryland personal income tax.
The Fund may also invest in securities of other open- or closed-end investment companies that
invest primarily in municipal bonds of the types in which the Fund may invest directly and in tax-exempt preferred shares that pay dividends that are exempt from regular federal income tax. In addition, the
Fund may purchase municipal bonds that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the
insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Funds income. The insurance feature does not guarantee the market value of the insured
obligations or the net asset value of the common shares. The Fund may purchase insured bonds and may purchase insurance for bonds in its portfolio.
The Fund may
invest in certain tax exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (PABs) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The percentage of the Funds total assets invested in PABs
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will vary from time to time. The Fund has
not established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to the federal alternative minimum tax provisions of federal tax law, and the Fund expects that a portion of the income it produces will be
includable in alternative minimum taxable income. VRDP Shares may not be a suitable investment for investors who are subject to the federal alternative minimum tax or who would become subject to the federal alternative minimum tax as a result of
purchasing VRDP Shares. The suitability of an investment in VRDP Shares will depend upon a comparison of the after-tax yield likely to be provided from the Fund with that from comparable tax-exempt investments not subject to the federal alternative minimum tax, and from comparable fully taxable investments, in light of each such investors tax position. Special considerations may apply to
corporate investors.
The average maturity of the Funds portfolio securities will vary based upon the Managers assessment of economic and market
conditions. The Funds portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The Funds stated expectation is that
it may invest in municipal bonds that, in the Managers opinion, are underrated or undervalued. Underrated municipal bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness. Undervalued
municipal bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for example, but not
limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the Manager considers undervalued,
even if the value of those particular bonds appears to be consistent with the value of similar bonds. Municipal bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal bonds of the market sector for reasons that do not apply to the particular
municipal bonds that are considered undervalued. The Funds investment in underrated or undervalued municipal bonds will be based on the Managers belief that their yield is higher than that available on bonds bearing equivalent levels of
interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally result in capital gain
distributions subject to federal capital gains taxation.
The Fund ordinarily does not intend to realize significant investment income not exempt from federal income
taxes. From time to time, the Fund may realize taxable capital gains.
Federal tax legislation may limit the types and volume of bonds the interest on which qualifies
for a U.S. federal income tax exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of municipal bonds for investment by the Fund.
The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps)
and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts. These derivative transactions
may be used for duration management and other risk management to attempt to protect against possible changes in the market value of the Funds portfolio resulting from trends in the debt securities markets and changes in interest rates, to
protect the Funds unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities markets as a temporary substitute for purchasing
particular securities and to enhance income or gain.
Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common
shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual interest municipal tender option bonds (TOB Residuals), which are
derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.
The Fund may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions
which otherwise might require untimely dispositions of Fund securities.
The Fund may enter into reverse repurchase agreements with respect to its portfolio
investments subject to the Funds investment restrictions.
The Fund reserves the right to borrow funds subject to the Funds investment restrictions. The
proceeds of borrowings may be used for any valid purpose including, without limitation, liquidity, investments and repurchases of shares of the Fund.
Other
Investment Policies: The Fund may invest up to 10% of its total assets in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the types in which the
Fund may invest directly, subject to certain requirements.
The Fund may invest up to 10% of its total assets in preferred interests of other investment funds that
pay dividends that are exempt from regular federal income tax, subject to certain requirements.
During temporary defensive periods (e.g., times when, in the
Managers opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax- exempt bond market adversely affect the price at which long-term or intermediate-term municipal
bonds are available), and in order to keep cash on hand fully invested, the Fund may invest up to 100% of its net assets in liquid, short-term investments including high quality, short-term securities which may be either tax-exempt or taxable and securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the type in which the Fund may invest
directly. The Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt temporary investments are not available at reasonable prices and yields. The Funds
investment policies provide that it will invest only in taxable temporary investments which are U.S. government securities or securities rated within the highest grade by Moodys, S&P or Fitch, and which mature within one year from the date
of purchase or carry a variable or floating rate of interest (such short-term obligations being referred to herein as Temporary Investments). Temporary Investments of the Fund may include certificates of deposit issued by U.S. banks with
assets of at least $1 billion, commercial paper or corporate notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in Temporary Investments, the Fund will not at such
times be in a position to achieve its investment objective of tax-exempt income.
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Fund Investment Objectives, Policies and Risks (continued)
Short-term taxable fixed-income investments
include, without limitation, the following: (i) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies
or instrumentalities, (ii) certificates of deposit issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which
consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed-income securities are
securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance.
Short-term
tax-exempt fixed-income securities include, without limitation, the following: (i) Bond Anticipation Notes (BANs), which are usually general obligations of state and local governmental issuers
which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds, (ii) Tax Anticipation Notes (TANs), which are issued by state and local governments to
finance the current operations of such governments, (iii) Revenue Anticipation Notes (RANs), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to
repay the notes, (iv) Construction Loan Notes, which are issued to provide construction financing for specific projects, (v) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of
borrowings, and (vi) Tax-Exempt Commercial Paper (municipal paper), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their
agencies.
Certain municipal bonds may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with changes in specified
market rates or indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may make short sales of
municipal bonds. The Fund may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio flexibility or to enhance income or gain.
The Fund may invest in restricted and illiquid securities.
The Fund may lend portfolio
securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
BlackRock Massachusetts Tax-Exempt Trust (MHE)
The Funds investment objective is to seek as high a level of current income exempt from both
regular U.S. federal income taxes and Massachusetts personal income taxes as is consistent with the preservation of shareholders capital. There can be no assurance that the Fund will achieve its investment objective.
The Fund seeks to achieve its investment objective by investing primarily in Massachusetts tax- exempt obligations (including
bonds, notes and capital lease obligations). The Fund is subject to certain restrictions and investment policies which require it, under normal market conditions (i) to invest at least 80% of its total assets in obligations that are deemed to
be investment grade, and (ii) to invest its assets so that, during any fiscal year, at least 80% of the income generated by the Fund will be exempt from regular federal income taxes and Massachusetts personal income taxes and from
the federal alternative minimum tax. The Fund may invest directly in such securities or synthetically through the use of derivatives. Policy (ii) is considered fundamental and may not be changed without the approval of a majority of the
outstanding common shares and outstanding preferred shares of the Fund (including the variable rate demand preferred shares (VRDP Shares) and any other preferred shares), voting as a single class and a majority of the outstanding
preferred shares of the Fund (including the VRDP Shares and any other preferred shares), voting as a separate class, within the meaning of the 1940 Act, i.e., a vote of (i) 67% or more of the shares present at a meeting, if the holders of more than
50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less. Policy (i) may be changed by the Board of Trustees of the Fund without shareholder approval.
The Fund also may invest up to 20% of its total assets in other municipal obligations which are issued by or on behalf of states, territories and possessions of the
United States and their political subdivisions, agencies or instrumentalities, each of which pays interest that is excludable from gross income for federal income tax purposes, in the opinion of bond counsel to the issuer, but do not enable shares
of the Fund to be exempt from Massachusetts personal income taxes (Municipal Obligations). Massachusetts Municipal Obligations are municipal obligations bearing interest that, in the opinion of bond counsel to the issuer, is
exempt from both regular U.S. federal income taxes and Massachusetts personal income taxes. Unless otherwise noted, the term Municipal Obligations also includes Massachusetts Municipal Obligations.
The Fund will consider securities to be investment grade if they are rated within the four highest quality ratings as determined by either S&P Global
Ratings (S&P) (currently AAA, AA, A and BBB), Moodys Investors Service, Inc. (Moodys) (currently Aaa, Aa, A and Baa) or Fitch Ratings (Fitch) (currently AAA, AA, A and BBB) at the time of investment or,
if unrated, determined to be of comparable quality at the time of investment by the Manager. In the case of short term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moodys and F-1+ through F-3 for Fitch. In the case of tax- exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moodys and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moodys and BBB and F-3 for Fitch), while considered investment grade, may have certain
speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of Massachusetts Municipal Obligations
or other Municipal Obligations with respect to the foregoing requirements, the BlackRock Advisors, LLC (the Manager) takes into account the municipal bond insurance as well as the nature of any letters of credit or similar credit
enhancement to which particular Municipal Obligations are entitled and the creditworthiness of the financial institution which provided such municipal bond insurance or credit enhancement. Insurance is expected to protect the Fund against losses
caused by a bond issuers failure to make interest or principal payments. However, insurance does not protect the Fund or its stockholders against losses caused by declines in a bonds market value. If a bonds insurer fails to
fulfill its obligations or loses its credit rating, the value of the bond could drop. If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest.
The Fund may invest up to 20% of its total assets in non-investment grade securities that are rated below Baa by Moodys or
below BBB by S&P or Fitch or are unrated securities that are considered by the Manager to possess similar credit characteristics. The Fund will not, however, invest in any securities rated lower than B by S&P or Moodys, or any unrated
security unless such unrated security is, in the opinion of the Manager, comparable to securities rated at least B.
The foregoing credit quality policies apply only
at the time a security is purchased, and the Fund is not required to dispose of a security as a result of subsequent market movements or if a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining
whether to retain or sell a security that a rating
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agency has downgraded, the Manager may
consider such factors as the Managers assessment of the credit quality of the issuer of the security, the price at which the security could be sold and the rating, if any, assigned to the security by other rating agencies. In the event that
the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The Fund may also purchase Municipal Obligations that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies
which provide these credit enhancements will affect the value of those securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the
Funds income. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares. The Fund may purchase insured bonds and may purchase insurance for bonds in its portfolio.
The Fund may invest in certain tax exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (PABs) (in general, bonds that benefit non- governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The
percentage of the Funds total assets invested in PABs will vary from time to time. Other than the general requirement that at least 80% of the income generated by the Fund be exempt from regular Federal income taxes and Massachusetts personal
income taxes and from the federal alternative minimum tax, the Fund has not established any limit on the percentage of its portfolio that may be invested in Municipal Obligations subject to the federal alternative minimum tax provisions of federal
tax law, and the Fund expects that a portion of the income it produces will be includable in alternative minimum taxable income.
The Trust invests primarily in long
term municipal obligations with maturities of more than ten years. The average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and market conditions by the Manager. The Funds
portfolio at any given time may include long-term, intermediate-term and short-term Municipal Obligations.
The net asset value of the shares of common stock of a closed-end investment company, such as the Fund, which invests primarily in fixed-income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a
fixed-income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed-income portfolio can be expected to decline. Prices of longer term securities generally fluctuate more in response to interest rate changes
than do shorter term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Fund.
The Funds stated expectation is that it will invest in Municipal Obligations that, in the Managers opinion, are underrated or undervalued. Underrated
Municipal Obligations are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness. Undervalued Municipal Obligations are bonds that, in the opinion of the Manager, are worth more than the value assigned
to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The
Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the Manager considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar
bonds. Municipal Obligations of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that
market sector, or because of a general decline in the market price of Municipal Obligations of the market sector for reasons that do not apply to the particular Municipal Obligations that are considered undervalued. The Funds investment in
underrated or undervalued Municipal Obligations will be based on the Mangers belief that their yield is higher than that available on bonds bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their
prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally result in capital gain distributions subject to federal capital gains taxation.
The Fund ordinarily does not intend to realize significant investment income not exempt from regular U.S. federal income tax. From time to time, the Fund may realize
taxable capital gains.
Federal tax legislation may limit the types and volume of bonds the interest on which qualifies for a federal income tax exemption. As a
result, current legislation and legislation that may be enacted in the future may affect the availability of Municipal Obligations for investment by the Fund.
The
Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit default swaps) and may purchase and sell exchange-listed and over-the-counter put and call options on securities and swap contracts, financial indices and futures contracts and use other derivative instruments or management techniques. These derivative transactions may
be used for duration management and other risk management purposes, subject to the Funds investment restrictions. While the Funds use of derivative transactions is intended to reduce the volatility of the net asset value of the
Funds common shares, the net asset value of the Funds common shares will fluctuate. No assurance can be given that the Funds derivative transactions will be effective.
Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all
interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual interest municipal tender option bonds (TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals
in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.
The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Funds investment restrictions. The Fund may enter
into dollar roll transactions.
The Fund may enter into derivative transactions that have economic leverage embedded in them.
The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund securities.
Other Investment Policies: During temporary defensive periods (e.g.,
times when, in the Managers opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax-exempt bond market adversely affect the price at which long-term or
intermediate-term obligations are available), or in order to keep cash on hand fully invested, the Fund may invest in high quality, short-term Massachusetts Municipal Obligations the income on which will be exempt from both regular federal income
taxes and
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Fund Investment Objectives, Policies and Risks (continued)
Massachusetts personal income taxes, or, if
such securities are not available at reasonable prices and yields, in comparable temporary investments, the income on which will be subject to Massachusetts personal income taxes or to both regular federal income taxes and Massachusetts personal
income taxes. Tax-exempt temporary investments include various obligations issued by state and local governmental issuers, such as tax-exempt notes (bond anticipation
notes, tax anticipation notes and revenue anticipation notes or other such Municipal Obligations maturing in three years or less from the date of issuance) and municipal commercial paper. The Fund may make taxable temporary investments (i.e., those
which are subject to both regular federal income taxes or Massachusetts personal income taxes, or both) if they are U.S. Government securities or securities rated within the highest grade by S&P, and mature within one year from the date of
purchase or carry a variable or floating rate of interest. Taxable temporary investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, or commercial paper or corporate notes, bonds or
debentures with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund makes substantial temporary investments in securities the income on which is subject to regular federal income taxes or Massachusetts personal
income taxes, or both, the Fund will not at such times be in a position to achieve its investment objective.
The Fund may invest in securities pursuant to repurchase
agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer or an affiliate thereof, in U.S. Government securities or an affiliate thereof.
The Fund may invest in restricted and illiquid securities.
The Fund may lend portfolio
securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
BlackRock MuniHoldings New
York Quality Fund, Inc. (MHN)
The Funds investment objective is to provide shareholders with current income exempt from federal income tax and New York
State and New York City personal income taxes. The Funds investment objective is a fundamental policy that may not be changed without a vote of a majority of the Funds outstanding voting securities. The Fund seeks to achieve its
investment objective by investing at least 80% of its assets in municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from federal income tax and New York State and New York City personal income taxes
(New York Municipal Bonds), except at times when BlackRock Advisors, LLC (the Manager) considers that New York Municipal Bonds of sufficient quantity and quality are unavailable at suitable prices. To the extent that the
Manager considers that suitable New York Municipal Bonds are not available for investment, the Fund may purchase municipal obligations exempt from federal income taxes but not New York personal income taxes (Municipal Bonds). At all
times, at least 65% of the Funds total assets will be invested in New York Municipal Bonds and at least 80% of each Funds total assets will be invested in New York Municipal Bonds and Municipal Bonds, except during interim periods
pending investment of the net proceeds of public offerings of its securities and during temporary defensive periods. The Fund may invest directly in such securities or synthetically through the use of derivatives. Under normal circumstances, at
least 80% of the Funds assets will be invested in municipal obligations with remaining maturities of one year or more. There can be no assurance that the Funds investment objective will be realized.
The Fund may invest in certain tax-exempt securities classified as private activity bonds (or industrial development
bonds, under pre-1986 law) (PABs) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative
minimum tax. The percentage of the Funds total assets invested in PABs will vary from time to time.
The investment grade Municipal Bonds in which the Fund will
primarily invest are those Municipal Bonds that are rated at the date of purchase in the four highest rating categories of S&P, Moodys or Fitch or, if unrated, are considered to be of comparable quality by the Manager. In the case of
long-term debt, the investment grade rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for Moodys. In the case of short-term notes, the investment grade rating categories are
SP-1 + through SP-2 for S&P, MIG-1 through MIG-3 for Moodys and F-1 + through F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moodys and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moodys; and BBB and F-3 for Fitch), while
considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In
assessing the quality of New York Municipal Bonds and Municipal Bonds with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular New York Municipal
Bonds and Municipal Bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement. All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an
investment and shall not be considered violated if an investment rating is subsequently downgraded to a rating that would have precluded the Funds initial investment in such security. In the event that the Fund disposes of a portfolio security
subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The Fund may invest
up to 20% of its managed assets in securities that are rated below investment grade, or are considered by BlackRock to be of comparable quality, at the time of purchase, subject to the Funds other investment policies. Bonds of below investment
grade quality are regarded as having predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. Such securities are sometimes referred to as high yield or junk
bonds.
The Fund intends to invest primarily in long-term Municipal Bonds with maturities of more than ten years. However, the Fund also may invest in intermediate
term Municipal Bonds with maturities of between three years and ten years. The Fund also may invest from time to time in short-term Municipal Bonds with maturities of less than three years. The average maturity of the Funds portfolio
securities will vary based upon the Managers assessment of economic and market conditions.
The Fund may invest in short-term,
tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Such short-term securities or cash will not exceed 20% of its total assets except during interim periods pending
investment of the net proceeds of public offerings of the Funds securities or in anticipation of the repurchase or redemption of the Funds securities and temporary periods when, in the opinion of the Manager, prevailing market or
financial conditions warrant. The Fund also may invest in variable rate demand obligations (VRDOs) and VRDOs in the form of participation interests (Participating VRDOs) in variable rate
tax-exempt obligations held by a financial institution. The Funds hedging strategies are not fundamental policies and may be modified by the Board of Directors of the Fund without the approval of the
Funds stockholders. The Fund is also authorized to invest in indexed and inverse floating rate obligations for hedging purposes and to seek to enhance return.
The Fund may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such
securities pay interest that is excludable from gross income for federal income tax purposes and, if applicable, exempt from New York State and New York City personal income taxes
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Fund Investment Objectives, Policies and Risks (continued)
(Non-Municipal Tax-Exempt Securities).
Non-Municipal Tax-Exempt Securities could include trust certificates, partnership interests or other instruments evidencing interest in one or more long-term Municipal
Bonds. Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in New York Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Funds investment restrictions and applicable law, including the 1940 Act. Non-Municipal Tax-Exempt Securities
are subject to the same risks associated with an investment in Municipal Bonds as well as many of the risks associated with investments in derivatives. For purposes of the Funds investment objective and policies,
Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income taxes and New York personal income taxes will be considered New York
Municipal Bonds and Non-Municipal Tax-Exempt Securities that pay interest that is exempt from federal income taxes will be considered Municipal Bonds.
The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax and New York personal income tax. From time to time,
the
Fund may realize taxable capital gains.
Federal tax legislation has limited
the types and volume of bonds the interest on which qualifies for a federal income tax-exemption. As a result, this legislation and legislation that may be enacted in the future may affect the availability of
Municipal Bonds for investment by the Fund.
The Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use
of options and certain financial futures contracts and options thereon. The Fund may purchase and sell futures contracts and exchange- listed and over-the-counter put
and call options on futures contracts as a hedging strategy. In order to seek to hedge the value of the Fund against interest rate fluctuations, to hedge against increases in the Funds costs associated with the dividend payments on any
preferred shares or to seek to increase the Funds return, the Fund may enter into interest rate swap transactions such as Municipal Market Data AAA Cash Curve swaps or Bond Market Association Municipal Swap Index swaps. The Fund may enter into
credit default swap agreements for hedging purposes or to seek to increase its return.
Leverage: The Fund may utilize leverage to seek to enhance the yield
and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of variable rate demand preferred shares (VRDP Shares) and
residual interest municipal tender option bonds (TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of
such TOB Residuals, is exempt from regular U.S. federal income tax.
The Fund is authorized to borrow money in amounts of up to 5% of the value of its total assets at
the time of such borrowings; provided, however, that the Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common shares pursuant to
tender offers or otherwise to redeem or repurchase preferred shares.
Other Investment Policies:The Fund may invest in short-term tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Such short- term securities or cash will not exceed 20% of its total assets except during interim periods pending
investment of the net proceeds of public offerings of the Funds securities or in anticipation of the repurchase or redemption of the Funds securities and temporary periods when, in the opinion of the Manager, prevailing market or
financial conditions warrant. Tax-exempt money market securities may include municipal notes, municipal commercial paper, Municipal Bonds with a remaining maturity of less than one year, variable rate demand
notes and participations therein. Municipal Notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes and grant anticipation notes. Anticipation notes are sold as interim financing in anticipation of tax collection,
bond sales, government grants or revenue receipts. Municipal commercial paper refers to short-term unsecured promissory notes generally issued to finance short-term credit needs.
Short-term tax-exempt fixed-income securities are securities that are exempt from regular federal income tax and mature within
three years or less from the date of issuance. Short-term tax-exempt fixed-income securities include, without limitation, the following: (i) Bond Anticipation Notes (BANs), which are usually
general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds, (ii) Tax Anticipation Notes
(TANs), which are issued by state and local governments to finance the current operations of such governments, (iii) Revenue Anticipation Notes (RANs), which are issued by governments or governmental bodies with the
expectation that future revenues from a designated source will be used to repay the notes, (iv) Construction Loan Notes, which are issued to provide construction financing for specific projects, (v) Bank Notes, which are notes issued by
local government bodies and agencies to commercial banks as evidence of borrowings, and (vi) Tax-Exempt Commercial Paper (municipal paper), which represents very short-term unsecured,
negotiable promissory notes, issued by states, municipalities and their agencies.
The Fund may invest in variable rate demand obligations and Participating variable
rate demand obligations. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy its short-term maturity and quality standards.
Certain municipal bonds may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or
indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may invest in repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. The Fund may not invest in repurchase agreements maturing in more than seven
days if such investments, together with all other illiquid investments, would exceed 15% of the Funds net assets.
BlackRock New York Municipal Bond Trust
(BQH)
The Funds investment objective is to provide current income exempt from regular federal income tax and New York State and New York City personal
income tax. The Funds investment policies provide that, as a matter of fundamental policy, under normal market conditions, the Fund will invest at least 80% of its Managed Assets in investments the income from which is exempt from federal
income tax and New York State and New York City personal income tax (except that interest may be subject to the alternative minimum tax). Managed Assets means the total assets of the Fund (including any assets attributable to any
preferred shares that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). The Fund may not change its investment objective or the foregoing fundamental policy without the approval of the
holders of a majority of the outstanding common shares and the outstanding preferred shares, including the variable rate demand preferred shares (VRDP Shares), voting together as a single class, and of the holders of a majority of the
outstanding preferred shares, including the VRDP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) more than 50% of the outstanding shares, whichever is less.
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Fund Investment Objectives, Policies and Risks (continued)
The Funds investment policies provide
that, under normal market conditions, the Fund will invest at least 80% of its Managed Assets in investment grade quality municipal bonds. Investment grade quality means that such bonds are rated, at the time of investment, within the four highest
grades (Baa or BBB or better by Moodys, S&P or Fitch) or are unrated but judged to be of comparable quality by BlackRock Advisors, LLC (the Manager). Municipal bonds rated Baa by Moodys are investment grade, but
Moodys considers municipal bonds rated Baa to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for issuers of municipal bonds that are rated BBB or Baa (or
that have equivalent ratings) to its financial commitment on the obligation than is the case for issuers of higher grade municipal bonds. In the case of short term notes, the investment grade rating categories are
SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moodys and F-1+ through F-3 for Fitch. In the case of tax exempt commercial paper, the investment grade rating categories are A-1+
through A-3 for S&P, Prime-1 through Prime-3 for Moodys and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moodys and BBB and F-3 for Fitch), while considered investment grade, may have certain
speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of municipal bonds with respect to the
foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular municipal bonds are entitled and the creditworthiness of the financial institution that provided such credit
enhancement.
The Fund may invest up to 20% of its Managed Assets in municipal bonds that are rated, at the time of investment, Ba/BB or B by Moodys, S&P or
Fitch or that are unrated but judged to be of comparable quality by the Manager. Bonds of below investment grade quality are regarded as having predominantly speculative characteristics with respect to the issuers capacity to pay interest and
repay principal. Such securities are sometimes referred to as high yield or junk bonds.
The foregoing credit quality policies apply only at
the time a security is purchased, and the Fund is not required to dispose of a security if a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell a security that a
rating agency has downgraded, the Manager may consider such factors as the Managers assessment of the credit quality of the issuer of the security, the price at which the security could be sold and the rating, if any, assigned to the security
by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
Subject to the Funds policy of investing, under normal market conditions, at least 80% of its Managed Assets in investments the income from which is exempt from
federal income tax and New York State and New York City personal income tax, the Fund may invest in securities that pay interest that is not exempt from New York State and New York City personal income tax when, in the judgment of the Manager, the
return to the shareholders after payment of applicable New York State and New York City personal income tax would be higher than the return available from comparable securities that pay interest that is, or make other distributions that are, exempt
from New York State and New York City personal income tax.
The Fund may also invest in securities of other open- or
closed-end investment companies that invest primarily in municipal bonds of the types in which the Fund may invest directly and in tax-exempt preferred shares that pay
dividends that are exempt from regular federal income tax. In addition, the Fund may purchase municipal bonds that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these
credit enhancements will affect the value of those securities. Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Funds income. The
insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares.
The Fund may invest in certain tax
exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (in general, bonds that benefit non-governmental
entities) that may subject certain investors in the Fund to a federal alternative minimum tax. The percentage of the Funds total assets invested in private activity bonds will vary from time to time. The Fund has not established any limit on
the percentage of its portfolio that may be invested in municipal bonds subject to the federal alternative minimum tax provisions of federal tax law, and the Fund expects that a portion of the income it produces will be includable in alternative
minimum taxable income.
The average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and market
conditions by the Manager. The Funds portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The Funds stated
expectation is that it will invest in municipal bonds that, in the Managers opinion, are underrated or undervalued. Underrated municipal bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher
creditworthiness. Undervalued municipal bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market
sector (for example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the
Manager considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar bonds. Municipal bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or
bonds issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal bonds of the market sector for reasons that do
not apply to the particular municipal bonds that are considered undervalued. The Funds investment in underrated or undervalued municipal bonds will be based on the Managers belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally
result in capital gain distributions subject to federal capital gains taxation. The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital
gains.
The Fund may purchase and sell futures contracts, enter into various interest rate transactions and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts. These derivative transactions may be used for duration management and other risk
management to attempt to protect against possible changes in the market value of the Funds portfolio resulting from trends in the debt securities markets and changes in interest rates, to protect the Funds unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities markets as a temporary substitute for purchasing particular securities and to enhance income or gain.
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Fund Investment Objectives, Policies and Risks (continued)
Leverage: The Fund may utilize
leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual
interest municipal tender option bonds (TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB
Residuals, is exempt from regular U.S. federal income tax.
The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to
the Funds investment restrictions.
The Fund reserves the right to borrow funds subject to the Funds investment restrictions. The proceeds of borrowings
may be used for any valid purpose including, without limitation, liquidity, investments and repurchases of shares of the Fund.
Other Investment
Policies: The Fund may invest up to 10% of its total assets in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the types in which the Fund
may invest directly, subject to certain requirements.
The Fund may invest up to 10% of its total assets in preferred interests of other investment funds that pay
dividends that are exempt from regular federal income tax.
During temporary defensive periods (e.g., times when, in the Managers opinion, temporary imbalances
of supply and demand or other temporary dislocations in the tax- exempt bond market adversely affect the price at which long-term or intermediate-term municipal bonds are available), and in order to keep cash
on hand fully invested, the Fund may invest up to 100% of its net assets in liquid, short-term investments including high quality, short-term securities which may be either tax-exempt or taxable and securities
of other open- or closed-end investment companies that invest primarily in municipal bonds of the type in which the Fund may invest directly. The Fund intends to invest in taxable short-term investments only
in the event that suitable tax-exempt temporary investments are not available at reasonable prices and yields. The Funds investment policies provide that it will invest only in taxable temporary
investments which are U.S. government securities or securities rated within the highest grade by Moodys, S&P or Fitch, and which mature within one year from the date of purchase or carry a variable or floating rate of interest (such
short-term obligations being referred to herein as Temporary Investments). Temporary Investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, commercial paper or corporate
notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in Temporary Investments, the Fund will not at such times be in a position to achieve its investment objective of tax-exempt income.
Short-term taxable fixed-income investments include, without limitation, the following: (i) U.S. Government
securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities, (ii) certificates of deposit issued
against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which consists of short-term unsecured promissory notes, including
variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed-income securities are securities that are exempt from regular federal income tax and
mature within three years or less from the date of issuance.
Short-term tax-exempt fixed-income securities include, without
limitation, the following: (i) Bond Anticipation Notes (BANs), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded
through the sale of long-term debt obligations or bonds, (ii) Tax Anticipation Notes (TANs), which are issued by state and local governments to finance the current operations of such governments, (iii) Revenue Anticipation
Notes (RANs), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iv) Construction Loan Notes, which are issued to provide
construction financing for specific projects, (v) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings, and (vi) Tax-Exempt
Commercial Paper (municipal paper), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies.
Certain municipal bonds may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or
indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may make short sales of municipal bonds. The
Fund may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio flexibility or, to the extent applicable, to enhance income or gain.
The Fund may invest in restricted and illiquid securities.
The Fund may lend portfolio
securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
BlackRock New York Municipal
Income Quality Trust (BSE)
The Funds investment objective is to provide current income exempt from Federal income tax, including the alternative minimum
tax, and New York State and New York City personal income taxes.
The Funds investment policies provide that, as a matter of fundamental policy, under normal
market conditions, the Fund will invest at least 80% of its Managed Assets in investments the income from which is exempt from federal income tax, including the alternative minimum tax, and New York State and New York City personal income tax.
Managed Assets means the total assets of the Fund (including any assets attributable to any preferred shares that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). The Fund
intends to be fully invested in such municipal bonds. The Fund will not invest in any bond if the interest on that bond is subject to the alternative minimum tax. The Fund may not change its investment objective or the foregoing fundamental policy
without the approval of the holders of a majority of the outstanding common shares and the outstanding preferred shares, including the variable rate demand preferred shares (VRDP Shares), voting together as a single class, and of the
holders of a majority of the outstanding preferred shares, including the VRDP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding shares, whichever is less.
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2020 BLACKROCK ANNUAL
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Fund Investment Objectives, Policies and Risks (continued)
The Funds investment policies provide
that, under normal market conditions, the Fund will invest primarily in investment grade quality municipal bonds. Investment grade quality means that such bonds are rated, at the time of investment, within the four highest grades (Baa or BBB or
better by Moodys, S&P or Fitch) or are unrated but judged to be of comparable quality by BlackRock Advisors, LLC (the Manager). Municipal bonds rated Baa by Moodys are investment grade, but Moodys considers
municipal bonds rated Baa to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for issuers of municipal bonds that are rated BBB or Baa (or that have equivalent
ratings) to make principal and interest payments than is the case for issuers of higher grade municipal bonds. In the case of short term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moodys and F-1+ through F-3 for Fitch. In the case of tax exempt commercial paper, the investment grade rating categories are A-1+ through A-3 for
S&P, Prime-1 through Prime-3 for Moodys and F-1+ through F-3 for Fitch.
Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3
for S&P; Baa, MIG-3 and Prime-3 for Moodys and BBB and F-3 for Fitch), while considered investment grade,
may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of municipal bonds
with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular municipal bonds are entitled and the creditworthiness of the financial institution that
provided such credit enhancement.
The Fund may invest up to 20% of its managed assets in securities that are rated below investment grade, or are considered by
BlackRock to be of comparable quality, at the time of purchase, subject to the Funds other investment policies. Bonds of below investment grade quality are regarded as having predominantly speculative characteristics with respect to the
issuers capacity to pay interest and repay principal. Such securities are sometimes referred to as high yield or junk bonds.
The Fund
may invest directly in such securities or synthetically through the use of derivatives.
The foregoing credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security if a rating agency downgrades its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell a security that a rating agency has
downgraded, the Manager may consider such factors as the Managers assessment of the credit quality of the issuer of the security, the price at which the security could be sold and the rating, if any, assigned to the security by other rating
agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
The Fund may also invest in securities of other open- or closed-end investment companies that invest primarily in municipal bonds
of the types in which the Fund may invest directly and in tax-exempt preferred shares that pay dividends that are exempt from regular federal income tax. In addition, the Fund may purchase municipal bonds that
are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the insurance feature reduces certain
financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Funds income. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of
the common shares.
The average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and market conditions
by the Manager. The Funds portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The Funds stated expectation is
that it will invest in municipal bonds that, in the Managers opinion, are underrated or undervalued. Underrated municipal bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness.
Undervalued municipal bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for
example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the Manager
considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar bonds. Municipal bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds
issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal bonds of the market sector for reasons that do not
apply to the particular municipal bonds that are considered undervalued. The Funds investment in underrated or undervalued municipal bonds will be based on the Managers belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally
result in capital gain distributions subject to federal capital gains taxation. The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital
gains.
The Fund may purchase and sell futures contracts, enter into various interest rate transactions and swap contracts (including, but not limited to, credit
default swaps) and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts. These
derivative transactions may be used for duration management and other risk management to attempt to protect against possible changes in the market value of the Funds portfolio resulting from trends in the debt securities markets and changes in
interest rates, to protect the Funds unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities markets as a temporary substitute for
purchasing particular securities and to enhance income or gain.
Leverage: The Fund may utilize leverage to seek to enhance the yield and net asset value of
its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual interest municipal tender option bonds (TOB Residuals),
which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S. federal income tax.
The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to the Funds investment restrictions. The Fund reserves the
right to borrow subject to the Funds investment restrictions. The proceeds of borrowings may be used for any valid purpose including, without limitation,
liquidity, investments and repurchases of shares of the Fund.
Other Investment
Policies:The Fund may invest up to 10% of its total assets in securities of other open- or closed- end investment companies that invest primarily in municipal bonds of the types in which the Fund may invest directly, subject to certain
requirements.
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Fund Investment Objectives, Policies and Risks (continued)
The Fund may also invest up to 10% of its
total assets in preferred interests of other investment funds that pay dividends that are exempt from regular federal income tax, including the alternative minimum tax, and New York State and New York City personal income taxes, subject to certain
requirements.
During temporary defensive periods (e.g., times when, in the Managers opinion, temporary imbalances of supply and demand or other temporary
dislocations in the tax- exempt bond market adversely affect the price at which long-term or intermediate-term municipal bonds are available), and in order to keep cash on hand fully invested, the Fund may
invest up to 100% of its net assets in liquid, short-term investments including high quality, short-term securities which may be either tax-exempt or taxable and securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the type in which the Fund may invest directly. The Fund intends to invest in taxable short-term investments only in the event that
suitable tax-exempt temporary investments are not available at reasonable prices and yields. The Funds investment policies provide that it will invest only in taxable temporary investments which are U.S.
government securities or securities rated within the highest grade by Moodys, S&P or Fitch, and which mature within one year from the date of purchase or carry a variable or floating rate of interest (such short-term obligations being
referred to herein as Temporary Investments). Temporary Investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, commercial paper or corporate notes, bonds or debentures
with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in Temporary Investments, the Fund will not at such times be in a position to achieve its investment objective of
tax-exempt income.
Short-term taxable fixed-income investments include, without limitation, the following: (i) U.S.
Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities, (ii) certificates of deposit
issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which consists of short-term unsecured promissory notes,
including variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed-income securities are securities that are exempt from regular federal income
tax and mature within three years or less from the date of issuance.
Short-term tax-exempt fixed-income securities include,
without limitation, the following: (i) Bond Anticipation Notes (BANs), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be
funded through the sale of long-term debt obligations or bonds, (ii) Tax Anticipation Notes (TANs), which are issued by state and local governments to finance the current operations of such governments, (iii) Revenue
Anticipation Notes (RANs), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iv) Construction Loan Notes, which are issued to
provide construction financing for specific projects, (v) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings, and (vi) Tax-Exempt
Commercial Paper (municipal paper), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies.
Certain municipal bonds may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or
indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may make short sales of municipal bonds. The
Fund may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio flexibility or, to the extent applicable, to enhance income or gain.
The Fund may invest in restricted and illiquid securities.
The Fund may lend portfolio
securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
BlackRock New York Municipal
Income Trust II (BFY)
The Funds investment objective is to provide current income exempt from regular Federal income tax and New York State and New York
City personal income taxes. The Funds investment policies provide that, as a matter of fundamental policy, under normal market conditions, the Fund will invest at least 80% of its Managed Assets in investments the income from which is exempt
from federal income tax and New York State and New York City personal income tax (except that interest may be subject to the alternative minimum tax). Managed Assets means the total assets of the Fund (including any assets attributable
to any preferred shares that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). The Fund may not change its investment objective or the foregoing fundamental policy without the approval of the
holders of a majority of the outstanding common shares and the outstanding preferred shares, including the variable rate demand preferred shares (VRDP Shares), voting together as a single class, and of the holders of a majority of the
outstanding preferred shares, including the VRDP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (2) more than 50% of the outstanding shares, whichever is less.
The Funds investment policies provide that, under normal market
conditions, the Fund will invest at least 80% of its Managed Assets in investment grade quality municipal bonds. Investment grade quality means that such bonds are rated, at the time of investment, within the four highest grades (Baa or BBB or
better by Moodys, S&P or Fitch) or are unrated but judged to be of comparable quality by BlackRock Advisors, LLC (the Manager). Municipal bonds rated Baa by Moodys are investment grade, but Moodys considers
municipal bonds rated Baa to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for issuers of municipal bonds that are rated BBB or Baa (or that have equivalent
ratings) to make principal and interest payments than is the case for issuers of higher grade municipal bonds. In the case of short term notes, the investment grade rating categories are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moodys and F-1+ through F-3 for Fitch. In the case of tax exempt commercial paper, the investment grade rating categories are A- 1+ through A-3 for
S&P, Prime-1 through Prime-3 for Moodys and F-1+ through F-3 for Fitch.
Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moodys and BBB and F-3 for Fitch), while considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of municipal bonds with respect to the foregoing requirements, the Manager takes into
account the nature of any letters of credit or similar credit enhancement to which particular municipal bonds are entitled and the creditworthiness of the financial institution that provided such credit enhancement.
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Fund Investment Objectives, Policies and Risks (continued)
The Manager may invest up to 20% of its
Managed Assets in municipal bonds that are rated, at the time of investment, Ba/BB or B by Moodys, S&P or Fitch or that are unrated but judged to be of comparable quality by the Manager. Bonds of below investment grade quality are regarded
as having predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. Such securities are sometimes referred to as high yield or junk bonds.
The Fund may invest directly in such securities or synthetically through the use of derivatives.
The foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security if a rating agency downgrades
its assessment of the credit characteristics of a particular issue. In determining whether to retain or sell a security that a rating agency has downgraded, the Manager may consider such factors as the Managers assessment of the credit quality
of the issuer of the security, the price at which the security could be sold and the rating, if any, assigned to the security by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded,
the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade.
Subject to the Funds policy of investing, under
normal market conditions, at least 80% of its Managed Assets (as defined for this policy) in investments the income from which is exempt from federal income tax and New York State and New York City personal income tax, the Fund may invest in
securities that pay interest that is not exempt from New York State and New York City personal income tax when, in the judgment of the Manager, the return to the shareholders after payment of applicable New York State and New York City personal
income tax would be higher than the return available from comparable securities that pay interest that is, or make other distributions that are, exempt from New York State and New York City personal income tax.
The Fund may also invest in securities of other open- or closed-end investment companies that invest primarily in municipal bonds
of the types in which the Fund may invest directly and in tax-exempt preferred shares that pay dividends that are exempt from regular federal income tax. In addition, the Fund may purchase municipal bonds that
are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities.
Although the insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the
Funds income. The insurance feature does not guarantee the market value of the insured obligations or the net asset value of the common shares.
The Fund may
invest in certain tax exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (in general, bonds that benefit
non-governmental entities) that may subject certain investors in the Fund to a federal alternative minimum tax. The percentage of the Funds total assets invested in private activity bonds will vary from
time to time. The Fund has not established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to the federal alternative minimum tax provisions of federal tax law, and the Fund expects that a portion of the
income it produces will be includable in alternative minimum taxable income. VRDP Shares therefore would not ordinarily be a suitable investment for investors who are subject to the federal alternative minimum tax or who would become subject to such
tax by purchasing VRDP Shares. The suitability of an investment in VRDP Shares will depend upon a comparison of the after-tax yield likely to be provided from the Fund with that from comparable tax-exempt investments not subject to the federal alternative minimum tax, and from comparable fully taxable investments, in light of each such investors tax position. Special considerations may apply to
corporate investors.
The average maturity of the Funds portfolio securities varies from time to time based upon an assessment of economic and market conditions
by the Manager. The Funds portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The Funds stated expectation is
that it will invest in municipal bonds that, in the Managers opinion, are underrated or undervalued. Underrated municipal bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness.
Undervalued municipal bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for
example, but not limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the Manager
considers undervalued, even if the value of those particular bonds appears to be consistent with the value of similar bonds. Municipal bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds
issued by a particular municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal bonds of the market sector for reasons that do not
apply to the particular municipal bonds that are considered undervalued. The Funds investment in underrated or undervalued municipal bonds will be based on the Managers belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally
result in capital gain distributions subject to federal capital gains taxation. The Fund ordinarily does not intend to realize significant investment income not exempt from federal income tax. From time to time, the Fund may realize taxable capital
gains.
During temporary defensive periods, and in order to keep the Funds cash fully invested, the Fund may invest up to 100% of its net assets in liquid,
short-term investments, including high quality, short-term securities that may be either tax-exempt or taxable. The Fund may not achieve its investment objective under these circumstances. The Fund intends to
invest in taxable short-term investments only if suitable tax-exempt short-term investments are not available at reasonable prices and yields. If the Fund invests in taxable short term investments a portion of
your dividends would be subject to regular Federal income tax and New York State and New York City personal income taxes.
The Fund may purchase and sell futures
contracts, enter into various interest rate transactions and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial
indices and futures contracts. These derivative transactions may be used for duration management and other risk management to attempt to protect against possible changes in the market value of the Funds portfolio resulting from trends in the
debt securities markets and changes in interest rates, to protect the Funds unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities
markets as a temporary substitute for purchasing particular securities and to enhance income or gain.
Leverage: The Fund may utilize leverage to seek to enhance the
yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual interest municipal tender option bonds
(TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB Residuals, is exempt from regular U.S.
federal income tax.
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The Fund may enter into reverse repurchase
agreements with respect to its portfolio investments subject to the Funds investment restrictions.
The Fund reserves the right to borrow funds subject to the
Funds investment restrictions. The proceeds of borrowings may be used for any valid purpose including, without limitation, liquidity, investments and repurchases of shares of the Fund.
Other Investment Policies:The Fund may invest up to 10% of its total assets in securities of other open- or closed- end investment companies that invest primarily
in municipal bonds of the types in which the Fund may invest directly, subject to certain requirements.
The Fund may invest up to 10% of its total assets in
preferred interests of other investment funds that pay dividends that are exempt from regular federal income tax, subject to certain requirements.
During temporary
defensive periods (e.g., times when, in the Managers opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax- exempt bond market adversely affect the price at which
long-term or intermediate-term municipal bonds are available), and in order to keep cash on hand fully invested, the Fund may invest up to 100% of its net assets in liquid, short-term investments including high quality, short-term securities which
may be either tax-exempt or taxable and securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the type in which the
Fund may invest directly. The Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt temporary investments are not available at reasonable prices and yields. The
Funds investment policies provide that it will invest only in taxable temporary investments which are U.S. government securities or securities rated within the highest grade by Moodys, S&P or Fitch, and which mature within one year
from the date of purchase or carry a variable or floating rate of interest (such short-term obligations being referred to herein as Temporary Investments). Temporary Investments of the Fund may include certificates of deposit issued by
U.S. banks with assets of at least $1 billion, commercial paper or corporate notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in Temporary Investments, the Fund
will not at such times be in a position to achieve its investment objective of tax-exempt income.
Short-term taxable
fixed-income investments include, without limitation, the following: (i) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by
U.S. Government agencies or instrumentalities, (ii) certificates of deposit issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and
(iv) commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Short-term
tax-exempt fixed-income securities are securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance.
Short-term tax-exempt fixed-income securities include, without limitation, the following: (i) Bond Anticipation Notes
(BANs), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds,
(ii) Tax Anticipation Notes (TANs), which are issued by state and local governments to finance the current operations of such governments, (iii) Revenue Anticipation Notes (RANs), which are issued by governments or
governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iv) Construction Loan Notes, which are issued to provide construction financing for specific projects, (v) Bank Notes,
which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings, and (vi) Tax-Exempt Commercial Paper (municipal paper), which represents very
short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies.
Certain municipal bonds may carry variable or floating rates
of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may make short sales of municipal bonds. The Fund may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio
flexibility or, to the extent applicable, to enhance income or gain.
The Fund may invest in restricted and illiquid securities.
The Fund may lend portfolio securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
BlackRock Virginia Municipal Bond Trust (BHV)
The Funds investment
objective is to provide current income exempt from regular federal income taxes and Virginia personal income tax. As a fundamental policy, under normal market conditions, the Fund will invest at least 80% of its Managed Assets in municipal bonds,
the interest of which is exempt from regular federal income tax and Virginia personal income tax. The Fund cannot change its investment objective or the foregoing fundamental policy without the approval of the holders of a majority of the
outstanding common shares and the outstanding preferred shares, including the variable demand rate preferred shares (VRDP Shares), voting together as a single class, and of the holders of a majority of the outstanding preferred shares,
including the VRDP Shares, voting as a separate class. A majority of the outstanding means (1) 67% or more of the shares present at a meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or
(2) more than 50% of the outstanding shares, whichever is less.
Under normal market conditions, the Fund invests at least 80% of its Managed Assets in
investment grade quality municipal bonds. Investment grade quality means that such bonds are rated, at the time of investment, within the four highest quality ratings as determined by either Moodys (currently Aaa, Aa, A and Baa), S&P
(currently AAA, AA, A and BBB) or Fitch (currently AAA, AA, A and BBB) or are unrated but judged to be of comparable quality by BlackRock Advisors, LLC (the Manager). Municipal bonds rated Baa by Moodys are investment grade, but
Moodys considers municipal bonds rated Baa to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for issuers of municipal bonds that are rated BBB or Baa (or
that have equivalent ratings) to make principal and interest payments than is the case for issues of higher grade municipal bonds. In the case of short term notes, the investment grade rating categories are
SP-1+ through SP-2 for S&P, MIG 1 through MIG 3 for Moodys and F1+ through F3 for Fitch. In the case of tax exempt commercial paper, the investment
grade rating categories are A-1+
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Fund Investment Objectives, Policies and Risks (continued)
through
A-3 for S&P, Prime-1 through Prime-3 for Moodys and F1+ through F3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG 3 and Prime-3 for Moodys and BBB and F3 for
Fitch), while considered investment grade, may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set
forth above. In assessing the quality of municipal bonds with respect to the foregoing requirements, the Manager takes into account the nature of any letters of credit or similar credit enhancement to which particular municipal bonds are entitled
and the creditworthiness of the financial institution that provided such credit enhancement.
The Fund may invest up to 20% of its Managed Assets in municipal bonds
that are rated, at the time of investment, Ba/BB or B by Moodys, S&P or Fitch or that are unrated but judged to be of comparable quality by the Manager. Securities rated Ba/BB or below are commonly referred to as high yield or
junk bonds and are regarded as predominantly speculative with respect to the issuers capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than
securities in higher rating categories. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuers ability to pay interest and any required
redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments.
All percentage and
ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated if an investment rating is subsequently downgraded to a rating that would have precluded the Funds
initial investment in such security. In determining whether to retain or sell a security that a rating agency has downgraded, the Manager may consider such factors as the Managers assessment of the credit quality of the issuer of the security,
the price at which the security could be sold and the rating, if any, assigned to the security by other rating agencies. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a
greater risk of loss than if such security had been sold prior to such downgrade.
Subject to the Funds policy, under normal market conditions, of investing at
least 80% of its Managed Assets in municipal bonds, the interest from which is exempt from Virginia personal income tax, the Fund may invest in securities that pay interest that is not exempt from Virginia personal income tax when, in the judgment
of the Manager, the return to the shareholders after payment of applicable Virginia personal income tax would be higher than the return available from comparable securities that pay interest that is, or make other distributions that are, exempt from
Virginia personal income tax.
The Fund may also invest in securities of other open- or closed-end investment companies that
invest primarily in municipal bonds of the types in which the Fund may invest directly and in tax-exempt preferred shares that pay dividends that are exempt from regular federal income tax. In addition, the
Fund may purchase municipal bonds that are additionally secured by insurance, bank credit agreements or escrow accounts. The credit quality of companies which provide these credit enhancements will affect the value of those securities. Although the
insurance feature reduces certain financial risks, the premiums for insurance and the higher market price paid for insured obligations may reduce the Funds income. The insurance feature does not guarantee the market value of the insured
obligations or the net asset value of the common shares. The Fund may purchase insured bonds and may purchase insurance for bonds in its portfolio.
The Fund may
invest in certain tax exempt securities classified as private activity bonds (or industrial development bonds, under pre-1986 law) (PABs) (in general, bonds that benefit non-governmental entities) that may subject certain investors in the Fund to an alternative minimum tax. The percentage of the Funds total assets invested in PABs will vary from time to time. The Fund has not
established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to the federal alternative minimum tax provisions of federal tax law, and the Fund expects that a portion of the income it produces will be
includable in alternative minimum taxable income. VRDP Shares may not be a suitable investment for investors who are subject to the federal alternative minimum tax or who would become subject to the federal alternative minimum tax as a result of
purchasing VRDP Shares. The suitability of an investment in VRDP Shares will depend upon a comparison of the after-tax yield likely to be provided from the Fund with that from comparable tax-exempt investments not subject to the federal alternative minimum tax, and from comparable fully taxable investments, in light of each such investors tax position. Special considerations may apply to
corporate investors.
The average maturity of the Funds portfolio securities will vary based upon the Managers assessment of economic and market
conditions. The Funds portfolio at any given time may include both long-term and intermediate-term municipal bonds.
The Funds stated expectation is that
it may invest in municipal bonds that, in the Managers opinion, are underrated or undervalued. Underrated municipal bonds are those whose ratings do not, in the opinion of the Manager, reflect their true higher creditworthiness. Undervalued
municipal bonds are bonds that, in the opinion of the Manager, are worth more than the value assigned to them in the marketplace. The Manager may at times believe that bonds associated with a particular municipal market sector (for example, but not
limited to electric utilities), or issued by a particular municipal issuer, are undervalued. The Manager may purchase those bonds for the Funds portfolio because they represent a market sector or issuer that the Manager considers undervalued,
even if the value of those particular bonds appears to be consistent with the value of similar bonds. Municipal bonds of particular types (for example, but not limited to hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal bonds of the market sector for reasons that do not apply to the particular
municipal bonds that are considered undervalued. The Funds investment in underrated or undervalued municipal bonds will be based on the Managers belief that their yield is higher than that available on bonds bearing equivalent levels of
interest rate risk, credit risk and other forms of risk, and that their prices will ultimately rise, relative to the market, to reflect their true value. Any capital appreciation realized by the Fund will generally result in capital gain
distributions subject to federal capital gains taxation.
The Fund ordinarily does not intend to realize significant investment income not exempt from federal income
taxes. From time to time, the Fund may realize taxable capital gains.
Federal tax legislation may limit the types and volume of bonds the interest on which qualifies
for a U.S. federal income tax exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of municipal bonds for investment by the Fund.
The Fund may purchase and sell futures contracts, enter into various interest rate transactions and may purchase and sell exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts. These derivative transactions may be used for duration management and other risk
management to attempt to protect against possible changes in the market value of the Funds portfolio resulting from trends in the debt securities markets and changes in interest rates, to protect the Funds unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for investment purposes, to establish a position in the securities markets as a temporary substitute for purchasing particular securities and to enhance income or gain.
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Fund Investment Objectives, Policies and Risks (continued)
Leverage: The Fund may utilize
leverage to seek to enhance the yield and net asset value of its common shares. However, this objective cannot be achieved in all interest rate environments. The Fund currently leverages its assets through the use of VRDP Shares and residual
interest municipal tender option bonds (TOB Residuals), which are derivative interests in municipal bonds. The TOB Residuals in which the Fund will invest pay interest or income that, in the opinion of counsel to the issuer of such TOB
Residuals, is exempt from regular U.S. federal income tax.
The Fund may enter into reverse repurchase agreements with respect to its portfolio investments subject to
the Funds investment restrictions. The Fund may enter into derivative transactions that have economic leverage embedded in them.
The Fund reserves the right to
borrow funds subject to the Funds investment restrictions. The proceeds of borrowings may be used for any valid purpose including, without limitation, liquidity, investments and repurchases of shares of the Fund.
The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund securities.
Other Investment Policies:The Fund may invest up to 10% of its total
assets in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the types in which the Fund may invest directly, subject to certain requirements.
The Fund may invest up to 10% of its total assets in preferred interests of other investment funds that pay dividends that are exempt from regular federal income tax,
subject to certain requirements.
During temporary defensive periods (e.g., times when, in the Managers opinion, temporary imbalances of supply and demand or
other temporary dislocations in the tax- exempt bond market adversely affect the price at which long-term or intermediate-term municipal bonds are available), and in order to keep cash on hand fully invested,
the Fund may invest up to 100% of its net assets in liquid, short-term investments including high quality, short-term securities which may be either tax-exempt or taxable and securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the type in which the Fund may invest directly. The Fund intends to invest in taxable short-term investments only in the event that
suitable tax-exempt temporary investments are not available at reasonable prices and yields. The Funds investment policies provide that it will invest only in taxable temporary investments which are U.S.
government securities or securities rated within the highest grade by Moodys, S&P or Fitch, and which mature within one year from the date of purchase or carry a variable or floating rate of interest (such short-term obligations being
referred to herein as Temporary Investments). Temporary Investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, commercial paper or corporate notes, bonds or debentures
with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in Temporary Investments, the Fund will not at such times be in a position to achieve its investment objective of
tax-exempt income.
Short-term taxable fixed-income investments include, without limitation, the following: (i) U.S.
Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities, (ii) certificates of deposit
issued against funds deposited in a bank or a savings and loan association, (iii) repurchase agreements, which involve purchases of debt securities, and (iv) commercial paper, which consists of short-term unsecured promissory notes,
including variable rate master demand notes issued by corporations to finance their current operations. Short-term tax-exempt fixed-income securities are securities that are exempt from regular federal income
tax and mature within three years or less from the date of issuance.
Short-term tax-exempt fixed-income securities include,
without limitation, the following: (i) Bond Anticipation Notes (BANs), which are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be
funded through the sale of long-term debt obligations or bonds, (ii) Tax Anticipation Notes (TANs), which are issued by state and local governments to finance the current operations of such governments, (iii) Revenue
Anticipation Notes (RANs), which are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes, (iv) Construction Loan Notes, which are issued to
provide construction financing for specific projects, (v) Bank Notes, which are notes issued by local government bodies and agencies to commercial banks as evidence of borrowings, and (vi) Tax-Exempt
Commercial Paper (municipal paper), which represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies.
The Fund may invest in variable rate demand obligations. The Fund may invest in all types of tax-exempt instruments currently
outstanding or to be issued in the future which satisfy its short term maturity and quality standards.
Certain municipal bonds may carry variable or floating rates
of interest whereby the rate of interest is not fixed but varies with changes in specified market rates or indices, such as a bank prime rate or tax-exempt money market indices.
The Fund may make short sales of municipal bonds. The Fund may make short sales to hedge positions, for duration and risk management, in order to maintain portfolio
flexibility or to enhance income or gain.
The Fund may invest in restricted and illiquid investments.
The Fund may lend portfolio securities to certain borrowers determined to be creditworthy by the Manager, including to borrowers affiliated with the Manager.
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Fund Investment Objectives, Policies and Risks (continued)
Risk Factors
This section contains a discussion of the general risks of investing in each Fund. The net asset value and market price of, and dividends paid on, the common shares will
fluctuate with and be affected by, among other things, the risks more fully described below. As with any fund, there can be no guarantee that a Fund will meet its investment objective or that the Funds performance will be positive for any
period of time. Each risk noted below is applicable to each Fund unless the specific Fund or Funds are noted in a parenthetical.
Non-Diversification Risk (BZM, MHE, MHN, BSE, BFY and BHV): The Fund is a
non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, it may be more exposed to the risks associated with and developments affecting an individual issuer than a fund
that invests more widely.
Investment and Market Discount Risk: An investment in the Funds common shares is subject to investment risk, including the
possible loss of the entire amount that you invest. As with any stock, the price of the Funds common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or less than the original
investment. Common shares are designed for long-term investors and the Fund should not be treated as a trading vehicle. Shares of closed-end management investment companies frequently trade at a discount from
their net asset value. This risk is separate and distinct from the risk that the Funds net asset value could decrease as a result of its investment activities. At any point in time an investment in the Funds common shares may be worth
less than the original amount invested, even after taking into account distributions paid by the Fund. During periods in which the Fund may use leverage, the Funds investment, market discount and certain other risks will be magnified
Debt Securities Risk: Debt securities, such as bonds, involve interest rate risk, credit risk, extension risk, and prepayment risk, among other things
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Interest rate risk The market value of bonds and other fixed-income securities changes in response to interest rate
changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise.
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The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. For example, if interest rates
increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Funds investments would be expected to decrease by 10%. The magnitude of these fluctuations in the market price of bonds
and other fixed-income securities is generally greater for those securities with longer maturities.
Fluctuations in the market price of the
Funds investments will not affect interest income derived from instruments already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may lose money if short-term or long-term interest rates rise sharply in a
manner not anticipated by Fund management.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such
as mortgage-backed securities), the sensitivity of such securities to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating rate debt securities typically reset
only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating rate debt securities.
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the full faith and credit of the
U.S. Government is guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like other fixed-income securities, government-guaranteed securities will fluctuate in value when interest rates change.
A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large scale, which may increase
redemptions from funds that hold large amounts of fixed-income securities. Heavy redemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and could hurt the Funds performance
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Credit risk Credit risk refers to the possibility that the issuer of a debt security (i.e., the borrower) will
not be able to make payments of interest and principal when due. Changes in an issuers credit rating or the markets perception of an issuers creditworthiness may also affect the value of the Funds investment in that issuer.
The degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation.
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Extension risk When interest rates rise, certain obligations will be paid off by the obligor more slowly than
anticipated, causing the value of these obligations to fall.
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Prepayment risk When interest rates fall, certain obligations will be paid off by the obligor more quickly
than originally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
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Municipal Securities Risks:
Municipal securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative changes which could affect the market for
and value of municipal securities. These risks include:
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General obligation bonds risks Timely payments depend on the issuers credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base
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Revenue bonds risks These payments depend on the money earned by the particular facility or class of facilities, or
the amount of revenues derived from another source.
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Private activity bonds risks Municipalities and other public authorities issue private activity bonds to finance
development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment. The Funds investments
may consist of private activity bonds that may subject certain shareholders to an alternative minimum tax.
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Moral obligation bonds risks Moral obligation bonds are generally issued by special purpose public authorities of a
state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
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FUND INVESTMENT OBJECTIVES, POLICIES AND
RISKS
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105
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Fund Investment Objectives, Policies and Risks (continued)
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Municipal notes risks Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the
anticipated proceeds, the notes may not be fully repaid and the Fund may lose money.
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Municipal lease obligations risks In a municipal lease obligation, the issuer agrees to make payments when due on the
lease obligation. Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
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Tax-exempt status risk The Fund and its investment manager will rely on the
opinion of issuers bond counsel and, in the case of derivative securities, sponsors counsel, on the tax-exempt status of interest on municipal bonds and payments under derivative securities.
Neither the Fund nor its investment manager will independently review the bases for those tax opinions, which may ultimately be determined to be incorrect and subject the Fund and its shareholders to substantial tax liabilities.
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State Specific Risk: The Fund invests primarily in municipal bonds issued by or on behalf of its designated state.As a result, the Fund is
more exposed to risks affecting issuers of its designated states municipal securities than is a fund that invests more widely. Fund management does not believe that the current economic conditions will adversely affect the Funds ability
to invest in high quality state municipal securities in its designated state.
Taxability Risk: The Fund intends to minimize the payment of taxable income to
shareholders by investing in tax-exempt or municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable
from gross income for U.S. federal income tax purposes. Such securities, however, may be determined to pay, or have paid, taxable income subsequent to the Funds acquisition of the securities. In that event, the Internal Revenue Service may
demand that the Fund pay U.S. federal income taxes on the affected interest income, and, if the Fund agrees to do so, the Funds yield could be adversely affected. In addition, the treatment of dividends previously paid or to be paid by the
Fund as exempt interest dividends could be adversely affected, subjecting the Funds shareholders to increased U.S. federal income tax liabilities. Federal tax legislation may limit the types and volume of bonds the interest on
which qualifies for a federal income tax-exemption. As a result, current legislation and legislation that may be enacted in the future may affect the availability of municipal bonds for investment by the Fund.
In addition, future laws, regulations, rulings or court decisions may cause interest on municipal securities to be subject, directly or indirectly, to U.S. federal income taxation or interest on state municipal securities to be subject to state or
local income taxation, or the value of state municipal securities to be subject to state or local intangible personal property tax, or may otherwise prevent the Fund from realizing the full current benefit of the
tax-exempt status of such securities. Any such change could also affect the market price of such securities, and thus the value of an investment in the Fund.
Insurance Risk: Insurance guarantees that interest payments on a municipal security will be made on time and that the principal will be repaid when the security
matures. However, insurance does not protect against losses caused by declines in a municipal securitys value. The Fund cannot be certain that any insurance company will make the payments it guarantees. If a municipal securitys insurer
fails to fulfill its obligations or loses its credit rating, the value of the security could drop.
Junk Bonds Risk: Although junk bonds generally pay higher
rates of interest than investment grade bonds, junk bonds are high risk investments that are considered speculative and may cause income and principal losses for the Fund.
Zero Coupon Securities Risk: While interest payments are not made on such securities, holders of such securities are deemed to have received income (phantom
income) annually, notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed yield is earned not only on the original investment but also, in effect, on
all discount accretion during the life of the obligations. This implicit reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the zero coupon bond, but at the
same time eliminates the holders ability to reinvest at higher rates in the future. For this reason, some of these securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are
comparable securities that pay interest currently. Longer term zero coupon bonds are more exposed to interest rate risk than shorter term zero coupon bonds. These investments benefit the issuer by mitigating its need for cash to meet debt service,
but also require a higher rate of return to attract investors who are willing to defer receipt of cash.
When-Issued and Delayed Delivery Securities and Forward
Commitments Risk: When-issued and delayed delivery securities and forward commitments involve the risk that the security the Fund buys will lose value prior to its delivery. There also is the risk that the security will not be issued or that the
other party to the transaction will not meet its obligation. If this occurs, the Fund may lose both the investment opportunity for the assets it set aside to pay for the security and any gain in the securitys price.
U.S. Government Obligations Risk: Certain securities in which the Fund may invest, including securities issued by certain U.S. Government agencies and U.S.
Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.
Variable Rate Demand
Obligations Risks: Variable rate demand obligations are floating rate securities that combine an interest in a long term municipal bond with a right to demand payment before maturity from a bank or other financial institution. If the bank or
financial institution is unable to pay, the Fund may lose money.
Repurchase Agreements and Purchase and Sale Contracts Risk: If the other party to a
repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to repurchase the security
in either situation and the market value of the security declines, the Fund may lose money.
Leverage Risk: The Fund uses leverage for investment purposes
through the issuance of VRDP Shares. The Fund also utilizes leverage for investment purposes by entering into reverse repurchase agreements, derivative instruments with leverage embedded in then, such as TOB Residuals and, if applicable, dollar
rolls. The Funds use of leverage may increase or decrease from time to time in its discretion and the Fund may, in the future, determine not to use leverage.
The use of leverage creates an opportunity for increased common share net investment income dividends, but also creates risks for the holders of common shares. The Fund
cannot assure you that the use of leverage will result in a higher yield on the common shares. Any leveraging strategy the Fund employs may not be successful.
Leverage involves risks and special considerations for common shareholders, including:
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106
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2020 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
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Fund Investment Objectives, Policies and Risks (continued)
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the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a
comparable portfolio without leverage;
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the risk that fluctuations in interest rates or dividend rates on any leverage that the Trust must pay will reduce the
return to the common shareholders;
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the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the
common shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the common shares;
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leverage may increase operating costs, which may reduce total return.
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Any decline in the net asset value of the Funds investments will be borne entirely by the holders of common shares. Therefore, if the market value of the
Funds portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in the
market price for the common shares.
Tender Option Bonds Risk: The Funds participation in tender option bond transactions may reduce the Funds
returns and/or increase volatility. Investments in tender option bond transactions expose the Fund to counterparty risk and leverage risk. An investment in a tender option bond transaction typically will involve greater risk than an investment in a
municipal fixed rate security, including the risk of loss of principal. Distributions on TOB Residuals will bear an inverse relationship to short-term municipal security interest rates. Distributions on TOB Residuals paid to the Fund will be reduced
or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. TOB Residuals generally will underperform the market for fixed rate municipal securities in a rising interest
rate environment. The Fund may invest special purpose trusts formed for the purpose of holding municipal bonds contributed by one or more funds (TOB Trusts) on either a non-recourse or recourse
basis. If the Fund invests in a TOB Trust on a recourse basis, it could suffer losses in excess of the value of its TOB Residuals.
Reverse Repurchase Agreements
Risk: Reverse repurchase agreements involve the sale of securities held by the Fund with an agreement to repurchase the securities at an agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other
party may fail to return the securities in a timely manner or at all. The Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund, including the value of the investments made with cash
collateral, is less than the value of the securities. These events could also trigger adverse tax consequences for the Fund. In addition, reverse repurchase agreements involve the risk that the interest income earned in the investment of the
proceeds will be less than the interest expense.
Dollar Rolls Risk (MHE): Dollar rolls involve the risk that the market value of the securities that the Fund
is committed to buy may decline below the price of the securities the Fund has sold. These transactions may involve leverage.
Short Sales Risk (BZM, BQH, BSE, BFY
and BHV): Because making short sales in securities that it does not own exposes the Fund to the risks associated with those securities, such short sales involve speculative exposure risk. The Fund will incur a loss as a result of a short sale if
the price of the security increases between the date of the short sale and the date on which the Fund replaces the security sold short.
Illiquid Investments Risk:
The Fund may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Fund may not be able to
readily dispose of such investments at prices that approximate those at which the Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or engage in
borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely affecting the Funds net asset value and ability to make dividend distributions. The
financial markets in general, and certain segments of the mortgage-related securities markets in particular, have in recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during
which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some investments could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur
again at any time. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.
Investment Companies and ETFs Risk (BZM, MHN, BQH, BSE, BFY and BHV): Subject to the limitations set forth in the 1940 Act or as otherwise limited by the SEC, the
Fund may acquire shares in other investment companies and in exchange-traded funds (ETFs), some of which may be affiliated investment companies. The market value of the shares of other investment companies and ETFs may differ from their
net asset value. As an investor in investment companies and ETFs, the Fund would bear its ratable share of that entitys expenses, including its investment advisory and administration fees, while continuing to pay its own advisory and
administration fees and other expenses (to the extent not offset by the Manager through waivers). As a result, shareholders will be absorbing duplicate levels of fees with respect to investments in other investment companies and ETFs (to the extent
not offset by the Manager through waivers).
The securities of other investment companies and ETFs in which the Fund may invest may be leveraged. As a result, the
Fund may be indirectly exposed to leverage through an investment in such securities. An investment in securities of other investment companies and ETFs that use leverage may expose the Fund to higher volatility in the market value of such securities
and the possibility that the Funds long-term returns on such securities (and, indirectly, the long-term returns of shares of the Fund) will be diminished.
As
with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies may
be limited.
Derivatives Risk: The Funds use of derivatives may increase its costs, reduce the Funds returns and/or increase volatility.
Derivatives involve significant risks, including:
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Volatility risk Volatility is defined as the characteristic of a security, an index or a market to fluctuate
significantly in price within a short time period. A risk of the Funds use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.
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Counterparty risk Derivatives are also subject to counterparty risk, which is the risk that the other party in the
transaction will not fulfill its contractual obligation.
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FUND INVESTMENT OBJECTIVES, POLICIES AND
RISKS
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107
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Fund Investment Objectives, Policies and Risks (continued)
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Market and illiquidity risk The possible lack of a liquid secondary market for derivatives and the resulting
inability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value accurately.
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Valuation risk Valuation may be more difficult in times of market turmoil since many investors and market makers may
be reluctant to purchase complex instruments or quote prices for them.
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Hedging risk Hedges are sometimes subject to imperfect matching between the derivative and the underlying security,
and there can be no assurance that the Funds hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.
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Tax risk Certain aspects of the tax treatment of derivative instruments, including swap agreements and
commodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an
underlying asset and may adversely affect the timing, character and amount of income the Fund realizes from its investments.
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Regulatory risk Derivative contracts, including, without limitation, swaps, currency forwards and non-deliverable forwards, are subject to regulation under the Dodd- Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) in the United States and under comparable regimes in Europe,
Asia and other non- U.S. jurisdictions. Under the Dodd-Frank Act, certain derivatives are subject to margin requirements and swap dealers are required to collect margin from the Fund with respect to such
derivatives. Specifically, regulations are now in effect that require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with the
Fund. Shares of investment companies (other than certain money market funds) may not be posted as collateral under these regulations. Requirements for posting of initial margin in connection with OTC swaps will be
phased-in through at least 2021. In addition, regulations adopted by global prudential regulators that are now in effect require certain bank-regulated counterparties and certain of their affiliates to include
in certain financial contracts, including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as the Fund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict
transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. The implementation of these requirements with respect to derivatives, as well as regulations
under the Dodd-Frank Act regarding clearing, mandatory trading and margining of other derivatives, may increase the costs and risks to the Fund of trading in these instruments and, as a result, may affect returns to investors in the Fund.
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In November 2019, the SEC proposed new regulations governing the use of derivatives by registered investment companies. If adopted as proposed, new
Rule 18f-4 would impose limits on the amount of derivatives a fund could enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat
derivatives as senior securities so that a failure to comply with the proposed limits would result in a statutory violation and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a
comprehensive derivatives risk management program and appoint a derivatives risk manager.
Market Risk and Selection Risk: Market risk is the risk that one or
more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset may decline due to changes in general market conditions, economic
trends or events that are not specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of countries, region, market, industry, group of industries, sector or
asset class. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues like pandemics or epidemics, recessions, or other events could have a significant impact on the Fund and its
investments. Selection risk is the risk that the securities selected by Fund management will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment strategies. This
means you may lose money.
A recent outbreak of an infectious coronavirus has developed into a global pandemic that has resulted in numerous disruptions in the market
and has had significant economic impact leaving general concern and uncertainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies of many nations, individual companies and the
market in general ways that cannot necessarily be foreseen at the present time.
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108
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2020 BLACKROCK ANNUAL
REPORT TO SHAREHOLDERS
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Automatic Dividend Reinvestment Plan
Pursuant to BZM, MHE, MHN, BQH, BSE, BFY and BHVs 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 Trusts Common Shares pursuant to the Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or
if the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as agent for the shareholders in administering the Reinvestment Plan.
After BZM, MHE, MHN, BQH, BSE, BFY and BHV 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 Trusts (newly issued shares) or (ii) by purchase of outstanding shares on
the open market or on the Trusts 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 participants 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 Agents fees for the handling of the reinvestment of distributions will be paid by each Trust. However,
each participant will pay a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Agents 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 Trust
reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, each Trust reserves the right to amend the Reinvestment Plan to include a service charge payable by
the participants. Participants in BZM, BQH, BSE, BFY and BHV that request a sale of shares are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission fee. Participants in MHE and MHN that request a sale of shares are subject to
a $0.02 per share sold brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust Company, N.A. through the internet at computershare.com/blackrock, or in writing to Computershare, P.O. Box
505000, Louisville, KY 40233, Telephone: (800) 699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202.
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AUTOMATIC DIVIDEND REINVESTMENT PLAN
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