3 Q 1 5 U P D AT E
BLACKROCK MUNICIPAL TARGET
TERM TRUST (BTT)
OCTOBER 2015
manages the maturity of its securities to seek a dollar
weighted effective maturity approximately equal to the
target term trust’s scheduled termination date. Given BTT’s
scheduled termination date of on or about December 31,
2030 and its investment objective, the Trust’s portfolio is
structured to avoid callability, where possible, and its
holdings generally fall around the 15 year part of the yield
curve, currently resulting in a higher duration than a typical
perpetual municipal closed-end fund. BTT has an effective
duration of 9.98 years as of 9/30/2015. The Trust also uses
leverage in seeking to achieve its investment objective,
although the use of leverage creates risks. As of September
30, 2015, the Trust’s portfolio was leveraged 36.64% and
yields 4.71% on market price.
Overview
BlackRock Municipal Target Term Trust (“BTT” or the “Trust”)
is a target term trust that is scheduled to terminate on or
about December 31, 2030, at which time it will distribute
substantially all of its net assets. The Trust’s investment
objectives are to provide current income that is exempt from
regular federal income tax (but which may be subject to the
federal alternative minimum tax in certain circumstances)
and to return $25.00 per common share (the initial public
offering price per common share) to holders of common
shares on or about December 31, 2030. There can be no
assurance that the Trust’s investment objectives, including
to return $25.00 per common share to holders of common
shares on or about December 31, 2030, will be achieved or
that the Trust’s investment program will be successful.
BTT is organized as a closed-end investment management
company and its common shares are listed and traded on
the New York Stock Exchange.
Financial advisors often use the 10 year U.S. Treasury
(“10yr UST”) as a proxy to gauge the movement of interest
rates in the market. While this method is generally accepted,
we believe that using the 10yr UST as a proxy may cause
misperception around investment performance for certain
securities as it does not have a perfect correlation to all
fixed income assets, such as municipal securities maturing
in 2030 or municipal target term trusts like BTT.
The investment universe for a target term trust like BTT is
generally more limited than that of a typical perpetual
municipal closed-end fund, as a target term trust typically
3.1
23.5
2.9
23.0
2.7
22.5
NAV ($)
YIELD (%)
MUNICIPAL YIELDS VS. BTT’S NAV DURING 3Q15
2.5
3/15
4/15
5/15
6/15
7/15
8/15
AAA-Rate 2030 Municipal Bond
22.0
9/15
BTT NAV
Source: BlackRock, Bloomberg and Municipal Market Data (“MMD”). 2030 municipal bond yield is represented by an offering-side AAA-Rated bond as of 9/30/2015 (MMD.15).
Past performance is no guarantee of future results. Current performance may be lower or higher than the performance data quoted.
BTT PERFORMANCE ATTRIBUTION
July
August
Sept.
2030 municipal bond yield
2.91%
2.89%
2.84%
Change from previous month
-0.09%
-0.02%
-0.05%
10yr UST yield month-end
2.20%
2.21%
2.06%
Change from previous month
-0.15%
+0.01%
-0.15%
BTT NAV total return
1.51%
0.13%
1.41%
BTT market price total return
3.01%
-1.35%
0.10%
BTT NAV cumulative total
return since inception
8.90%
BTT market price cumulative
total return since inception
-6.17%
BTT NAV annualized total
return since inception
3.05%
BTT market price annualized
total return since inception
-2.22%
BTT Distribution Yield
(Market Price)
4.71%
BTT Tax Equivalent Yield
(Market Price)
7.80%
The inception date of BTT is August 28, 2012.
Performance is net of fees. Fees include management fee,
leverage costs, administrative and other expenses. Source:
BlackRock, Morningstar as of 9/30/15. Performance data
quoted represents past performance and does not guarantee
future results. Investment return and principal value on an
instrument will fluctuate so that an investor’s shares may
be worth more or less than the original cost. The Trust’s market
price and net asset value will fluctuate with market conditions.
All return data assures reinvestment of all distributions. Current
performance may be lower or higher than the performance data
quoted. For more information, please refer to www.blackrock.
com. Tax Equivalent Yield assumes highest tax bracket (39.6%).
statement that factored in international concerns like never
before, stoking worry over global economic conditions. Fixed
income assets rallied, with particular strength in municipal
bonds, led by longer duration and high yield credits. Munis’
positive performance was further aided by the lightest
September issuance in over a decade. New supply for the month
came in at $18.3 billion, which was 23% below the five-year
average and 31% lower than the 10-year average. Meanwhile,
the demand trend seemed to point to a looming sense of
investor uncertainty, with negative flows turning decidedly
positive after the Fed’s decision, only to resume outflows in
the final week of the month. In all, September was marked by
$1.25 billion in outflows, though flows remain positive year-todate at $5.6 billion. For the year, BTT is up 1.41% on NAV and up
5.03% on market price. BTT’s market price has outpaced its’
NAV as its discount has narrowed from -13.85% at the
beginning of the year to -11.08% by the end of September.
Municipal closed-end funds trade at an average discount of
-8.2%. Discounts remained wide and have been persistent
since the “taper tantrum” in the summer of 2013 as investors
remain reluctant to have exposure to long duration assets that
utilize leverage for fear of future interest rate increases.
Portfolio Details as of 9/30/15
}Top 5 States:1
Texas18.6%
Illinois8.9%
California10.6%
Pennsylvania7.2%
Florida9.6%
}Top 5 Sectors:2
Transportation 20.9%
Corporate Muni’s 8.7%
Health 18.3%
School Districts 7.6%
Local Tax-Backed 9.6%
}Maturity Structure:3
3-6 Years
0.3%
6-8 Years
8-10 Years
10-12 Years
6.0%
12-15 Years
24.3%
1.9%
15-20 Years
62.8%
1.1%
Cash and Derivatives3.6%
}Portfolio Characteristics:
The S&P Municipal Bond Index returned 0.74% in September,
bringing the year-to-date total return to 1.72%. Long and
intermediate maturities led their shorter brethren, and high yield
outpaced the broader market. Munis underperformed the more
dramatic move in U.S. Treasuries. This kept muni to- Treasury
ratios above 100% for maturities of 10 years and longer, making
munis an attractive income proposition before and especially
after tax. September featured heightened volatility, fueled by
the Fed’s decision not to raise interest rates and a dovish
Net Assets
$1.62 billion
Managed
Assets
Effective
Duration
$2.55 billion
Percent
Leveraged36.64%
9.98 years
}Credit Quality:4
Cash and Derivatives 3.6%
BBB Rated
AAA Rated or Above
2.9%
18.9%
BB Rated
4.3%
AA Rated
29.7%
B Rated
1.2%
A Rated
35.7%
Not Rated
3.7%
1 As a percentage of managed assets. 2 As a percentage of managed assets. 3 As a percentage of managed assets. Securities deposited into tender option bond trusts use call and
maturity information for the underlying bonds. Securities that have multiple call dates and/or are continuously callable use a rolling call date. 4 As a percentage of managed assets. Please see
“Important Information about the Trust”.
Portfolio statistics are provided by BlackRock as of 9/30/15, unless otherwise specified. For more information, please refer to www.blackrock.com.
What to Keep in Mind
In evaluating BTT’s share price and NAV performance,
we believe that it’s important to recognize several
factors, including:
}The share prices of CEFs can trade independently from
their NAV on a public stock exchange (e.g., NYSE) and have
historically fluctuated due to, among other factors, supply
and demand dynamics in the market.
}CEF market price discounts to NAV often widen during
times of market volatility and uncertainty.
}The use of leverage within a CEF’s portfolio has the
ability to enhance returns, but also poses downside risk,
including the potential of increased share price and
NAV volatility.
}BTT is managed as a target term trust with an investment
objective to return $25 per common share (the initial
offering price per common share) to common shareholders
on or about December 31, 2030, its scheduled termination
date. There can be no assurance that this investment
objective will be achieved or that the Trust’s investment
program will be successful.
On July 1st 2014, BTT announced a distribution reduction
from $0.093750 per share to $0.080000 per share.
The distribution reduction reflects the Trust’s current and
projected earnings potential when considering BTT’s
investment objective of returning $25 per common share
(the initial public offering price per common share) to
common shareholders at maturity. There can be no
assurance that this investment objective will be achieved
or that the Trust’s investment program will be successful.
As of 8/31/2015 the trust had a 3 month average earned
rate of $0.090976 per share and was paying a distribution
of $0.080000.
BlackRock believes that given BTT’s investment objectives,
the steepness of the municipal yield curve and low short
term rates, that it is prudent to use leverage for BTT. Low
short term rates may provide a CEF with an attractive cost of
financing. Many CEFs, including BTT, pay a spread over the
SIFMA rate that floats on a weekly basis. As of September 30,
2015, the SIFMA rate stood at 2 bps. The use of leverage
involves risk.
WHY BLACKROCK®
BlackRock helps people around the world, as well as the world’s largest institutions and governments, pursue their
investing goals. We offer:
}A comprehensive set of innovative solutions, including mutual funds, separately managed accounts,
alternatives and iShares® ETFs
} Global market and investment insights
} Sophisticated risk and portfolio analytics
We work only for our clients, who have entrusted us with managing $4.5 trillion, earning BlackRock the distinction
of being trusted to manage more money than any other investment firm in the world.*
* Source: BlackRock. Based on $4.5 trillion in AUM as of 9/30/15.
Want to know more?
blackrock.com
Important Information About the Trust: All information and data, including portfolio holdings and performance characteristics, is
as of 9/30/15, unless otherwise noted, and is subject to change.
Closed-end fund shares are not deposits or obligations of, or guaranteed by, any bank and are not insured by the FDIC or any
other agency. Investing involves risk, including possible loss of principal amount invested. This is not a prospectus intended for
use in the purchase or sale of Trust shares. Shares may only be purchased or sold through registered broker/dealers. For more
information regarding any of BlackRock’s closed-end funds, please call BlackRock at 800-882-0052. No assurance can be given
that a fund will achieve its investment objective.
The market value and net asset value (NAV) of a fund’s shares will fluctuate with market conditions. Closed-end funds may trade
at a premium to NAV but often trade at a discount. CEF shares are bought and sold at “market price” determined by competitive
bidding on the stock exchange. Net asset value (NAV) is the value of all fund assets, less liabilities divided by the number of shares
outstanding. Some BlackRock CEFs may utilize leverage to seek to enhance the yield and net asset value of their common stock,
through bank borrowings, issuance of short-term debt securities or shares of preferred stock, or a combination thereof. However,
these objectives cannot be achieved in all interest rate environments. While leverage may result in a higher distribution for the
fund, the use of leverage involves risk, including the potential for higher volatility of the NAV, fluctuations of distributions paid by
the fund and the market price of the fund’s common stock, among others.
Before investing in the Trust’s common shares, you should consider the risks associated with an investment in the Trust carefully. There may be less information available on the financial
condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Municipal obligations are subject to
the risk of non-payment. Many state and municipal issuers are under significant economic and financial stress. A portion of the income received from the Trust may be taxable. Some
investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. The Trust may utilize leveraging to seek to enhance the yield and net asset
value of its common stock, as described in the Trust’s prospectus. These objectives will not necessarily be achieved in all interest rate environments. The use of leverage involves risk,
including the potential for higher volatility and greater declines of the Trust’s net asset value, fluctuations of dividends and other distributions paid by the Trust and the market price of the
Trust’s common stock, among others. The Trust’s limited term may cause it to sell securities when it otherwise would not, which could cause returns to decrease and the market price
or NAV to fall. In addition, the Trust’s limited term may cause it to invest in lower yielding securities or hold cash or cash equivalents which may adversely impact performance. For more
information, please refer to the Trust’s prospectus which can be found on www.sec.gov.
The implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) may result in a reduced availability for certain types of leverage
and/or increase the costs associated with certain types of leverage.
BlackRock receives credit quality ratings on underlying securities of the Trust from the three major reporting agencies - S&P, Moody’s and Fitch. The credit quality breakdown is provided
by BlackRock by taking the median rating of the three agencies when all three agencies rate a security. BlackRock will use the lower of the two ratings if only two agencies rate a
security, and BlackRock will use one rating if that is all that is provided. Securities that are unrated by all three agencies are reflected as such in the breakdown. Below investment-grade
is represented by a rating of BB and Below. BlackRock converts all ratings to the equivalent S&P major rating category for purposes of the category shown. Ratings and portfolio credit
quality may change over time. Unrated securities do not necessarily indicate low quality, unrated securities do not have an assigned credit rating. The Trust itself has not been rated by an
independent rating agency.
Municipal Market Data (MMD) – Thomson Reuters, MMD is the premier source for tax-exempt data and analysis including the industry benchmark yield curves, analytics and in depth
analysis on the municipal and treasury cash and derivatives markets.
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