UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05739

Name of Fund: BlackRock MuniEnhanced Fund, Inc. (MEN)

Fund Address:    100 Bellevue Parkway, Wilmington, DE 19809

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

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

Date of fiscal year end: 04/30/2019

Date of reporting period: 10/31/2018

 

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Item 1 – Report to Stockholders

 

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OCTOBER 31, 2018

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

BlackRock MuniAssets Fund, Inc. (MUA)

BlackRock MuniEnhanced Fund, Inc. (MEN)

BlackRock MuniHoldings Fund, Inc. (MHD)

BlackRock MuniHoldings Fund II, Inc. (MUH)

BlackRock MuniHoldings Quality Fund, Inc. (MUS)

BlackRock Muni Intermediate Duration Fund, Inc. (MUI)

BlackRock MuniVest Fund II, Inc. (MVT)

 

Not FDIC Insured • May Lose Value • No Bank Guarantee

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2		THIS PAGE IS NOT PART OF YOUR FUND REPORT

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Table of Contents

 

		Page
The Markets in Review			2
Semi-Annual Report:
Municipal Market Overview			4
The Benefits and Risks of Leveraging			5
Derivative Financial Instruments			5
Fund Summaries			6
Financial Statements:
Schedules of Investments			20
Statements of Assets and Liabilities			72
Statements of Operations			74
Statements of Changes in Net Assets			76
Statements of Cash Flows			80
Financial Highlights			82
Notes to Financial Statements			89
Disclosure of Investment Advisory Agreements			99
Director and Officer Information			103
Additional Information			104
Glossary of Terms Used in this Report			107

 

 

			3

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Municipal Market Overview  For the Reporting Period Ended October 31, 2018

 

Municipal Market Conditions

Municipal bonds experienced negative total returns during the period alongside fixed income broadly, as interest rates moved higher on the back of continued Fed policy normalization, fiscal stimulus, strong economic growth, and increased U.S. Treasury issuance. At the same time, demand for the asset class remained firm. Investors favored the tax-exempt income, diversification, quality, and value of municipal bonds, particularly given that tax reform ultimately lowered the top individual tax rate just 2.6% while eliminating deductions. During the 12 months ended October 31, 2018, municipal bond funds experienced net inflows of approximately $12.8 billion (based on data from the Investment Company Institute).

 

For the same 12-month period, total new issuance was moderate from a historical perspective at $366 billion (slightly above the $363 billion issued in the prior 12-month period), but displayed significant month-to-month volatility. Notably, issuance in December posted the highest monthly total on record at $56 billion, as issuers rushed deals to market ahead of the expected elimination of the tax-exemption for advanced refunding bonds and possibly private activity bonds (PABs). Ultimately, the final version of the Tax Cuts and Jobs Act left PABs unchanged, though the elimination of advanced refundings has suppressed supply in 2018, providing a powerful technical tailwind.		S&P Municipal Bond Index Total Returns as of October 31, 2018   6 months: 0.45% 12 months: (0.31)%

A Closer Look at Yields

 

From October 31, 2017 to October 31, 2018, yields on AAA-rated 30-year municipal bonds increased by 55 basis points (“bps”) from 2.83% to 3.38%, while 10-year rates increased by 72 bps from 2.01% to 2.73% and 5-year rates increased by 88 bps from 1.42% to 2.30% (as measured by Thomson Municipal Market Data). The municipal yield curve bear flattened over the 12-month period with the spread between 2- and 30-year maturities flattening by 43 bps, however remained a significant 78 bps steeper than the corresponding U.S. Treasury curve.

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

Financial Conditions of Municipal Issuers

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

The opinions expressed are those of BlackRock as of October 31, 2018, and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. Investing involves risk including loss of principal. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to Alternative Minimum Tax (“AMT”). Capital gains distributions, if any, are taxable.

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

 

 

4		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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The Benefits and Risks of Leveraging

 

The Funds may utilize leverage to seek to enhance the distribution rate on, and net asset value (“NAV”) of, their common shares (“Common Shares”). However, there is no guarantee that these objectives can be achieved in all interest rate environments.

In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by a Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Funds (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Funds’ shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share NAV.

To illustrate these concepts, assume a Fund’s Common Shares capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, a Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by a Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, a Fund’s financing cost of leverage is significantly lower than the income earned on a Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit Common Shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed the Funds’ return on assets purchased with leverage proceeds, income to shareholders is lower than if the Funds had not used leverage. Furthermore, the value of the Funds’ portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of the Funds’ obligations under their respective leverage arrangements generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Funds’ NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that the Funds’ intended leveraging strategy will be successful.

The use of leverage also generally causes greater changes in each Fund’s NAV, market price and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of a Fund’s Common Shares than if the Fund were not leveraged. In addition, each Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit a Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. Each Fund incurs expenses in connection with the use of leverage, all of which are borne by Common Shareholders and may reduce income to the Common Shares. Moreover, to the extent the calculation of the Funds’ investment advisory fees includes assets purchased with the proceeds of leverage, the investment advisory fees payable to the Funds’ investment adviser will be higher than if the Funds did not use leverage.

To obtain leverage, each Fund has issued Variable Rate Demand Preferred Shares (“VRDP Shares”) or Variable Rate Muni Term Preferred Shares (“VMTP Shares”) (collectively, “Preferred Shares”) and/or leveraged its assets through the use of tender option bond trusts (“TOB Trusts”) as described in the Notes to Financial Statements.

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

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

Derivative Financial Instruments

The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other assets without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the instrument. The Funds’ successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.

 

 

THE BENEFITS AND RISKS OF LEVERAGING / DERIVATIVE FINANCIAL INSTRUMENTS			5

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Fund Summary  as of October 31, 2018		BlackRock MuniAssets Fund, Inc.

 

Investment Objective

BlackRock MuniAssets Fund, Inc.’s (MUA) (the “Fund”) investment objective is to provide high current income exempt from U.S. federal income taxes by investing primarily in a portfolio of medium- to lower-grade or unrated municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). The Fund invests at least 65% of its assets in municipal bonds that are rated in the medium to lower rating categories by nationally recognized rating services (for example, Baa or lower by Moody’s Investors Service, Inc. (“Moody’s”) or BBB or lower by Standard & Poor’s Corporation (“S&P”), or securities that are unrated but are deemed by the investment adviser to be of comparable quality at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on New York Stock Exchange (“NYSE”)		MUA
Initial Offering Date		June 25, 1993
Yield on Closing Market Price as of October 31, 2018 ($12.65)(a)		5.17%
Tax Equivalent Yield(b)		8.73%
Current Monthly Distribution per Common Share(c)		$0.0545
Current Annualized Distribution per Common Share(c)		$0.6540
Economic Leverage as of October 31, 2018(d)		13%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MUA(a)(b)			(1.84	)%			1.19	%
Lipper High Yield Municipal Debt Funds(c)			(1.78	)			0.27

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer months, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s yield curve positioning made the largest contribution to performance. Positions in high-quality, short-dated, pre-refunded bonds performed relatively well and held their value better than long-dated holdings. The latter experienced larger price declines amid a steepening yield curve in which rates on intermediate- and long-term issues rose at a faster pace than those of short-term securities. (Prices and yields move in opposite directions.)

Positions in lower-quality issues continued to benefit results, as investor risk appetites remained robust for much of the reporting period. Holdings in non- investment-grade and unrated categories outperformed due to the combination of their higher income and stronger price performance. However, these bonds lagged late in the period once investor sentiment began to deteriorate.

At the sector level, positions in tobacco, health care and transportation issues all contributed to results. Investments in project finance and development-district bonds added value, as well.

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

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

 

 

6		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniAssets Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	12.65			$	13.21				(4.24	)%		$	13.48			$	12.51
Net Asset Value			13.83				14.01				(1.28	)			14.13				13.83

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			7

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Fund Summary  as of October 31, 2018		BlackRock MuniEnhanced Fund, Inc.

 

Investment Objective

BlackRock MuniEnhanced Fund, Inc.’s (MEN) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). Under normal market conditions, the Fund invests primarily in long-term municipal bonds that are rated investment grade quality or, if unrated, are deemed to be of comparable quality by the investment adviser at the time of investment and invests primarily in long-term municipal bonds with maturities of more than ten years at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MEN
Initial Offering Date		March 2, 1989
Yield on Closing Market Price as of October 31, 2018 ($9.69)(a)		5.94%
Tax Equivalent Yield(b)		10.03%
Current Monthly Distribution per Common Share(c)		$0.0480
Current Annualized Distribution per Common Share(c)		$0.5760
Economic Leverage as of October 31, 2018(d)		41%

 

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MEN(a)(b)			(4.92	)%			(0.30	)%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			(3.47	)			(0.13	)

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s quality focus detracted from performance given the underperformance of higher-rated debt.

Holdings in longer-term bonds detracted as their weak price performance outweighed the benefit of added income. An allocation to low-coupon and zero-coupon bonds, which have a higher sensitivity to interest rates, also hurt performance.

Although yields rose during the period, reinvestment had an adverse effect on the Fund’s income since the proceeds of higher-yielding bonds that matured or were called needed to be reinvested at lower prevailing rates.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

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

 

 

8		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniEnhanced Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	9.69			$	10.48				(7.54	)%		$	10.63			$	9.63
Net Asset Value			11.11				11.46				(3.05	)			11.63				11.10

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			9

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Fund Summary  as of October 31, 2018		BlackRock MuniHoldings Fund, Inc.

 

Investment Objective

BlackRock MuniHoldings Fund, Inc.’s (MHD) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). The Fund invests, under normal market conditions, at least 75% of its assets in municipal bonds that are rated investment grade or, if unrated, are deemed to be of comparable quality by the investment adviser at the time of investment and invests primarily in long-term municipal bonds with a maturity of more than ten years at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MHD
Initial Offering Date		May 2, 1997
Yield on Closing Market Price as of October 31, 2018 ($14.03)(a)		5.99%
Tax Equivalent Yield(b)		10.12%
Current Monthly Distribution per Common Share(c)		$0.0700
Current Annualized Distribution per Common Share(c)		$0.8400
Economic Leverage as of October 31, 2018(d)		39%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

The monthly distribution per Common Share, declared on December 3, 2018, was decreased to $0.0675 per share. The yield on closing market price, current monthly distribution per Common Share and current annualized distribution per Common Share do not reflect the new distribution rate. The new distribution rate is not constant and is subject to change in the future.

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MHD(a)(b)			(3.73	)%			0.28	%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			(3.47	)			(0.13	)

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer months, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s yield curve positioning made the largest contribution to performance. Positions in high-quality, short-dated, pre-refunded bonds performed relatively well and held their value better than longer-dated holdings. The latter experienced larger price declines amid a steepening yield curve in which rates on intermediate- and long-term issues rose at a faster pace than those of short-term securities. (Prices and yields move in opposite directions.)

Positions in lower-quality issues continued to benefit results, as investor risk appetites remained robust for much of the reporting period. Holdings in lower-rated investment-grade bonds and high-yield issues outperformed due to the combination of their higher income and stronger price performance. However, these bonds lagged late in the period once investor sentiment began to deteriorate.

At the sector level, positions in tobacco and state tax-backed issues contributed to results. Investments in transportation and corporate-related debt added value, as well.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

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

 

 

10		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniHoldings Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	14.03			$	14.98				(6.34	)%		$	16.21			$	14.02
Net Asset Value			16.01				16.41				(2.44	)			16.58				16.01

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			11

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Fund Summary  as of October 31, 2018		BlackRock MuniHoldings Fund II, Inc.

 

Investment Objective

BlackRock MuniHoldings Fund II, Inc.’s (MUH) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). The Fund invests, under normal market conditions, at least 75% of its assets in municipal bonds that are rated investment grade or, if unrated, are deemed to be of comparable quality by the investment adviser at the time of investment and invests primarily in long-term municipal bonds with a maturity of more than ten years at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MUH
Initial Offering Date		February 27, 1998
Yield on Closing Market Price as of October 31, 2018 ($12.67)(a)		5.82%
Tax Equivalent Yield(b)		9.83%
Current Monthly Distribution per Common Share(c)		$0.0615
Current Annualized Distribution per Common Share(c)		$0.7380
Economic Leverage as of October 31, 2018(d)		41%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MUH(a)(b)			(5.24	)%			0.05	%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			(3.47	)			(0.13	)

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund generated a small gain at net asset value. Its return was primarily derived from income given that bond prices fell.

Positions in lower-rated bonds performed well amid investors’ ongoing preference for higher-yielding issues. Conversely, holdings in investment-grade issues produced weaker returns.

The Fund’s high concentration in short-maturity, pre-refunded securities aided results due to the strong relative performance of short-term securities. On the other end of the spectrum, holdings in longer-term bonds detracted as their weak price performance outweighed the benefit of added income.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

An allocation to low-coupon and zero-coupon bonds, which have a higher sensitivity to interest rates, also hurt performance.

Although yields rose during the period, reinvestment had an adverse effect on the Fund’s income since the proceeds of higher-yielding bonds that matured or were called needed to be reinvested at lower prevailing rates.

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

 

 

12		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniHoldings Fund II, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	12.67			$	13.75				(7.85	)%		$	14.46			$	12.65
Net Asset Value			14.70				15.11				(2.71	)			15.27				14.70

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			13

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Fund Summary  as of October 31, 2018		BlackRock MuniHoldings Quality Fund, Inc.

 

Investment Objective

BlackRock MuniHoldings Quality Fund, Inc.’s (MUS) (the “Fund”) investment objective is to provide shareholders with current income exempt from U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing primarily in long-term, investment grade municipal obligations exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). Under normal market conditions, the Fund invests at least 80% of its assets in investment grade municipal obligations, and obligations deemed to be of comparable quality by the investment adviser at the time of investment, with remaining maturities of one year or more at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MUS
Initial Offering Date		May 1, 1998
Yield on Closing Market Price as of October 31, 2018 ($11.17)(a)		5.43%
Tax Equivalent Yield(b)		9.17%
Current Monthly Distribution per Common Share(c)		$0.0505
Current Annualized Distribution per Common Share(c)		$0.6060
Economic Leverage as of October 31, 2018(d)		39%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MUS(a)(b)			(7.40	)%			(0.21	)%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			(3.47	)			(0.13	)

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s emphasis on higher-quality bonds, which lagged the overall market, was the primary factor in its underperformance. However, positions in lower-rated investment-grade securities, to the extent that they were held in the portfolio, aided results. The improving domestic economy helped support the underlying fundamentals of lower-quality issues. In addition, this market segment benefited from the combination of limited supply and strong investor demand.

Consistent with the broader market environment, the Fund’s positions in longer-term bonds detracted from returns.

The Fund’s performance was helped by positions in the transportation, pre-refunded, and utilities sectors. Pre-refunded bonds outperformed due to their attractive yields and below-average sensitivity to interest rate movements.

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

Holdings in Illinois and New Jersey bonds were additional contributors of note. Economic tailwinds helped improve the credit fundamentals of both states by boosting income and sales tax revenues. This trend, coupled with a limited supply of high-yielding, tax-exempt bonds, led to outperformance for these issuers.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

Positions in standard-structure 5% coupon issues, which outperformed discount coupon bonds, were also additive.

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

 

 

14		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniHoldings Quality Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	11.17			$	12.40				(9.92	)%		$	12.57			$	11.10
Net Asset Value			12.96				13.35				(2.92	)			13.48				12.96

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			15

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Fund Summary  as of October 31, 2018		BlackRock Muni Intermediate Duration Fund, Inc.

 

Investment Objective

BlackRock Muni Intermediate Duration Fund, Inc.’s (MUI) (the “Fund”) investment objective is to provide common shareholders with high current income exempt from U.S. federal income taxes. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). Under normal market conditions, the Fund invests at least 75% of its assets in municipal bonds that are rated investment grade or, if unrated, are deemed to be of comparable quality by the investment adviser at the time of investment and invests at least 80% of its assets in municipal bonds with a duration of three to ten years at the time of investment. The Fund expects to maintain a dollar-weighted average portfolio duration, as calculated by the investment adviser, of three to ten years. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MUI
Initial Offering Date		August 1, 2003
Yield on Closing Market Price as of October 31, 2018 ($12.66)(a)		4.22%
Tax Equivalent Yield(b)		7.13%
Current Monthly Distribution per Common Share(c)		$0.0445
Current Annualized Distribution per Common Share(c)		$0.5340
Economic Leverage as of October 31, 2018(d)		40%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MUI(a)(b)			(0.68	)%			0.22	%
Lipper Intermediate Municipal Debt Funds(c)			(1.05	)			0.37

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s positions in lower-duration bonds, including pre-refunded securities, were strong performers due do their defensive nature and lower sensitivity to interest-rate movements.

Positions in BBB and A rated issues, which outperformed higher quality securities, aided results. Holdings in the transportation sector, as well as in Illinois and New Jersey issues, were particularly strong performers. Economic tailwinds helped improve the credit fundamentals of both states by boosting income and sales tax revenues. This trend, coupled with a limited supply of high-yielding, tax-exempt bonds, led to outperformance for these issuers.

The Fund’s yield curve positioning, which featured concentrations in the 10- to 15-year maturity range, also helped performance.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

At the sector level, an allocation to tobacco issues was a key detractor.

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

 

 

16		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock Muni Intermediate Duration Fund, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	12.66			$	13.01				(2.69	)%		$	13.33			$	12.30
Net Asset Value			14.66				14.93				(1.81	)			15.15				14.66

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			17

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Fund Summary  as of October 31, 2018		BlackRock MuniVest Fund II, Inc.

 

Investment Objective

BlackRock MuniVest Fund II, Inc.’s (MVT) (the “Fund”) investment objective is to provide shareholders with as high a level of current income exempt from U.S. federal income taxes as is consistent with its investment policies and prudent investment management. The Fund seeks to achieve its investment objective by investing at least 80% of its assets in municipal bonds exempt from U.S. federal income taxes (except that the interest may be subject to the U.S. federal alternative minimum tax). The Fund invests, under normal market conditions, at least 75% of its assets in municipal bonds that are rated investment grade or, if unrated, are deemed to be of comparable quality by the investment adviser at the time of investment and invests primarily in long-term municipal bonds with a maturity of more than ten years at the time of investment. The Fund may invest directly in such securities or synthetically through the use of derivatives.

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

Fund Information

 

Symbol on NYSE		MVT
Initial Offering Date		March 29, 1993
Yield on Closing Market Price as of October 31, 2018 ($12.80)(a)		5.95%
Tax Equivalent Yield(b)		10.05%
Current Monthly Distribution per Common Share(c)		$0.0635
Current Annualized Distribution per Common Share(c)		$0.7620
Economic Leverage as of October 31, 2018(d)		40%

 

(a)

Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. Past performance does not guarantee future results.

(b)

Tax equivalent yield assumes the maximum marginal U.S. federal tax rate of 40.8%, which includes the 3.8% Medicare tax. Actual tax rates will vary based on income, exemptions and deductions. Lower taxes will result in lower tax equivalent yields.

(c)

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

(d)

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

Performance

Returns for the six months ended October 31, 2018 were as follows:

 

		Returns Based On
		Market Price				NAV
MVT(a)(b)			(6.34	)%			0.09	%
Lipper General & Insured Municipal Debt Funds (Leveraged)(c)			(3.47	)			(0.13	)

 

(a)

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

(b)

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

(c)

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

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

Past performance is not indicative of future results.

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

Municipal bonds experienced lackluster returns in the past six months, with price weakness outweighing the contribution from income. After trading sideways through the summer months, tax-exempt issues fell sharply in September and October. During this time, investors reacted to commentary from Fed Chairman Jerome Powell indicating that future monetary policy tightening could be more aggressive than the markets had anticipated. Supply and demand factors also had an adverse effect on returns in the latter part of the period, with mutual fund outflows occurring at the same time that a wave of new issuance was hitting the market.

The Fund’s yield curve positioning made the largest contribution to performance. Positions in high-quality, short-dated, pre-refunded bonds performed relatively well and held their value better than long-dated holdings. The latter experienced larger price declines amid a steepening yield curve in which rates on intermediate- and long-term issues rose at a faster pace than those of short-term securities. (Prices and yields move in opposite directions.)

Positions in lower-quality issues continued to benefit results, as investor risk appetites remained robust for much of the reporting period. Holdings in lower-rated investment-grade bonds and high-yield issues outperformed due to the combination of their higher income and stronger price performance. However, these bonds lagged late in the period once investor sentiment began to deteriorate.

At the sector level, positions in tobacco, tax-backed and corporate-related issues all contributed to results. Investments in project finance and development-district debt added value, as well. An allocation to the health care sector was a slight detractor.

The use of leverage, while providing additional income, was a net detractor since it amplified the impact of falling prices.

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

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

 

 

18		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Fund Summary  as of October 31, 2018 (continued)		BlackRock MuniVest Fund II, Inc.

 

Market Price and Net Asset Value Per Share Summary

 

		10/31/18				04/30/18				Change				High				Low
Market Price		$	12.80			$	14.05				(8.90	)%		$	14.25			$	12.77
Net Asset Value			14.36				14.75				(2.64	)			14.88				14.36

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

 

Overview of the Fund’s Total Investments*

 

 

 

FUND SUMMARY			19

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Schedule of Investments  (unaudited) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

20		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			21

---

Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

22		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			23

---

Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

24		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			25

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA)

 

(f)	Variable or floating rate security, which interest rate adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of period end.

(g)	Step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate as of period end.

(h)	When-issued security.

(i)	Represent bonds transferred to a TOB Trust in exchange of cash and residual certificates received by the Fund. These bonds serve as collateral in a secured borrowing. See Note 4 of the Notes to Financial Statements for details.

(j)

All or a portion of security is subject to a recourse agreement. The aggregate maximum potential amount the Fund could ultimately be required to pay under the agreements, which expire between February 15, 2019 to November 15, 2019 is $11,849,809. See Note 4 of the Notes to Financial Statements for details.

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

(l)	During the six months ended October 31, 2018, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate		Shares Held at 04/30/18				Net Activity				Shares Held at 10/31/18				Value at 10/31/18				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, MuniCash, Institutional Class			2,226,571				884,665				3,111,236			$	3,111,547			$	21,981			$	267			$	—

 

(a)

Includes net capital gain distributions, if applicable.

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value/ Unrealized Appreciation (Depreciation)
Short Contracts:
10-Year U.S. Treasury Note			13				12/19/18			$	1,540			$	12,014
Long U.S. Treasury Bond			58				12/19/18				8,011				178,306
5-Year U.S. Treasury Note			23				12/31/18				2,585				11,353
														$	201,673

Derivative Financial Instruments Categorized by Risk Exposure

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

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Assets — Derivative Financial Instruments
Futures contracts
Net unrealized appreciation(a)		$	—			$	—			$	—			$	—			$	201,673			$	—			$	201,673

 

(a)

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

For the six months ended October 31, 2018, the effect of derivative financial instruments in the Statements of Operations was as follows:

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Net Realized Gain (Loss) from:
Futures contracts		$	—			$	—			$	—			$	—			$	242,334			$	—			$	242,334
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		$	—			$	—			$	—			$	—			$	162,091			$	—			$	162,091

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts:
Average notional value of contracts — short		$	16,385,605

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

 

 

26		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniAssets Fund, Inc. (MUA)

 

Fair Value Hierarchy as of Period End

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

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

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments(a)		$	—			$	559,725,457			$	—			$	559,725,457
Short-Term Securities			3,111,547				—				—				3,111,547
		$	3,111,547			$	559,725,457			$	—			$	562,837,004
Derivative Financial Instruments(b)
Assets:
Interest rate contracts		$	201,673			$	—			$	—			$	201,673

 

(a)

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

(b)

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

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, TOB Trust Certificates of $71,659,281 are categorized as Level 2 within the disclosure hierarchy.

During the six months ended October 31, 2018, there were no transfers between levels.

See notes to financial statements.

 

 

SCHEDULES OF INVESTMENTS			27

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Schedule of Investments  (unaudited) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)

 

 

 

28		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			29

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)

 

 

 

30		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)

 

 

 

SCHEDULES OF INVESTMENTS			31

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)

 

 

 

32		2018 BLACKROCK SEMI-ANNUAL REPORT TO SHAREHOLDERS

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Schedule of Investments  (unaudited) (continued) October 31, 2018		BlackRock MuniEnhanced Fund, Inc. (MEN) (Percentages shown are based on Net Assets)