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What are Municipal Bonds?

Once considered a secondary alternative to Treasuries, municipal bonds are gaining attention for their income, relative stability and diversification benefits. These debt obligations are:

  • Issued by, or on behalf of public projects that enhance our communities, such as schools, hospitals and roads;
  • In effect, making a loan in return for regular interest payments over time; and
  • Exempt from federal, and sometimes state income tax, playing an important role in protecting your investment income.

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Monthly Municipal Commentary

BlackRock's Peter Hayes, James Schwartz & Sean Carney review recent market events and provide insight into their municipal bond investment strategy.

National Municipal Fund

Stock and 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.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

A portion of the income may be taxable. The Funds may use derivatives, such as futures, options, swaps or tender-option bonds, to hedge its investments or to seek to enhance returns. Investing in derivatives entails specific risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility.

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 federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.

Risk is represented by 5-year annualized standard deviation, a statistical measure of the volatility of return.

The Funds have not been rated by an independent rating agency. Credit quality ratings on underlying securities of the funds are received from S&P, Moody’s and Fitch and converted to the equivalent S&P major rating category. This breakdown is provided by BlackRock and takes the median rating of the three agencies when all three agencies rate a security; the lower of the two ratings if only two agencies rate a security and one rating if that is all that is provided. Unrated securities do not necessarily indicate low quality. Below investment-grade is represented by a rating of BB and below. Ratings and portfolio credit quality may change over time.

Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.

Each Muni Series ETF (“Fund”) will terminate on or about August 31 of the year in the Fund’s name. An investment in the Fund(s) is not guaranteed, and an investor may experience losses, including near or at the termination date. In the final months of the Fund’s operation, as the bonds it holds mature, its portfolio will transition to cash and cash-like instruments. Following the Fund’s termination date, the Fund will distribute substantially all of its net assets, after deduction of any liabilities, to then-current investors without further notice and will no longer be listed or traded. The Funds do not seek to return any predetermined amount.

During the final three months prior to the Fund’s planned termination date, its yield will generally tend to move toward prevailing tax-exempt money market rates, and may be lower than the yields of the bonds previously held by the Fund and lower than prevailing yields for bonds in the market. The rate of Fund distribution payments may adversely affect the tax characterization of an investor’s returns from an investment in the Fund relative to a direct investment in municipal bonds. If the amount an investor receives as liquidation proceeds upon the Fund’s termination is higher or lower than the investor’s cost basis, the investor may experience a gain or loss for tax purposes.

Represented indices: General Municipals represented by Barclays Municipal Bond Index. High Yield Bonds represented by the Barclays HY 2% Issuer Capped Index. Investment Grade Debt represented by the Barclays Investment Grade Index. U.S. Treasuries represented by the Barclays 7–10 Year Treasury Index. Emerging Market Debt represented by the Barclays EM Index. High Yield Municipals represented by Barclays Municipal High Yield Index. High Dividend Equities represented by the MSCI USA High Dividend Index. Bank Loans represented by the S&P Leveraged All Loan Index. Preferreds represented by the S&P U.S. Preferreds Stock Index. U.S. REITs represented by the FTSE NAREIT Equity REIT Index. MLPs represented by the Alerian MLP Index. Global Equities represented by the MSCI AC World Index. U.S. Equities represented by the S&P 500 U.S. Index.

The BlackRock funds are actively managed and their characteristics will vary.

1 Ratings are for the share classes cited only; other classes may have different ratings. BlackRock National Municipal (Institutional) was rated against 227 Muni National Long Funds in the last 3 years, 209 in the last 5 years and 171 in the last 10 years. It received 5 stars, 4 stars and 5 stars for the 3-, 5- and 10-year periods, respectively. BlackRock Strategic Municipal Opportunities(Institutional) was rated against 251 Muni National Interm Funds in the last 3 years, 210 in the last 5 years and 153 in the last 10 years. It received 5 stars, 4 stars and 4 stars for the 3-, 5- and 10-year periods, respectively. BlackRock High Yield Municipal (Institutional) was rated against 153 High Yield Muni Funds in the last 3 years and 123 in the last 5 years. It received 4 stars and 4 stars for the 3- and 5-year periods, respectively. BlackRock California Municipal (Institutional) was rated against 138 Muni California Long Funds in the last 3 years, 133 in the last 5 years and 108 in the last 10 years. It received 4 stars, 3 stars and 5 stars for the 3-, 5- and 10-year periods, respectively. BlackRock New Jersey Municipal (Institutional) was rated against 57 Muni New Jersey Funds in the last 3 years, 55 in the last 5 years and 42 in the last 10 years. It received 5 stars, 4 stars and 5 stars for the 3-, 5- and 10-year periods, respectively. BlackRock New York Municipal (Institutional) was rated against 108 Muni New York Long Funds in the last 3 years, 96 in the last 5 years and 89 in the last 10 years. It received 4 stars, 4 stars and 5 stars for the 3-, 5- and 10-year periods, respectively. BlackRock Pennsylvania Municipal (Institutional) was rated against 82 Muni Pennsylvania Funds in the last 3 years, 78 in the last 5 years and 68 in the last 10 years. It received 5 stars, 4 stars and 5 stars for the 3-, 5- and 10-year periods, respectively. Morningstar ratings are determined monthly, based on risk-adjusted total returns and subject to change. The Overall Morningstar Rating is derived from a weighted average of the performance figures associated with 3-, 5- and 10-year (if applicable) Morningstar Rating metrics. 2 Effective 1/27/14, the BlackRock Intermediate Municipal Fund changed its name to the BlackRock Strategic Municipal Opportunities Fund. In addition to its name change, the Fund also changed its investment strategies, portfolio managers and benchmark. 3 Subsidized 30-day SEC yield is based on a 30-day period ending on the last day of the previous month and is computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period. If the fund expenses have waivers, the subsidized yield is based on the net expenses. Unsubsidized 30-day SEC yield is based on total expenses of the fund. Tax-equivalent yield assumes a 43.40% tax rate and is shown for illustrative purposes only. Each individual’s tax burden will vary.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained visiting the iShares ETF and BlackRock Mutual Fund prospectus pages. Read the prospectus carefully before investing.

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