|
|
| Notes to Financial Statements (Unaudited) |
|
1. Organization:
The following are registered under the Investment Company Act of
1940, as amended (the “1940 Act”), as closed-end management investment companies. BlackRock California Municipal Income Trust, BlackRock
Municipal Income Investment Trust, BlackRock Municipal Target Term Trust, BlackRock New Jersey Municipal Income Trust, BlackRock New York Municipal
Income Trust (collectively, the “Income Trusts”) and BlackRock Florida Municipal 2020 Term Trust are referred to herein collectively as the
“Trusts”:
Trust Name
|
|
|
|
Herein Referred To As
|
|
Organized
|
|
Diversification
Classification
|
BlackRock California Municipal Income Trust |
|
|
|
BFZ
|
|
Delaware
|
|
Non-diversified |
BlackRock Florida Municipal 2020 Term Trust |
|
|
|
BFO
|
|
Delaware
|
|
Non-diversified |
BlackRock Municipal Income Investment Trust |
|
|
|
BBF
|
|
Delaware
|
|
Non-diversified |
BlackRock Municipal Target Term Trust |
|
|
|
BTT
|
|
Delaware
|
|
Non-diversified |
BlackRock New Jersey Municipal Income Trust |
|
|
|
BNJ
|
|
Delaware
|
|
Non-diversified |
BlackRock New York Municipal Income Trust |
|
|
|
BNY
|
|
Delaware
|
|
Non-diversified |
The Boards of Trustees of the Trusts are collectively referred to
throughout this report as the “Board of Trustees” or the “Board,” and the trustees thereof are collectively referred to throughout
this report as “Trustees.” The Trusts determine and make available for publication the NAVs of their Common Shares on a daily
basis.
2. Significant Accounting Policies:
The Trusts’ financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Trust is considered an
investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of
significant accounting policies followed by the Trusts:
Valuation: The Trusts’ investments are valued at fair
value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time) (or if the reporting date falls
on a day the NYSE is closed, investments are valued at fair value as of the report date). U.S. GAAP defines fair value as the price the Trusts would
receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Trusts
determine the fair values of their financial instruments at market value using independent dealers or pricing services under policies approved by the
Board. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to
develop global pricing policies and procedures and to provide oversight of the pricing function for the Trusts for all financial
instruments.
Municipal investments (including commitments to purchase such
investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services. In determining the value of
a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers,
pricing matrixes, market transactions in comparable investments and information with respect to various relationships between investments. Financial
futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at NAV
each business day.
In the event that the application of these methods of valuation
results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available,
the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair
value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate,
seeks to determine the price that each Trust might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in
an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its
delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Value Investments is subsequently reported
to the Board or a committee thereof on a quarterly basis.
Segregation and Collateralization: In cases where a Trust
enters into certain investments (e.g., financial futures contracts), or certain borrowings (e.g., TOBs) that would be “senior securities” for
1940 Act purposes, the Trust may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the
amount of the Trust’s future obligations under such investments or borrowings. Doing so allows the investment or borrowing to be excluded from
treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Trust may be required to
deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or
obligations.
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
57
|
|
|
| Notes to Financial Statements (continued) |
|
Investment Transactions and Investment Income: For
financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and
losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income,
including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.
Distributions: Distributions from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend date. The portion of distributions that exceeds a
Trust’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a non-taxable return of capital. The
character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Distributions
to Preferred Shareholders are accrued and determined as described in Note 9.
Deferred Compensation Plan: Under the Deferred Compensation
Plan (“the Plan”) approved by each Trust’s Board, the independent Trustees (“Independent Trustees”) may defer a portion of
their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common
shares of certain other BlackRock Closed-End Funds selected by the Independent Trustees. This has the same economic effect for the Independent Trustees
as if the Independent Trustees had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.
The Plan is not funded and obligations thereunder represent
general unsecured claims against the general assets of each Trust. Deferred compensation liabilities are included in officer’s and trustees’
fees payable in the Statements of Assets and Liabilities and will remain as a liability of the Trusts until such amounts are distributed in accordance
with the Plan.
Other: Expenses directly related to a Trust are charged to
that Trust. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate
methods.
The Trusts have an arrangement with the custodian whereby fees may
be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The
custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody
charges.
3. Securities and Other Investments:
Zero-Coupon Bonds: The Trust may invest in zero-coupon
bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may
experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments.
Forward Commitments and When-Issued Delayed Delivery
Securities: The Trusts may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement
of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Trusts may purchase securities under
such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement
date. Since the value of securities purchased may fluctuate prior to settlement, the Trusts may be required to pay more at settlement than the security
is worth. In addition, the Trusts are not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery
basis, the Trusts assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default
by the counterparty, the Trusts’ maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in
the Schedules of Investments.
Municipal Bonds Transferred to TOB Trusts: The Trusts
leverage their assets through the use of TOB Trusts. The Trusts transfer municipal bonds into a special purpose entity (“TOB Trust”). Other
funds managed by the investment advisor may also contribute municipal bonds to a TOB Trust into which a Trust has contributed bonds. A TOB typically
issues two classes of beneficial interests: short-term floating rate certificates (“TOB Trust Certificates”), which are sold to third party
investors, and residual certificates (“TOB Residuals”), which are generally issued to the participating funds that contributed the municipal
bonds to the TOB Trust. If multiple funds participate in the same TOB Trust, the rights and obligations under the TOB Residual will be shared among the
funds ratably in proportion to their participation in the Trust.
The municipal bonds transferred to a TOB Trust typically are high
grade municipal bonds. In certain cases, when municipal bonds transferred are lower grade municipal bonds, the TOB transaction includes a credit
enhancement feature that provides for the timely payment of principal and interest on the bonds to the TOB Trust by a credit enhancement provider. The
Trusts, as TOB Residual holders, would be responsible for the payment of the credit enhancement fee and for reimbursement of any payments of principal
and interest made by the credit enhancement provider.
The Residuals held by a Trust include the right of a Trust
(subject to the non-occurrence of certain termination events enumerated below, and a specified number of days’ prior notice), to cause the holders
of a proportional share of the TOB Trust Certificates to tender their certificates at par plus accrued interest. Thereafter, that Trust may withdraw a
corresponding share of the municipal bonds from the TOB Trust. The TOB Trust may also be collapsed without the consent of a Trust, upon the occurrence
of tender option termination events (“TOTEs”) and mandatory termination events (“MTEs”), as defined in the
| 58 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
|
|
| Notes to Financial Statements (continued) |
|
TOB Trust agreements. TOTEs may include the bankruptcy or
default of the issuer of the municipal bond, a substantial downgrade in credit quality of the issuer of the municipal bond, failure of any scheduled
payment of principal or interest on the underlying bonds, and a judgment or ruling that interest on the municipal bond is subject to federal income
taxation. MTEs may include, among other things, a failed remarketing of the TOB Trust Certificates, the inability of the TOB Trust to obtain renewal of
the liquidity support agreement and a substantial decline in the market value of the municipal bond. Upon the occurrence of a TOTE or an MTE, the TOB
Trust would be liquidated with the proceeds applied first to any accrued fees owed to the trustee of the TOB Trust, the remarketing agent and the
Liquidity Provider. In the case of an MTE, after the payment of fees, the TOB Trust Certificate holders would be paid senior to the Residual holders
(i.e., the Trusts). In contrast, in the case of a TOTE, after payment of fees, the TOB Trust Certificate holders and Residual holders would be paid
equally in proportion to the respective face values of their certificates. During the six months ended January 31, 2015, no TOB Trusts in which the
Trusts participated were terminated without the consent of the Trusts.
The cash received by the TOB Trust from the sale of the TOB Trust
Certificates, less transaction expenses, is paid to a Trust. The Trusts typically invest the cash received in additional municipal bonds. Each
Trust’s transfer of the municipal bonds to a TOB Trust is considered a secured borrowing for financial reporting purposes; therefore, the
municipal bonds deposited into a TOB Trust are presented in the Trusts’ Schedules of Investments and the TOB Trust Certificates are shown in other
liabilities in the Statements of Assets and Liabilities. The carrying amount of each Trust’s payable to the holder of the TOB Trust Certificates,
as reported in the Statements of Assets and Liabilities as TOB Trust Certificates, approximates its fair value.
The Trusts may invest in TOB Trusts on either a non-recourse or
recourse basis. TOB Trusts are typically supported by a liquidity facility provided by a bank or other financial institution (the “Liquidity
Provider”) that allows the holders of the TOB Trust Certificates to tender their certificates in exchange for payment from the Liquidity Provider
of par plus accrued interest on any business day prior to the occurrence of the termination events described above.
When a Trust invests in TOB Trusts on a non-recourse basis, and
the Liquidity Provider is required to make a payment under the liquidity facility, the Liquidity Provider will typically liquidate all or a portion of
the municipal securities held in the TOB Trust and then fund, on a net basis, the balance, if any, of the amount owed under the liquidity facility over
the liquidation proceeds (the “Liquidation Shortfall”). If a Trust invests in a TOB Trust on a recourse basis, the Trust will typically enter
into a reimbursement agreement with the Liquidity Provider where the Trust is required to repay the Liquidity Provider the amount of any Liquidation
Shortfall. As a result, a Trust investing in a recourse TOB Trust will bear the risk of loss with respect to any Liquidation Shortfall. If multiple
funds participate in any such TOB Trust, these losses will be shared ratably, including the maximum potential amounts owed by the Trusts at January 31,
2015, in proportion to their participation in the TOB Trust. The recourse TOB Trusts are identified in the Schedules of Investments including the
maximum potential amounts owed by the Trusts at January 31, 2015.
Interest income, including amortization and accretion of premiums
and discounts, from the underlying municipal bonds is recorded by the Trusts on an accrual basis. Interest expense incurred on the secured borrowing
and other expenses related to remarketing, administration and trustee services to a TOB Trust are shown as interest expense, fees and amortization of
offering costs in the Statements of Operations. The TOB Trust Certificates have interest rates that generally reset weekly and their holders have the
option to tender such certificates to the TOB for redemption at par at each reset date. At January 31, 2015, the aggregate value of the underlying
municipal bonds transferred to TOB Trusts, the related liability for TOB Trust Certificates and the range of interest rates on the liability for TOB
Trust Certificates were as follows:
|
|
|
|
Underlying
Municipal
Bonds
Transferred to
TOBs
|
|
Liability for
TOB
Trust
Certificates
|
|
Range of
Interest
Rates
|
BFZ |
|
|
|
$ |
309,935,880 |
|
|
$ |
140,932,546 |
|
|
0.02% - 0.17% |
BFO |
|
|
|
$ |
255,887 |
|
|
$ |
164,640 |
|
|
0.08%
|
BBF |
|
|
|
$ |
58,185,164 |
|
|
$ |
29,682,276 |
|
|
0.02% - 0.27% |
BTT |
|
|
|
$ |
398,744,670 |
|
|
$ |
184,119,974 |
|
|
0.02% - 0.11% |
BNJ |
|
|
|
$ |
31,352,302 |
|
|
$ |
17,301,282 |
|
|
0.02% - 0.27% |
BNY |
|
|
|
$ |
54,270,843 |
|
|
$ |
28,960,581 |
|
|
0.02% - 0.20% |
For the six months ended January 31, 2015, the Trusts’
average TOB Trust Certificates outstanding and the daily weighted average interest rate, including fees, were as follows:
|
|
|
|
Average TOB
Trust
Certificates
Outstanding
|
|
Daily Weighted
Average
Interest Rate
|
BFZ |
|
|
|
$ |
115,177,363 |
|
|
|
0.61 |
% |
BFO |
|
|
|
$ |
167,078 |
|
|
|
0.63 |
% |
BBF |
|
|
|
$ |
29,682,276 |
|
|
|
0.63 |
% |
BTT |
|
|
|
$ |
184,119,974 |
|
|
|
0.75 |
% |
BNJ |
|
|
|
$ |
17,301,282 |
|
|
|
0.74 |
% |
BNY |
|
|
|
$ |
28,677,972 |
|
|
|
0.61 |
% |
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
59
|
|
|
| Notes to Financial Statements (continued) |
|
Should short-term interest rates rise, the Trusts’
investments in TOB transactions may adversely affect the Trusts’ net investment income and dividends to Common Shareholders. Also, fluctuations in
the market value of municipal bonds deposited into the TOB Trust may adversely affect the Trusts’ NAVs per share.
While the Trusts’ investment policies and restrictions
expressly permit investments in inverse floating rate securities such as Residuals, they generally do not allow the Trusts to borrow money for purposes
of making investments. The Trusts’ management believes that the Trusts’ restrictions on borrowings do not apply to secured borrowings. For
accounting purposes, the Trusts’ transfer of municipal bonds to a TOB Trust are deemed secured borrowings.
4. Derivative Financial Instruments:
The Trusts engage in various portfolio investment strategies using
derivative contracts both to increase the returns of the Trusts and/or to economically hedge their exposure to certain risks such as interest rate
risk. These contracts may be transacted on an exchange.
Financial Futures Contracts: The Trusts invest in long
and/or short positions in financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against,
changes in interest rates (interest rate risk). Financial 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 at a specified date. Depending on the terms of the particular contract,
financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash
settlement amount on the settlement date.
Upon entering into a financial 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 contract’s size and
risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial
margin are designated on the Schedules of Investments and cash deposited, if any, is recorded on the Statements of Assets and Liabilities as cash
pledged for financial futures contracts. 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 value of the contract. Such receipts or payments are known as variation margin. Variation margin is recorded by the Trusts as
unrealized appreciation or depreciation, and if applicable, as a receivable or payable for variation margin in the Statements of Assets and
Liabilities.
When the contract is closed, the Trusts record a realized gain or
loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial
futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the
underlying assets.
The following is a summary of the Trusts’ derivative
financial instruments categorized by risk exposure:
Fair Values of Derivative
Financial Instruments as of January 31, 2015
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
Statements of Assets
and Liabilities
Location
|
|
BFZ
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
Interest rate contracts |
|
|
|
Net unrealized depreciation1
|
|
$ |
(1,323,696 |
) |
|
$ |
(531,417 |
) |
|
$ |
(7,621,908 |
) |
|
$ |
(760,934 |
) |
|
$ |
(1,035,249 |
) |
|
1
|
| Includes cumulative appreciation/depreciation on financial
futures contracts as reported in the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Assets and
Liabilities. |
The Effect of Derivative
Financial Instruments in the Statements of Operations
Six Months Ended January 31, 2015
|
|
|
|
|
|
Net Realized Loss From
|
|
Net Change in Unrealized
Appreciation/
Depreciation On
|
|
|
|
|
|
BFZ
|
|
BBF
|
|
BTT
|
|
BFZ
|
|
BBF
|
|
BTT
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts |
|
|
|
$ |
(1,178,582 |
) |
|
$ |
(149,572 |
) |
|
$ |
(5,390,056 |
) |
|
$ |
(1,400,507 |
) |
|
$ |
(558,827 |
) |
|
$ |
(7,669,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BNJ
|
|
BNY
|
|
|
|
BNJ
|
|
BNY
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial futures contracts |
|
|
|
$ |
(147,121 |
) |
|
$ |
(411,206 |
) |
|
|
|
|
|
$ |
(791,771 |
) |
|
$ |
(1,099,471 |
) |
|
|
|
|
For the six months ended January 31, 2015, the average quarterly
balances of outstanding derivative financial instruments were as follows:
| |
|
|
|
BFZ |
|
BBF |
|
BTT |
|
BNJ |
|
BNY |
Financial Futures Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average notional value of contracts — short |
|
|
|
$ |
52,078,672 |
|
|
$ |
16,192,258 |
|
|
$ |
230,787,313 |
|
|
$ |
23,173,711 |
|
|
$ |
31,382,633 |
|
| 60 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
|
|
| Notes to Financial Statements (continued) |
|
Counterparty Credit Risk: A derivative contract may suffer
a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument.
Losses can also occur if the counterparty does not perform under the contract.
With exchange-traded futures, there is less counterparty credit
risk to the Trusts since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse
stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may
exist under applicable law, a Trust does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default
(including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures with
respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate
customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a
shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata
basis across all the clearing broker’s customers, potentially resulting in losses to the Trusts.
5. Investment Advisory Agreement and Other Transactions with
Affiliates:
The PNC Financial Services Group, Inc. is the largest stockholder
and an affiliate, for 1940 Act purposes of BlackRock, Inc. (“BlackRock”).
Each Trust entered into an Investment Advisory Agreement with
BlackRock Advisors, LLC (the “Manager”), the Trusts’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide
investment advisory and administration services. The Manager is responsible for the management of each Trust’s portfolio and provides the
necessary personnel, facilities, equipment and certain other services to the operations of each Trust. For such services, each Trust pays the Manager a
monthly fee based on a percentage of each Trust’s average daily net assets at the following annual rates:
|
|
|
|
BFZ
|
|
BFO
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
Investment advisory fee |
|
|
|
|
0.58 |
% |
|
|
0.50 |
% |
|
|
0.60 |
% |
|
|
0.40 |
% |
|
|
0.60 |
% |
|
|
0.60 |
% |
Average daily net assets are the average daily value of each
Trusts’ total assets minus its total accrued liabilities.
The Manager voluntarily 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.
However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Trust’s
investment in other affiliated investment companies, if any. These amounts are included in fees waived by Manager in the Statements of Operations. For
the six months ended January 31, 2015, the amounts waived were as follows:
|
|
|
|
BFZ
|
|
BFO
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
Amounts waived |
|
|
|
$ |
231 |
|
|
$ |
56 |
|
|
$ |
26 |
|
|
$ |
1,515 |
|
|
$ |
591 |
|
|
$ |
265 |
|
The Manager, for BTT, voluntarily agreed to waive its investment
advisory fee by 0.05% of the daily managed assets. The amount waived is included in fees waived by Manager in the Statements of Operations. For the six
months ended January 31, 2015, the amount waived was $643,136. This waiver may be reduced or discontinued at any time without notice.
Certain officers and/or Trustees of the Trusts are officers and/or
directors of BlackRock or its affiliates. The Trusts reimburse the Manager for a portion of the compensation paid to the Trusts’ Chief Compliance
Officer, which is included in Officer and Directors in the Statements of Operations.
6. Purchases and Sales:
For the six months ended January 31, 2015, purchases and sales of
investments, excluding short-term securities were as follows:
|
|
|
|
BFZ
|
|
BFO
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
Purchases |
|
|
|
$ |
188,266,522 |
|
|
$ |
10,172,405 |
|
|
$ |
5,359,354 |
|
|
$ |
180,658,322 |
|
|
$ |
13,764,930 |
|
|
$ |
10,855,117 |
|
Sales |
|
|
|
$ |
157,056,722 |
|
|
$ |
10,727,743 |
|
|
$ |
4,572,615 |
|
|
$ |
203,978,302 |
|
|
$ |
14,238,265 |
|
|
$ |
11,602,489 |
|
7. Income Tax Information:
It is each Trust’s policy to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable
income to their shareholders. Therefore, no federal income tax provision is required.
Each Trust files U.S. federal and various state and local tax
returns. No income tax returns are currently under examination. The statute of limitations for BFZ, BFO, BBF, BNJ and BNY U.S. federal tax returns
remains open for each of the four years ended July 31, 2014. The statute of limitations for BTT’s U.S. federal tax return remains open for the
year ended July 31, 2014 and the period ended July 31, 2013. The statutes of limitations on each Trust’s state and local tax returns may remain
open for an additional year depending upon the jurisdiction.
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
61
|
|
|
| Notes to Financial Statements (continued) |
|
Management has analyzed tax laws and regulations and their
application to the Trusts’ facts and circumstances and does not believe that there are any uncertain tax positions that require recognition of a
tax liability.
As of July 31, 2014, the Trusts had capital loss carryforwards
available to offset future realized capital gains through the indicated expiration dates as follows:
Expires July 31,
|
|
|
|
BFZ
|
|
BFO
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
2015 |
|
|
|
$ |
465,742 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2016 |
|
|
|
|
186,028 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2017 |
|
|
|
|
3,782,470 |
|
|
$ |
394,297 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
2,408,109 |
|
2018 |
|
|
|
|
12,894,572 |
|
|
|
62,100 |
|
|
$ |
6,208,886 |
|
|
|
— |
|
|
$ |
842,367 |
|
|
|
1,480,575 |
|
2019 |
|
|
|
|
— |
|
|
|
— |
|
|
|
651,464 |
|
|
|
— |
|
|
|
27,464 |
|
|
|
1,982,931 |
|
No
expiration date1 |
|
|
|
|
— |
|
|
|
294,787 |
|
|
|
3,192,934 |
|
|
$ |
65,058,716 |
|
|
|
976,953 |
|
|
|
4,921,533 |
|
Total
|
|
|
|
$ |
17,328,812 |
|
|
$ |
751,184 |
|
|
$ |
10,053,284 |
|
|
$ |
65,058,716 |
|
|
$ |
1,846,784 |
|
|
$ |
10,793,148 |
|
|
1
|
| Must be utilized prior to losses subject to
expiration. |
As of January 31, 2015, gross unrealized appreciation and
depreciation based on cost for federal income tax purposes were as follows:
|
|
|
|
BFZ
|
|
BFO
|
|
BBF
|
|
BTT
|
|
BNJ
|
|
BNY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
cost |
|
|
|
$ |
600,740,540 |
|
|
$ |
81,600,891 |
|
|
$ |
118,280,028 |
|
|
$ |
2,391,197,864 |
|
|
$ |
165,155,959 |
|
|
$ |
263,992,796 |
|
Gross unrealized appreciation |
|
|
|
$ |
90,306,990 |
|
|
$ |
6,066,077 |
|
|
$ |
22,148,063 |
|
|
$ |
117,046,393 |
|
|
$ |
21,212,300 |
|
|
$ |
30,647,891 |
|
Gross unrealized depreciation |
|
|
|
|
(448,652 |
) |
|
|
(1,275,331 |
) |
|
|
(507,087 |
) |
|
|
(13,805,104 |
) |
|
|
(1,988,353 |
) |
|
|
(791,323 |
) |
Net
unrealized appreciation |
|
|
|
$ |
89,858,338 |
|
|
$ |
4,790,746 |
|
|
$ |
21,640,976 |
|
|
$ |
103,241,289 |
|
|
$ |
19,223,947 |
|
|
$ |
29,856,568 |
|
8. Principal Risks:
BFZ, BFO, BNJ and BNY invest a substantial amount of their assets
in issuers located in a single state or limited number of states. Investment percentages in specific states or U.S. territories are presented in the
Schedules of investments.
Many municipalities insure repayment of their bonds, which may
reduce the potential for loss due to credit risk. The market value of these bonds may fluctuate for other reasons, including market perception of the
value of such insurance, and there is no guarantee that the insurer will meet its obligation.
In the normal course of business, the Trusts invest in securities
and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its
obligations (issuer credit risk). The value of securities held by the Trusts may decline in response to certain events, including those directly
involving the issuers whose securities are owned by the Trusts; conditions affecting the general economy; overall market changes; local, regional or
global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Trusts may
be exposed to counterparty credit risk, or the risk that an entity with which the Trusts have unsettled or open transactions may fail to or be unable
to perform on its commitments. The Trusts manage counterparty credit risk by entering into transactions only with counterparties that they believe have
the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which
potentially expose the Trusts to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from
counterparties. The extent of the Trusts’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is
generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Trusts.
The Trusts invest a significant portion of their assets in
fixed-income securities and/or use derivatives tied to the fixed income markets. See the Schedules of Investments for these securities and derivatives.
Changes in market interest rates or economic conditions, may affect the value and/or liquidity of such investments. Interest rate risk is the risk that
prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Trusts may be subject
to a greater risk of rising interest rates due to the current period of historically low rates.
As of January 31, 2015, BFZ invested a significant portion of its
assets in securities in the County/City/Special District/School District and Utilities sectors. BFO invested a significant portion of its assets in
securities in the County/City/Special District/School District sector. BBF invested a significant portion of its assets in securities in the
County/City/Special District/School District and Transportation sectors. BTT and BNJ invested a significant portion of their assets in securities in
the Transportation sector. BNY invested a significant portion of its assets in the County/City/Special District/School District and Education sectors.
Changes in economic conditions affecting such sectors would have a greater impact on the Trusts and could affect the value, income and/or liquidity of
positions in such securities.
On December 10, 2013, regulators published final rules
implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), which prohibit banking
entities from engaging in proprietary trading of certain instruments and limit such entities’ investments in, and relationships with,
“covered funds” as defined in the Volcker Rule. The Volcker Rule precludes banking entities and their affiliates from sponsoring existing TOB
Trusts as such Trusts have been structured to date. In response to these restrictions, market participants have developed a new structure for TOB
Trusts designed to ensure that no banking entity is sponsoring the TOB Trust for purposes of the Volcker Rule. In such a structure, certain
responsibilities
| 62 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
|
|
| Notes to Financial Statements (continued) |
|
that previously belonged to the sponsor bank will be performed
by the Trusts. The Trusts may utilize the service providers in meeting these responsibilities. This structure remains untested. It is possible that
regulators could take positions that could limit the market for such newly structured TOB Trust transactions or the Trust’s ability to hold
Residuals. Under the new TOB Trust structure, the Trusts will have certain additional duties and responsibilities, which may give rise to certain
additional risks including compliance, securities law and operational risks.
There can be no assurance that the Trusts can successfully enter
into restructured TOB Trust transactions in order to refinance their existing Residual holdings prior to the compliance date for the Volcker Rule,
which may require that the Trusts unwind existing TOB Trusts. There can be no assurance that alternative forms of leverage will be available to the
Trusts and any alternative forms of leverage may be more or less advantageous to the Trusts than existing TOB leverage.
TOB transactions constitute an important component of the
municipal bond market. Accordingly, implementation of the Volcker Rule may adversely impact the municipal market, including through reduced demand for
and liquidity of municipal bonds and increased financing costs for municipal issuers. Any such developments could adversely affect the Trusts. The
ultimate impact of these rules on the TOB market and the overall municipal market is not yet certain.
9. Capital Share Transactions:
Each Trust is authorized to issue an unlimited number of shares,
all of which were initially classified as Common Shares. The par value for each Trust’s Common Shares is $0.001. Each Trust’s Board is
authorized, however, to reclassify any unissued Common Shares to Preferred Shares without approval of Common Shareholders.
At January 31, 2015, Common Shares of BTT owned by affiliates of
the Manager were 5,571 shares.
Common Shares
For the six months ended January 31, 2015 and the year ended July
31, 2014, shares issued and outstanding remained constant for all Trusts.
Preferred Shares
Each Trust’s Preferred Shares rank prior to the Trust’s
Common Shares as to the payment of dividends by the Trust and distribution of assets upon dissolution or liquidation of the Trust. The 1940 Act
prohibits the declaration of any dividend on the Trust’s Common Shares or the repurchase of the Trust’s Common Shares if the Trust fails to
maintain the asset coverage of at least 200% of the liquidation preference of the outstanding Preferred Shares. In addition, pursuant to the Preferred
Shares’ governing instruments, the Trust is restricted from declaring and paying dividends on classes of shares ranking junior to or on parity
with the Preferred Shares or repurchasing such shares if the Trust fails to declare and pay dividends on the Preferred Shares, redeem any Preferred
Shares required to be redeemed under the Preferred Shares governing instruments or comply with the basic maintenance amount requirement of the agencies
rating the Preferred Shares.
The holders of Preferred Shares have voting rights equal to the
holders of Common Shares (one vote per share) and will vote together with holders of Common Shares (one vote per share) as a single class. However, the
holders of Preferred Shares, voting as a separate class, are also entitled to elect two Trustees for each Trust. In addition, the 1940 Act requires
that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding Preferred
Shares, voting separately as a class would be required to (a) adopt any plan of reorganization that would adversely affect the Preferred Shares, (b)
change a Trust’s sub-classification as a closed-end investment company or change its fundamental investment restrictions or (c) change its
business so as to cease to be an investment company.
VRDP Shares
BBF has issued Series W-7 VRDP Shares, $100,000 liquidation value
per share, in a privately negotiated offering. The VRDP Shares were offered to qualified institutional buyers as defined pursuant to Rule 144A under
the Securities Act of 1933, as amended, (the “Securities Act”) and include a liquidity feature, pursuant to a liquidity agreement, that
allows the holders of VRDP Shares to have their shares purchased by the liquidity provider in the event of a failed remarketing. BBF is required to
redeem the VRDP Shares owned by the liquidity provider after six months of continuous, unsuccessful remarketing. Upon the occurrence of the first
unsuccessful remarketing, BBF is required to segregate liquid assets to fund the redemption. The VRDP Shares are subject to certain restrictions on
transfer.
As of January 31, 2015, the VRDP Shares outstanding were as
follows:
|
|
|
|
Issue
Date
|
|
Shares
Issued
|
|
Aggregate
Principal
|
|
Maturity
Date
|
BBF |
|
|
|
|
9/15/11 |
|
|
|
342 |
|
|
$ |
34,200,000 |
|
|
|
10/01/41 |
|
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
63
|
|
|
| Notes to Financial Statements (continued) |
|
BBF entered into a fee agreement with the liquidity provider that
may require a per annum liquidity fee payable to the liquidity provider. These fees are shown as liquidity fees in the Statements of
Operations.
The fee agreement between BBF and the liquidity provider was for a
364 day term and was scheduled to expire on September 15, 2012 and subsequently extended until March 15, 2013, unless renewed or terminated in advance.
On November 29, 2012, BBF entered into a new fee agreement with an alternate liquidity provider. The change in liquidity provider resulted in a
mandatory tender of BBF’s VRDP Shares on November 28, 2012, which were successfully remarketed by the remarketing agent. The new fee agreement was
for a two year term and was scheduled to expire on December 4, 2014, unless renewed or terminated in advance. The new fee agreement was renewed and is
scheduled to expire on June 4, 2015, unless renewed or terminated in advance.
In the event the fee agreement is not renewed or is terminated in
advance, and BBF does not enter into a fee agreement with an alternate liquidity provider, the VRDP Shares will be subject to mandatory purchase by the
liquidity provider prior to the termination of the fee agreement. BBF is required to redeem any VRDP Shares purchased by the liquidity provider six
months after the purchase date. Immediately after the purchase of any VRDP Shares by the liquidity provider, BBF is required to begin to segregate
liquid assets with BBF’s custodian to fund the redemption. There is no assurance BBF will replace such redeemed VRDP Shares with any other
preferred shares or other form of leverage.
BBF is required to redeem its VRDP Shares on the maturity date,
unless earlier redeemed or repurchased. Six months prior to the maturity date, BBF is required to begin to segregate liquid assets with BBF’s
custodian to fund the redemption. In addition, BBF is required to redeem certain of its outstanding VRDP Shares if it fails to maintain certain asset
coverage, basic maintenance amount or leverage requirements.
Subject to certain conditions, the VRDP Shares may be redeemed, in
whole or in part, at any time at the option of BBF. The redemption price per VRDP Share is equal to the liquidation value per share plus any
outstanding unpaid dividends.
Dividends on the VRDP Shares are payable monthly at a variable
rate set weekly by the remarketing agent. Such dividend rates are generally based upon a spread over a base rate and cannot exceed a maximum rate. In
the event of a failed remarketing, the dividend rate of the VRDP Shares will be reset to a maximum rate. The maximum rate is determined based on, among
other things, the long-term preferred share rating assigned to the VRDP Shares and the length of time that the VRDP Shares fail to be remarketed. At
the date of issuance, the VRDP Shares were assigned a long-term rating of Aaa from Moody’s and AAA from Fitch. Subsequent to the issuance of the
VRDP Shares, Moody’s completed a review of its methodology for rating securities issued by registered closed-end funds. As of January 31, 2015,
the VRDP Shares were assigned a long term rating of Aa1 from Moody’s under its new ratings methodology. The VRDP Shares continue to be assigned a
long-term rating of AAA from Fitch.
The short-term ratings on the VRDP Shares are directly related to
the short-term ratings of the liquidity provider for such VRDP Shares. Changes in the credit quality of the liquidity provider could cause a change in
the short-term credit ratings of the VRDP Shares as rated by Moody’s, Fitch and/or S&P. A change in the short-term credit rating of the
liquidity provider or the VRDP Shares may adversely affect the dividend rate paid on such shares, although the dividend rate paid on the VRDP Shares is
not directly related based upon either short-term rating. As of January 31, 2015, the short-term ratings of the liquidity provider and the VRDP Shares
for BBF were P-1, F1 and A1 as rated by Moody’s, Fitch and/or S&P, respectively, which is within the two highest rating categories. The
liquidity provider may be terminated prior to the scheduled termination date if the liquidity provider fails to maintain short-term debt ratings in one
of the two highest rating categories.
For financial reporting purposes, the VRDP Shares are considered
debt of the issuer; therefore, the liquidation value, which approximates fair value, of the VRDP Shares is recorded as a liability in the Statements of
Assets and Liabilities. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the
dividends accrued and paid on the VRDP Shares are included as a component of interest expense, fees and amortization of offering costs in the
Statements of Operations. The VRDP Shares are treated as equity for tax purposes. Dividends paid to holders of the VRDP Shares are generally classified
as tax-exempt income for tax-reporting purposes.
BBF may incur remarketing fees of 0.10% on the aggregate principal
amount of all the VRDP Shares, which, if any, are included in remarketing fees on Preferred Shares in the Statements of Operations. All of BBF’s
VRDP Shares that were tendered for remarketing during the six months ended January 31, 2015 were successfully remarketed, with an annualized dividend
rate of 0.13%.
VMTP Shares
BFZ, BNJ and BNY (collectively, the “VMTP Trusts”), have
issued Series W-7 VMTP Shares, $100,000 liquidation value per share, in a privately negotiated offering and sale of VMTP Shares exempt from
registration under the Securities Act.
| 64 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
|
|
| Notes to Financial Statements (continued) |
|
As of January 31, 2015, the VMTP Shares outstanding were as
follows:
|
|
|
|
Issue
Date
|
|
Shares
Issued
|
|
Aggregate
Principal
|
|
Term
Date
|
BFZ
|
|
|
|
|
3/22/12 |
|
|
|
1,713 |
|
|
$ |
171,300,000 |
|
|
|
3/20/16 |
|
BNJ
|
|
|
|
|
3/22/12 |
|
|
|
591 |
|
|
$ |
59,100,000 |
|
|
|
3/20/16 |
|
BNY |
|
|
|
|
3/22/12 |
|
|
|
945 |
|
|
$ |
94,500,000 |
|
|
|
3/20/16 |
|
Each VMTP Trust is required to redeem its VMTP Shares on the term
date, unless earlier redeemed or repurchased or unless extended. There is no assurance that the term of a Trust’s VMTP Shares will be extended or
that a Trust’s VMTP Shares will be replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the
VMTP Shares. Six months prior to term date, each VMTP Trust is required to begin to segregate liquid assets with the Trust’s custodian to fund the
redemption. In addition, each VMTP Trust is required to redeem certain of its outstanding VMTP Shares if it fails to maintain certain asset coverage,
basic maintenance amount or leverage requirements.
Subject to certain conditions, a Trust’s VMTP Shares may be
redeemed, in whole or in part, at any time at the option of the Trust. The redemption price per VMTP Share is equal to the liquidation value per share
plus any outstanding unpaid dividends and applicable redemption premium. If the Trust redeems the VMTP Shares on a date that is one year or more prior
to the term date and the VMTP Shares are rated above A1/A+ by Moody’s and Fitch, respectively, then such redemption is subject to a prescribed
redemption premium (up to 3% of the liquidation preference) payable to the holder of the VMTP Shares based on the time remaining to the term date,
subject to certain exceptions for redemptions that are required to maintain minimum asset coverage requirements. The VMTP Shares are subject to certain
restrictions on transfer, and a Trust may also be required to register the VMTP Shares for sale under the Securities Act under certain circumstances.
In addition, amendments to the VMTP governing document generally require the consent of the holders of VMTP Shares.
Dividends on the VMTP Shares are declared daily and payable
monthly at a variable rate set weekly at a fixed rate spread to the Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA).
The fixed spread is determined based on the long-term preferred share rating assigned to the VMTP Shares by Moody’s and Fitch. At the date of
issuance, the VMTP Shares were assigned long-term ratings of Aaa from Moody’s and AAA from Fitch. Subsequent to the issuance of the VMTP Shares,
Moody’s completed a review of its methodology for rating securities issued by registered closed-end funds. As of January 31, 2015, the VMTP Shares
were assigned a long-term rating of Aa2 from Moody’s under its new rating methodology. The VMTP Shares continue to be assigned a long-term rating
of AAA from Fitch. The dividend rate on the VMTP Shares is subject to a step-up spread if the Trust fails to comply with certain provisions, including,
among other things, the timely payment of dividends, redemptions or gross-up payments, and maintaining certain asset coverage and leverage
requirements.
For the six months ended January 31, 2015, the average annualized
dividend rates for the VMTP Shares were as follows:
|
|
|
|
BFZ
|
|
BNJ
|
|
BNY
|
Rate |
|
|
|
|
1.04 |
% |
|
|
1.07 |
% |
|
|
1.04 |
% |
For financial reporting purposes, the VMTP Shares are considered
debt of the issuer; therefore the liquidation value, which approximates fair value, of the VMTP Shares is recorded as a liability in the Statements of
Assets and Liabilities. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the
dividends accrued and paid on the VMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the
Statements of Operations. The VMTP Shares are treated as equity for tax purposes. Dividends paid to holders of the VMTP Shares are generally classified
as tax-exempt income for tax-reporting purposes.
For the six months ended January 31, 2015, VMTP Shares issued and
outstanding remained constant.
RVMTP Shares
BTT has issued Series W-7 RVMTP Shares, $5,000,000 liquidation
value per share, in a privately negotiated offering and sale of RVMTP Shares exempt from registration under the Securities Act.
As of January 31, 2015, the RVMTP Shares outstanding were as
follows:
|
|
|
|
Issue
Date
|
|
Shares
Issued
|
|
Aggregate
Principal
|
|
Term
Date
|
BTT |
|
|
|
|
1/10/2013 |
|
|
|
50 |
|
|
$ |
250,000,000 |
|
|
|
12/31/2030 |
|
|
|
|
|
|
1/30/2013 |
|
|
|
50 |
|
|
$ |
250,000,000 |
|
|
|
12/31/2030 |
|
|
|
|
|
|
2/20/2013 |
|
|
|
50 |
|
|
$ |
250,000,000 |
|
|
|
12/31/2030 |
|
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
65
|
|
|
| Notes to Financial Statements (continued) |
|
BTT is required to redeem its RVMTP Shares on the term date or
within six months of an unsuccessful remarketing, unless earlier redeemed or repurchased. There is no assurance that BTT’s RVMTP Shares will be
replaced with any other preferred shares or other form of leverage upon the redemption or repurchase of the RVMTP Shares. In addition, BTT is required
to redeem certain of its outstanding RVMTP Shares if it fails to maintain certain asset coverage, basic maintenance amount or leverage
requirements.
Subject to certain conditions, BTT’s RVMTP Shares may be
redeemed, in whole or in part, at any time at the option of BTT. The redemption price per RVMTP Share is equal to the liquidation value per share plus
any outstanding unpaid dividends. The RVMTP Shares are subject to certain restrictions on transfer outside of a remarketing. The RVMTP Shares are
subject to remarketing upon 90 days’ notice by holders of the RVMTP Shares and 30-days’ notice by BTT. Each remarketing must be at least six
months apart from the last remarketing. A holder of RVMTP Shares may submit notice of remarketing only if such holder requests a remarketing of at
least the lesser of (i) $100,000,000 of RVMTP Shares or (ii) all of the RVMTP Shares held by such holder. Amendments to the RVMTP governing document
generally require the consent of the holders of RVMTP Shares.
Dividends on the RVMTP Shares are declared daily and payable
monthly at a variable rate set weekly at a fixed rate spread to the SIFMA. The initial fixed rate spread was agreed upon by the Purchaser and BTT on
the initial date of issuance for the Series W-7 RVMTP Shares. The initial fixed rate spread may be adjusted at each remarketing or upon the agreement
between BTT and all of the holders of the RVMTP Shares. In the event all of the RVMTP Shares submitted for remarketing are not successfully remarketed,
a failed remarketing will occur, and all holders would retain their RVMTP Shares. In the event of a failed remarketing, the fixed rate spread would be
set at the fixed rate spread applicable to such failed remarketing. BTT has the right to reject any fixed spread determined at a remarketing, and such
rejection would result in a failed remarketing and the fixed rate spread being set at the fixed rate spread applicable to such failed remarketing. The
fixed rate spread applicable due to a failed remarketing depends on whether the remarketing was pursuant to a mandatory or non-mandatory tender. In the
case of a failed remarketing following a mandatory tender, the failed remarketing spread would be the sum of the last applicable spread in effect
immediately prior to the failed remarketing date for such failed remarketing plus 0.75%. In the case of a failed remarketing not associated with a
mandatory tender, the failed remarketing spread would be the sum of the last applicable spread in effect immediately prior to the failed remarketing
date for such failed remarketing plus 0.25%.
In the event of a failed remarketing that is not subsequently
cured, BTT will be required to redeem the RVMTP Shares subject to such failed remarketing on a date that is approximately six months from the
remarketing date for such failed remarketing, provided that no redemption of any RVMTP Share may occur within one year of the date of issuance of such
RVMTP Share. At the date of issuance, the RVMTP Shares were assigned long-term ratings of Aa1 from Moody’s and AAA from Fitch. The dividend rate
on the RVMTP Shares is subject to a step-up spread if BTT fails to comply with certain provisions, including, among other things, the timely payment of
dividends, redemptions or gross-up payments, and maintaining certain asset coverage and leverage requirements.
During the six months ended January 31, 2015, there were no RVMTP
Shares that were tendered for remarketing.
For the six months ended January 31, 2015, the average annualized
dividend rate for the BTT RVMTP Shares was 0.69%.
For financial reporting purposes, the RVMTP Shares are considered
debt of the issuer; therefore the liquidation value, which approximates fair value, of the RVMTP Shares is recorded as a liability in the Statements of
Assets and Liabilities. Unpaid dividends are included in interest expense and fees payable in the Statements of Assets and Liabilities, and the
dividends accrued and paid on the RVMTP Shares are included as a component of interest expense, fees and amortization of offering costs in the
Statements of Operations. The RVMTP Shares are treated as equity for tax purposes. Dividends paid to holders of the RVMTP Shares are generally
classified as tax-exempt income for tax-reporting purposes.
For the six months ended January 31, 2015, RVMTP Shares issued and
outstanding remained constant.
Offering Costs: The Income Trusts incurred costs in
connection with the issuance of VRDP Shares, VMTP Shares and/or RVMTP Shares. For VRDP Shares, these costs were recorded as a deferred charge and will
be amortized over the 30-year life of the VRDP Shares with the exception of upfront fees paid to the liquidity provider which were amortized over the
life of the liquidity agreement. For VMTP Shares, these costs were recorded as a deferred charge and will be amortized over the 3-year life of the VMTP
Shares. For RVMTP Shares, these costs were recorded as a deferred charge and will be amortized over the 18-year life of the RVMTP Shares. Amortization
of these costs is included in interest expense, fees and amortization of offering costs in the Statements of Operations.
AMPS
As of January 31, 2015, BFO did not have any AMPS
outstanding.
| 66 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
|
|
| Notes to Financial Statements (concluded) |
|
During the six months ended January 31, 2015, BFO announced the
following redemptions of AMPS at a price of $25,000 per share plus any accrued and unpaid dividends through the redemption date:
|
|
|
|
Series
|
|
Redemption
Date
|
|
Shares
Redeemed
|
|
Aggregate
Principal
|
BFO |
|
|
|
|
F-7 |
|
|
|
11/10/14 |
|
|
|
25 |
|
|
$ |
625,000 |
|
10. Subsequent Events:
Management’s 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:
Each Trust paid a net investment income dividend in the following
amounts per share on March 2, 2015 to Common Shareholders of record on February 13, 2015:
|
|
|
|
Common
Dividend
Per Share
|
BFZ
|
|
|
|
$ |
0.072200 |
|
BFO |
|
|
|
$ |
0.034700 |
|
BBF |
|
|
|
$ |
0.072375 |
|
BTT
|
|
|
|
$ |
0.080000 |
|
BNJ |
|
|
|
$ |
0.075100 |
|
BNY |
|
|
|
$ |
0.069000 |
|
Additionally, the Trusts declared a net investment income dividend
on March 2, 2015 payable to Common Shareholders of record on March 13, 2015, for the same amounts noted above.
The dividends declared on Preferred Shares for the period February
1, 2015 to February 28, 2015 were as follows:
|
|
|
|
Preferred
Shares
|
|
Series
|
Dividend
Declared
|
|
BFZ |
|
|
|
|
VMTP Shares |
|
|
|
W-7 |
|
$134,036 |
|
BBF |
|
|
|
|
VRDP Shares |
|
|
|
W-7 |
|
$ 2,886 |
|
BTT |
|
|
|
|
VMTP Shares |
|
|
|
W-7 |
|
$385,479 |
|
BNJ |
|
|
|
|
VMTP Shares |
|
|
|
W-7 |
|
$ 46,244 |
|
BNY |
|
|
|
|
VMTP Shares |
|
|
|
W-7 |
|
$ 81,943 |
|
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
67
|
Richard E. Cavanagh, Chairman of the Board and Trustee
Karen
P. Robards, Vice Chairperson of the Board, Chairperson
of the Audit Committee and Trustee
Michael J.
Castellano, Trustee and Member of the Audit Committee
Frank J. Fabozzi, Trustee and Member of the Audit Committee
Kathleen F. Feldstein,
Trustee
James T. Flynn, Trustee and Member of the Audit Committee
Jerrold B. Harris, Trustee
R. Glenn Hubbard, Trustee
W. Carl Kester,
Trustee and Member of the Audit Committee
Barbara G. Novick, Trustee
John M. Perlowski, Trustee, President and Chief Executive Officer
Robert W. Crothers, Vice President
Neal Andrews, Chief Financial Officer
Jay Fife, Treasurer
Charles Park, Chief Compliance Officer
Janey Ahn, Secretary
Effective September 5, 2014, Brendan Kyne resigned as a Vice President of the Trusts.
Effective December 31, 2014, Paul L. Audet and Henry
Gabbay resigned as Trustees of the Trusts. Effective December 31, 2014, Barbara G. Novick and John M. Perlowski were appointed to serve as Trustees of
the Trusts. |
|
Investment Advisor
BlackRock Advisors, LLC
Wilmington, DE 19809
Custodian
State Street Bank and
Trust Company
Boston, MA 02110 |
|
Transfer Agent
Common Shares:
Computershare Trust Company, N.A.
Canton,
MA 02021
VRDP Tender and Paying Agent,
RVMTP Tender and Paying Agent
and VMTP Redemption and
Paying Agent
The Bank of New York Mellon
New York, NY 10289 |
|
VRDP Liquidity Provider
Barclays Bank PLC
New York, NY 10019
VRDP Remarketing
Agent
Barclays Capital, Inc.
New York, NY 10019
Accounting Agent
State Street Bank and
Trust Company
Boston, MA 02110 |
|
Independent Registered
Public Accounting Firm
Deloitte & Touche LLP
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom LLP
New York, NY 10036
Address of the Trusts
100 Bellevue Parkway
Wilmington, DE 19809 |
| 68 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
Dividend Policy
Each Trust’s dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order
to provide shareholders with a more stable level of distributions, the Trusts may at times pay out less than the entire amount of net investment income
earned in any particular month and may at times in any particular month pay out such accumulated but undistributed income in addition to net investment
income earned in that month. As a result, the distributions paid by the Trusts for any particular month may be more or less than the amount of net
investment income earned by the Trusts during such month. The Trusts’ current accumulated but undistributed net investment income, if any, is
disclosed in the Statements of Assets and Liabilities, which comprises part of the financial information included in this report.
General Information
The Trusts do not make available copies of their Statements of Additional Information because the Trusts’ shares are not continuously offered,
which means that the Statement of Additional Information of each Trust has not been updated after completion of the respective Trust’s offerings
and the information contained in each Trust’s Statement of Additional Information may have become outdated.
During the period, there were no material changes in the Trusts’ investment objectives or policies or to the Trusts’ charters or by-laws
that would delay or prevent a change of control of the Trusts that were not approved by the shareholders or in the principal risk factors associated
with investment in the Trusts. There have been no changes in the persons who are primarily responsible for the day-to-day management of the
Trusts’ portfolios.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Trusts may be found on
BlackRock’s website, which can be accessed at http://www.blackrock.com. This reference to BlackRock’s website is intended to allow
investors public access to information regarding the Trusts and does not, and is not intended to, incorporate BlackRock’s website in this report.
Electronic Delivery
Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic
delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.
Shareholders Who Hold Accounts with Investment Advisors,
Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.
Householding
The Trusts will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with
multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate
duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise.
If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Trusts at (800)
882-0052.
Availability of Quarterly Schedule of Investments
The Trusts file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trusts’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public
Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800)
SEC-0330. The Trusts’ Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trusts use to determine how to vote proxies relating to portfolio securities is available upon
request and without charge (1) by calling (800) 882-0052; (2) at http://www.blackrock.com; and (3) on the SEC’s website at
http://www.sec.gov.
Availability of Proxy Voting Record
Information about how the Trusts voted proxies relating to securities held in the Trusts’ portfolios during the most recent 12-month period ended
June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 882-0052 and (2) on the SEC’s
website at http://www.sec.gov.
| SEMI-ANNUAL REPORT |
JANUARY 31, 2015 |
69
|
|
|
| Additional Information (concluded) |
|
General Information (concluded)
Availability of Trust Updates
BlackRock will update performance and certain other data for the Trusts on a monthly basis on its website in the “Closed-end Funds” section
of http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised
to check the website for updated performance information and the release of other material information about the Trusts. This reference to
BlackRock’s website is intended to allow investors public access to information regarding the Trusts and does not, and is not intended to,
incorporate BlackRock’s website in this report.
Shelf Offering Program
From time-to-time, each Trust (except for BFO and BTT) may seek to raise additional equity capital through an equity shelf program (a “Shelf
Offering”). In a Shelf Offering, a Trust may, subject to market conditions, raise additional equity capital by issuing new Common Shares from time
to time in varying amounts at a net price at or above the Trust’s net asset value (“NAV”) per Common Share (calculated within 48 hours
of pricing). While any such Shelf Offering may allow a Trust to pursue additional investment opportunities without the need to sell existing portfolio
investments, it could also entail risks — including that the issuance of additional Common Shares may limit the extent to which the Common Shares
are able to trade at a premium to NAV in the secondary market. The Trusts have not filed a registration statement with respect to any Shelf Offerings.
This report is not an offer to sell Trust Common Shares and is not a solicitation of an offer to buy Trust Common Shares. If a Trust files a
registration statement with respect to any Shelf Offering, the prospectus contained therein will contain more complete information about the Trust and
should be read carefully before investing.
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively,
“Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what
personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different
privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions
with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law
or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the
confidentiality and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services
that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock
employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to
protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
| 70 |
SEMI-ANNUAL REPORT |
JANUARY 31, 2015
|
[THIS PAGE INTENTIONALLY LEFT BLANK]
This report is intended for current holders. It is not a
prospectus. Past performance results shown in this report should not be considered a representation of future performance. Certain Trusts have
leveraged their Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and
market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and
other information herein are as dated and are subject to change.
CEF-BK6-1/15-SAR |
|
|
